Thread: A note of caution for those with deposits in US Banks

^13, 21 and 24 are probably the most scary. But then you get to 25 and you realise that the game is over.

Going to bed, so no time to post further links to the FED/JPMC arrangements. Up early (yes - Sunday) to deal with another round of crises that are nothing to do with me. Its wonderful how some people create shit and others have to clear it up. The creators always seem to go 'missing'. I wonder why that is?

Since the credit crisis erupted a year ago, the Bush administration has presided over one of the broadest expansions of the government into private lending in U.S. history, risking public money to prop up financial firms both large and small.

The administration has transformed federal agencies into dominant players in such diverse realms as student lending and mortgage finance while exposing itself to trillions of dollars in loans.

The scope of these commitments demonstrates the unprecedented nature of the challenge facing the nation. Not since the Great Depression have so many debt markets been in turmoil at the same time, financial historians say. During the savings and loan crisis of the late 1980s and early 1990s, for example, the financial upheaval was largely contained to banks and thrifts, though the real estate market also felt the impact.

Now, the contagion has rapidly spread from mortgages to bonds and exotic securities, student and corporate lending, credit cards and home equity loans, and residential and commercial real estate. The disruption has buffeted investment and commercial banks, mortgage finance agencies, and insurance firms of different stripes.

"We have a banking crisis and an agency crisis and a mortgage crisis and a coming credit card crisis. We've never seen anything like that before. And it all seems to be coming home to roost at the same time. That's never happened either," said Charles Geisst, professor of finance at Manhattan College. He said the Great Depression was the last time financial markets were hammered by such a variety of factors. "But we did not even have credit cards in the 1930s; there were no such thing as student loans," he added.

The breadth and speed of events have sent federal officials scrambling to plug leaks in the financial system. In the process, the government has bound taxpayers to the fate of a wide variety of banks and borrowers and could ultimately be responsible for losses in the tens of billions of dollars or more, according to estimates by congressional reports and interviews with regulators.

But the government may also end up paying nothing at all, largely because it received collateral in return for backing much of these debts and could recoup some money if borrowers stop making their interest payments. No one knows for sure because much of the government's response involved novel programs designed to contain an unpredictable crisis.

As the credit crisis worsened, Treasury Secretary Henry M. Paulson Jr., a strong proponent of free markets and the architect of much of the administration's response, began to push initiatives that enlarged the government's involvement on Wall Street and in the housing industry.

"What I've said is that I'm playing the hand that was dealt and that my responsibility is to protect the U.S. economy and the American people," Paulson said in an interview.

My bold.

From:

washingtonpost.com

Wachovia starts abandoning its previously prized assets:

Aug. 14 (Bloomberg) -- Wachovia Corp.'s BluePoint Re Ltd. unit, which insures structured finance and municipal transactions, filed for bankruptcy protection, citing defaults on securitized mortgages.

BluePoint filed a petition in Manhattan yesterday, saying it has more than $100 million in debt. The insurer also filed a petition to liquidate in Bermuda, where it is based, on Aug. 7. BluePoint asked the New York court to recognize the Bermuda proceeding and protect it from claims in the U.S., invoking provisions of Chapter 15 of the federal bankruptcy code.

Wachovia, the fourth-biggest U.S. bank, reported a $330 million charge in the second half of 2007 related to BluePoint's losses on credit default swaps on collateralized debt obligations, or CDOs. BluePoint decided to liquidate after failing to negotiate a restructuring with banks including UBS AG that were counterparties to its swaps, according to court papers.

``Against a background of further deterioration in the credit markets, the plan could not be implemented before a further downgrade by the rating agencies,'' John C. McKenna, who was named provisional liquidator of BluePoint by a Bermuda court, said in a statement filed with the New York bankruptcy court.

BluePoint Re, the smallest reinsurer in the bond-insurance industry according to Moody's Investors Service, had its credit rating cut 14 levels to Ca from A2 by the agency yesterday. Moody's had lowered its rating two notches from Aa3 on July 11.

No Bailout

``Disruption in the financial guaranty markets and deterioration in the credit profile of BluePoint Re resulted in negligible new production volume for BluePoint Re'' this year, Moody's said in a statement yesterday.

Last month, Wachovia told BluePoint that it wouldn't provide the money it needed to fund a restructuring and continue in business, according to court papers. Royal Bank of Scotland Group PLC, Deutsche Bank AG and Societe Generale were also counterparties to credit default swaps issued by BluePoint and part of the restructuring attempt, according to court filings.

BluePoint recorded no further losses this year and Wachovia has no obligation to provide money for the unit, the Charlotte, North Carolina-based bank said in an Aug. 11 regulatory filing.

Wachovia will make no additional investment in BluePoint, spokeswoman Christy Phillips Brown said today. ``This action is consistent with our focus on our core businesses and the prudent use of Wachovia's capital.''

Wachovia gained $1.31, or 8.9 percent, to $16.12 at 12:47 p.m. in New York Stock Exchange trading. The shares had declined 61 percent this year through yesterday.

The case is: In re Petition of John C. McKenna, as Provisional Liquidator of BluePoint Re Ltd., 08-13169, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

From:

Bloomberg.com: Worldwide