December 30, 2008

Collapse of the Global Economy

Britain: Financial Crisis Threatens Pensions and Retirement Plans

December 15, 2008

WSWS - A little discussed aspect of the global financial crisis is the devastating impact it is having on pensions. This is particularly acute in Britain. State provision is poor and successive governments have forced workers to rely on occupational pensions, on which half of all British workers depend, private pensions and annuities, and the value of their homes to finance their retirement.

In the last year, the London stock market has fallen by nearly 40 percent and deficits in UK occupational pensions in the top 100 corporations have leapt from £40 billion a year ago to more than £122 billion in October of this year if more realistic estimates of their liabilities are used.

The top 100 companies were trying to pull the wool over the public’s eyes by reporting pension surpluses of £22 billion in September in order to avoid increasing their pension contributions as a result of over-optimistic estimates based on financial sector bond yields. David Robbins, consulting partner at Deloitte, said, “From an audit perspective, using yields on financial bonds [to calculate liabilities] lacks credibility.”

The majority of final salary pension schemes did not have enough assets to cover their pension commitments in October, with 6,468 (84 percent of the total) in deficit and only 1,273 (16 percent) still in surplus. This contrasts with 3,121 in surplus a year ago. Their collective deficit stood at nearly £100 billion, an increase of nearly £20 billion on the month before. At the same time last year, the schemes had a surplus of £84 billion.

These deficits have not arisen just because of the stock market crash. Over the last 25 years, companies have taken pension holidays when the pension funds were in surplus and used the money to fund generous dividend payouts. Successive governments have done nothing to ensure that what was taken out was repaid.

While the Pensions Regulator has written to the trustees of all the UK pension schemes calling on them to be vigilant in these “unprecedented times”, he has not required a change in their valuation. If schemes are in deficit, employers have to make good the shortfall, typically over 10 years. However, the regulator acknowledged that to do so, even 10 years might be impossible under present circumstances.

Companies have sought to limit benefits to cut costs by closing schemes to new members, raising the retirement age and basing retirement income on career average rather than final salary. Even so, fears are now being expressed that they will take even more drastic action by stopping any future accrual for existing members. If, for example, someone whose pension was based on the annual accrual rate of 1/60th and had worked for 20 years, he or she would be entitled to 20/60—a third of their final salary—on retirement. But if a company stopped accrual after 10 years, the pension would be worth only half that amount.

Retirees face a further threat. As pension deficits soar and the economic slump forces companies into bankruptcy, the Pension Protection Fund (PPF), an insurance fund set up by the government to meet the pension bill of insolvent companies, will be wiped out.

The Financial Times reported that the PPF deficit has been updated to £155 billion as at end of November, an increase of £30 billon in one month and three times what it was last year. The companies with the largest deficits include BT, BA and BAe systems, former state owned enterprises which once had pension funds in surplus.

As it is, the PPF is very limited. It only pays out 90 percent of the promised pensions, up to a limit of £28,000, and does not provide indexation on most benefits in line with inflation. It is therefore deemed to cover only 70 percent of the average promised benefit and this is now under threat with the rising tide of corporate insolvencies. Furthermore, rather than increase the levy on corporations, it has the power to refuse to increase compensation payments in line with inflation.

The PPF has already rescued more than 66 schemes since it was set up in 2005. According to John Ralfe, an independent consultant, the 100-year-old high street chain, Woolworths, which recently collapsed, has a pension deficit of £250 million. This could mean that the PPF has to inject at least £100 million into the Woolworths’ pension pot, one of the largest payouts in its three years of existence. Ralfe has estimated that Woolworths’ workers face a cut in their pensions of 20 percent.

Woolworths reported a cumulative pension deficit of £81 million on an accounting basis in August, but is privately conceding that this figure is an underestimate. While this was initially estimated at £100 million, Ralfe believes the true deficit could be as much as £250 million. This is because the pension fund had liabilities of £384 million and assets of only £317 million last February, and these will have fallen considerably as 67 percent were held in shares.

Paul McGlone, an actuary at Aon, explained, “The PPF collects a levy of £675 million a year to fund itself, which means that it only takes another seven Woolworths to eat up those funds”.

The Financial Times revealed that Lehman Brothers, which collapsed in September with a widely reported £100 million pension fund deficit, contributed as little as £100,000 a year to the PPF because it had the highest possible credit score with credit ratings agency Dun & Bradstreet. Some advisors in the industry believe that the cost to the PPF could be as low as £10 million, in which case it is the work force who will bear the loss.

The PPF has refused to increase the levy more than inflation to protect workers’ pensions, despite the increased risk of corporate pension collapses. It announced that the levy for 2009-10 would be £700 million, instead of the maximum £863 million permitted. The government has rejected calls to guarantee the PPF.

More than 18 million workers have no occupational pension. Of these, some seven million have some form of personal pension plan whose funds are invested in the stock market. The commissions charged by the insurance companies always ate up most of the gains, but now these pension plans are almost worthless as a result of the downturn in the markets.

Fully 41 percent, or 11 million workers, have no pension plan at all because their wages are too low to allow them to save.

For years, working people have been told that their home will provide them with a nest egg for the future. Seven million homeowners, one quarter of the total, intend to use the equity in their property to pay for their retirement. The downturn in the property market has already wiped 18 percent of the value of their homes, and this is set to continue for the foreseeable future. They will be unable to sell their homes without incurring a loss, if they can sell them at all.

Many people who bought their homes late in their working life are stuck in debt with a never-ending mortgage. More than two million pensioners have mortgage debt of more than £100,000. The average mortgage debt of pensioners is about £50,000. One debt organisation reported that amongst those seeking advice, the over 60s had bigger liabilities than any other age group. When pensioners become ill, half will need to sell their home to pay for nursing home care.

According to Charlotte Black, Corporate Affairs Director of Brewin Dolphin, the view of property as a gilt edged investment is false: equities gained 470 percent over the last two decades whereas property gained only 270 percent, as of mid October.

The Economist reported that for American and European savers with personal pension plans, it has been a lost decade. Markets have gone through two booms and two busts and bonds and bank deposits have yielded little in the way of interest. Were it not for tax relief they receive, savers in pension plans would have been better off keeping their money under their mattresses.

Pensioners are facing further cuts in their living standards as the income from their meagre savings fall. The Bank of England cut lending rates to 3.5 percent last month and then to 2 percent week. As a result savings rates were slashed, while inflation is running at 4.5 percent a year. By way of contrast, lending rates fell only slightly as banks sought to shore up their profits. Saga, which specialises in savings plans for the elderly, said it would replace its one year fixed rate bond paying 5.75 percent with a one worth 4.75 percent.

Retirees have also seen the value of their pension pot fall as a result of the stock market crash. Annuity rates, which give income for life, are pegged to bonds linked to interest rates—bonds that have fallen to their lowest level in 30 years.

According to research from Lincoln Financial Group, 41 percent of workers in the UK doubt whether they will have enough to live on once they reach pensionable age. More than a third of people expect to work full or part time during their retirement to avoid poverty. Older workers are even more worried. Of those aged 55 or more, one in 10 already plan to work full time during retirement and 47 percent say they will work part time. Some doubt whether they will ever be able to retire.

More than 1.2 million men and women over retirement age are already working today.

Sections of the media are presently engaged in a sustained campaign to denounce the occupational pensions provided for civil servants, health workers, teachers, local authority workers and the police as unaffordable. Estimated by the Treasury at about £650 billion, payable over 50 years, public sector pensions are similar to the average private sector final salary scheme. There are numerous calls for the retirement age for existing members to be increased, ending final salary schemes in favour of average salary schemes to reduce the value of pensions from 21 percent of salary to just 7 percent, and for public sector pensions to be “properly funded”—meaning invested in the stock market.

Millions of people who have been forced by successive governments to rely on the market not the state to provide their pensions will now find themselves dependent upon the meagre state pension they had sought to augment. As it is, more than a third of pensioners live in poverty.

December 28, 2008

Swine Flu and Other Pandemics

Doctors Aid Group Lists Top 10 Humanitarian Crises

December 22, 2008

Reuters - Doctors Without Borders issued a top 10 list of humanitarian crises on Monday that included Congo, Somalia, Iraq and Sudan as well as what it called "neglected medical emergencies" in Myanmar and Zimbabwe. The international medical aid group said its list underscored the difficulties in bringing assistance to people affected by violence, especially highly politicized conflicts such as those in Pakistan, Iraq, Sudan and Somalia.

The eighth country on the list was Ethiopia, where Doctors Without Borders, known by its French acronym MSF, said violence and harsh climactic conditions made living a struggle for people in the Somali region of the country. The other two crises on the list were not in particular countries, but rather cross-border problems.
"The lack of global attention to the growing prevalence of HIV-tuberculosis co-infection and the critical need for increased global efforts to prevent and treat childhood malnutrition, the underlying cause of death for up to five million children per year, are also included," MSF said in a statement about the list, which was not in order of gravity.
The group said its medical teams witnessed firsthand the consequences of violence, displacement and neglected yet treatable diseases and health needs around the world.
"Many of the countries on this year's list illustrate the ever-shrinking space for impartial humanitarian action, making it extremely difficult to deliver aid to those most affected and vulnerable," said MSF International Council President Christophe Fournier.
He said MSF had been forced to curtail its work in Somalia because of direct attacks, and aid workers helping hundreds of thousands of people displaced by air attacks in northwest Pakistan had taken similar steps after threats and attacks.

In Myanmar and Zimbabwe, MSF blamed the governments for failing to provide adequate health care or assist aid workers.
"In Myanmar, where MSF is the main provider of HIV care, hundreds of thousands of people are needlessly dying due to a severe lack of HIV/AIDS treatment while the government does far too little to help its own people," the statement said.
Zimbabwe is battling one of the worst cholera epidemics in its history at a time of political paralysis that Western countries blame on President Robert Mugabe.

December 25, 2008

Timeline of the Great Depression

1920 (Decade)

During World War I, federal spending grows three times larger than tax collections. When the government cuts back spending to balance the budget in 1920, a severe recession results. However, the war economy invested heavily in the manufacturing sector, and the next decade will see an explosion of productivity... although only for certain sectors of the economy.
  • An average of 600 banks fail each year.
  • Organized labor declines throughout the decade. The United Mine Workers Union will see its membership fall from 500,000 in 1920 to 75,000 in 1928. The American Federation of Labor would fall from 5.1 million in 1920 to 3.4 million in 1929.
  • Over the decade, about 1,200 mergers will swallow up more than 6,000 previously independent companies; by 1929, only 200 corporations will control over half of all American industry.
  • By the end of the decade, the bottom 80 percent of all income-earners will be removed from the tax rolls completely. Taxes on the rich will fall throughout the decade.

  • By 1929, the richest 1 percent will own 40 percent of the nation's wealth. The bottom 93 percent will have experienced a 4 percent drop in real disposable per-capita income between 1923 and 1929.
  • Individual worker productivity rises an astonishing 43 percent from 1919 to 1929. But the rewards are being funneled to the top: the number of people reporting half-million dollar incomes grows from 156 to 1,489 between 1920 and 1929, a phenomenal rise compared to other decades. But that is still less than 1 percent of all income-earners.
1922
  • The conservative Supreme Court strikes down federal child labor legislation.
1923
  • President Warren Harding dies in office. Calvin Coolidge, becomes president. Coolidge is no less committed to laissez-faire and a non-interventionist government.

  • Supreme Court nullifies minimum wage for women in District of Columbia.
1924
  • The stock market begins its spectacular rise. Bears little relation to the rest of the economy.
1925
  • The top tax rate is lowered to 25 percent - the lowest top rate in the eight decades since World War I.
1928
  • Between May 1928 and September 1929, the average prices of stocks will rise 40 percent. The boom is largely artificial.
1929
  • Herbert Hoover becomes President.
  • Annual per-capita income is $750. More than half of all Americans are living below a minimum subsistence level.
  • Backlog of business inventories grows three times larger than the year before.
  • Recession begins in August, two months before the stock market crash. During this two month period, production will decline at an annual rate of 20 percent, wholesale prices at 7.5 percent, and personal income at 5 percent.
  • Stock market crash begins October 24. Investors call October 29 Black Tuesday. Losses for the month will total $16 billion, an astronomical sum in those days.
1930
  • By February, the Federal Reserve has cut the prime interest rate from 6 to 4 percent. Treasury Secretary Andrew Mellon announces that the Fed will stand by as the market works itself out: 'Liquidate labor, liquidate real estate... values will be adjusted, and enterprising people will pick up the wreck from less-competent people'.
  • The Smoot-Hawley Tariff passes on June 17. With imports forming only 6 percent of the GNP, the 40 percent tariffs work out to an effective tax of only 2.4 percent per citizen. Even this is compensated for by the fact that American businesses are no longer investing in Europe, but keeping their money stateside. The consensus of modern economists is that the tariff made only a minor contribution to the Great Depression in the U.S., but a major one in Europe.
  • Supreme Court rules that the monopoly U.S. Steel does not violate anti-trust laws as long as competition exists, no matter how negligible.
  • The GNP falls 9.4 percent from the year before. The unemployment rate climbs from 3.2 to 8.7 percent.
1931
  • No major legislation is passed addressing the Depression.
  • The GNP falls another 8.5 percent; unemployment rises to 15.9 percent.
1932
  • This and the next year are the worst years of the Great Depression. For 1932, GNP falls a record 13.4 percent; unemployment rises to 23.6 percent.
  • Industrial stocks have lost 80 percent of their value since 1930.
  • 10,000 banks have failed since 1929, or 40 percent of the 1929 total.
  • GNP has also fallen 31 percent since 1929.
  • Over 13 million Americans have lost their jobs since 1929.
  • International trade has fallen by two-thirds since 1929.
  • Congress passes the Federal Home Loan Bank Act and the Glass-Steagall Act of 1932.
  • Top tax rate is raised from 25 to 63 percent.
  • Popular opinion considers Hoover's measures too little too late. Franklin Roosevelt easily defeats Hoover in the fall election. Democrats win control of Congress.
1933
  • Roosevelt inaugurated; begins 'First 100 Days'; of intensive legislative activity.
  • A third banking panic occurs in March. Roosevelt declares a Bank Holiday; closes financial institutions to stop a run on banks.
  • Alarmed by Roosevelt's plan to redistribute wealth from the rich to the poor, a group of millionaire businessmen, led by the Du Pont and J.P. Morgan empires, plans to overthrow Roosevelt with a military coup and install a fascist government modelled after Mussolini's regime in Italy. The businessmen try to recruit General Smedley Butler, promising him an army of 500,000, unlimited financial backing and generous media spin control. The plot is foiled when Butler reports it to Congress.
  • Congress authorizes creation of the Agricultural Adjustment Administration, the Civilian Conservation Corps, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the Federal Emergency Relief Administration, the National Recovery Administration, the Public Works Administration and the Tennessee Valley Authority.
  • Congress passes the Emergency Banking Bill, the Glass-Steagall Act of 1933, the Farm Credit Act, the National Industrial Recovery Act and the Truth-in-Securities Act.

  • Roosevelt does much to redistribute wealth from the rich to the poor, but is concerned with a balanced budget. He later rejects Keynes' advice to begin heavy deficit spending.
  • The free fall of the GNP is significantly slowed; it dips only 2.1 percent this year. Unemployment rises slightly, to 24.9 percent.
1934
  • Congress authorizes creation of the Federal Communications Commission, the National Mediation Board and the Securities and Exchange Commission.
  • The economy turns around: GNP rises 7.7 percent, and unemployment falls to 21.7 percent. A long road to recovery begins.
  • Sweden becomes the first nation to recover fully from the Great Depression. It has followed a policy of Keynesian deficit spending.
1935
  • The Supreme Court declares the National Recovery Administration to be unconstitutional.
  • Congress authorizes creation of the Works Progress Administration, the National Labor Relations Board and the Rural Electrification Administration.
  • Congress passes the Banking Act of 1935, the Emergency Relief Appropriation Act, the National Labor Relations Act, and the Social Security Act.
  • Economic recovery continues: the GNP grows another 8.1 percent, and unemployment falls to 20.1 percent.
1936
  • Top tax rate raised to 79 percent.
  • Economic recovery continues: GNP grows a record 14.1 percent; unemployment falls to 16.9 percent.
1937
  • The Supreme Court declares the National Labor Relations Board to be unconstitutional.
  • Roosevelt seeks to enlarge and therefore liberalize the Supreme Court. This attempt not only fails, but outrages the public.

  • Economists attribute economic growth so far to heavy government spending that is somewhat deficit. Roosevelt, however, fears an unbalanced budget and cuts spending for 1937. That summer, the nation plunges into another recession. Despite this, the yearly GNP rises 5.0 percent, and unemployment falls to 14.3 percent.
1938
  • No major New Deal legislation is passed after this date, due to Roosevelt's weakened political power.
  • The year-long recession makes itself felt: the GNP falls 4.5 percent, and unemployment rises to 19.0 percent.
1939
  • The United States will begin emerging from the Depression as it borrows and spends $1 billion to build its armed forces. From 1939 to 1941, when the Japanese attack Pearl Harbor, U.S. manufacturing will have shot up a phenomenal 50 percent!
  • The Depression is ending worldwide as nations prepare for the coming hostilities.
      Roosevelt began relatively modest deficit spending that arrested the slide of the economy and resulted in some astonishing growth numbers. (Roosevelt's average growth of 5.2 percent during the Great Depression is even higher than Reagan's 3.7 percent growth during his so-called 'Seven Fat Years!') When 1936 saw a phenomenal record of 14 percent growth, Roosevelt eased back on the deficit spending, worried about balancing the budget. But this only caused the economy to slip back into a recession in 1938.
  • World War II starts with Hitler's invasion of Poland.
1945
  • Although the war is the largest tragedy in human history, the United States emerges as the world's only economic superpower. Deficit spending has resulted in a national debt 123 percent the size of the GDP. By contrast, in 1994, the $4.7 trillion national debt will be only 70 percent of the GDP!
  • The top tax rate is 91 percent. It will stay at least 88 percent until 1963, when it is lowered to 70 percent. During this time, America will experience the greatest economic boom it had ever known until that time.
The above timeline has been complied by Steve Kangas from the Resurgence Magazine.

See also cycle of past depressions.

November 30, 2008

Bailout Helping Big Banks Buy Other Banks and Other Real Assets Cheap

Just the Early Stages of Economic and Financial Collapse

January 21, 2009

The International Forecaster - We get the question: Why was Lehman Brothers allowed to go under? This was a seminal event in U.S. and global finance. It had to be done to take the system down even though Lehman’s owners were ultimate insiders. Why do you think you do not hear a peep out of Wall Street? It is because the key people in the key firms are in on it and taking orders - that is why. In the blink of an eye trillions of dollars were lost.

That amount of money is meaningless when you own the system. You can just create more. It is the power to create and control money and credit that always wins the day. The loss of confidence and trust now worldwide was deliberate. It allowed central banks and governments to totally control their fiscal and monetary systems. Essentially there was no one left to do so. Within the financial community those who understand what is happening dare not say a word or they’ll lose their companies or their lives...

Geithner “Involved in Just About Every Flawed Bailout” of the Bush Era

January 21, 2009

New York Times - Timothy F. Geithner, President Obama’s nominee to be Treasury secretary, testified before the Senate Finance Committee at his confirmation hearing on Wednesday. As president of the New York Federal Reserve since 2003, Mr. Geithner has been a central player in building the vast bailout plans that the government has extended to Wall Street firms and other troubled financial institutions, such as the giant insurer American International Group. After his nomination, it was disclosed that Mr. Geithner failed to pay more than $34,000 in taxes for Social Security and Medicare when he was a senior official at the International Monetary Fund from 2001 to 2003, including a small payment in 2004 after he left...

Credit Crunch? What Credit Crunch?

December 11, 2008

Reuters - The credit crunch is not nearly as severe as the U.S. authorities appear to believe, and public data actually suggest world credit markets are functioning remarkably well, a report released on December 11, 2008, says.

Governments are pumping masses of public money into the economy across the world because of the difficulties of a few big, vocal banks and industries such as car manufacturing, which would be in difficulty anyway, according to the report published by Celent, a financial services consultancy.
“It’s just stabbing in the dark with trillions of dollars,” Octavio Marenzi, report author and head of Celent, told Reuters in a telephone interview where he questioned the depth of the analysis that preceded numerous fiscal stimulus packages.
The report, much of which is based on U.S. Federal Reserve data, challenges a long list of assumptions one by one, arguing that there is indeed a financial crisis but that, on aggregate, the problems of a few are by no means those of the many when it comes to obtaining credit.
“It is startling that many of (Federal Reserve) Chairman (Ben) Bernanke and (Treasury) Secretary (Henry) Paulson’s remarks are not supported or are flatly contradicted by the data provided by the very organizations they lead,” said the report...

Obama Team Weighs Government-Run Bank to Ease Crisis

January 18, 2009

Reuters – The incoming Obama administration is considering ways of using government capital to acquire bad assets and unclog the financial system, people familiar with the Obama team's thinking said on Saturday.

The U.S. Federal Reserve, Treasury and Federal Deposit Insurance Corp, a bank regulator, have been in talks about ways to ease a banking crisis that is again deepening -- and a government-run "aggregator bank" is among the options.

Outgoing Treasury Secretary Henry Paulson and FDIC Chairman Sheila Bair said on Friday a government bank to round up bad assets was one of a number of ideas U.S. regulators had been discussing to restore confidence in U.S. banks...

Proposed Aggregator Bank is a Trojan Horse for the New “United States Bank”

Over 8 in 10 Corporations have Tax Havens

January 17, 2009

AP - Eighty-three of the nation's 100 largest corporations, including Citigroup, Bank of America and News Corp., had subsidiaries in offshore tax havens in 2007, and some of the companies received federal bailout funding, a government watchdog said Friday.

The Government Accountability Office released a report that said Bank of America Inc., Citigroup Inc. and Morgan Stanley all had more than 100 units in countries that maintain low or no taxes. The three financial institutions were included in the $700 billion financial bailout approved by Congress.

Insurance giant American International Group Inc., which has received about $150 billion in bailout money, had 18 subsidiaries. JPMorgan Chase & Co. had 50 units and Wells Fargo & Co. had 18; both financial institutions received government bailout money...

Stimulus Plan Repeals Big Tax Break for Banks

January 17, 2009

AP - House Democrats' version of the $825 billion recession rescue package would end billions of dollars in tax breaks the Bush administration quietly gave to banks last fall. Already almost exclusive beneficiaries of a $700 billion Wall Street bailout, banks are largely left out of the House stimulus package that President-elect Barack Obama wants passed quickly through Congress. Those getting financial bailout money wouldn't even be eligible for one of the main business tax breaks aimed at priming the economic pump.

Homebuilders, manufacturers, retailers and low-income families share the bulk of the $275 billion in proposed new tax cuts...

Bank of America Gets Big Government Bailout

Bank of America Corp. was "rescued" January 16, 2009, by the U.S. government (taxpayers) through a $20 billion bailout (handout) and a guarantee for almost $100 billion of potential losses on toxic assets to cushion the blow from a deteriorating balance sheet at Merrill Lynch & Co., its recently acquired brokerage. The bailout (free money at taxpayers' expense) makes Bank of America the biggest recipient of taxpayer money next to Citigroup as the government pours cash into the nation's banks (so that they can buy other assets for pennies on the dollar to further consolidate wealth into the hands of the elite). The capital (handout) is on top of $25 billion (handout) that Bank of America previously got from the Treasury Department's Troubled Asset Relief Program (TARP) in October.

January 16, 2009

Reuters – The U.S. government extended $20 billion of new aid to Bank of America Corp hours before both the largest U.S. bank, and the country's third largest, Citigroup, reported multibillion-dollar losses from the ongoing global credit crisis.

Bank of America posted its first quarterly loss in 17 years on the heels of the government's midnight announcement that it would help the bank absorb its January 1 purchase of troubled brokerage Merrill Lynch & Co.

The U.S. Treasury will provide the new aid in exchange for preferred stock, and along with the Federal Reserve and Federal Deposit Insurance Corp, agreed to limit Bank of America's potential losses on $118 billion in tainted assets. Also scrambling to survive huge new losses triggered by the credit crunch was Citigroup, which unveiled plans to split in two and shed troubled assets.

U.S. Treasury Secretary Henry Paulson, on his last full day in office, said a substantial portion of the second half of the government's $700 billion financial rescue fund should be reserved for bank capital programs.Top U.S. policy-makers said they are discussing setting up a government bank that would use federal funds to buy troubled assets from financial institutions to try to stem the crisis. Paulson and FDIC Chairman Sheila Bair both said an "aggregator bank" was one of several ideas U.S. regulators had discussed.

The Treasury said it will lend Chrysler LLC's finance arm $1.5 billion to help it make new car loans as part of a broader program to revive the U.S. auto industry. The Treasury earlier extended a $4 billion loan to Chrysler for its automotive operations and had granted $13.4 billion in operating loans to General Motors Corp...

Video: Has Bank Bailout Gone Too Far?

Obama Scores Win as Senate Grants Final $350 Billion of Bailout

January 15, 2009

New York Times - In a solid win for the Obama administration before it even takes office, the Senate on Thursday easily voted down a measure that would have withheld the remaining half of the $700 billion bailout fund. The chamber voted down the resolution of disapproval (S J Res 5) by a vote of 42-52 after a week of intense lobbying by the Obama team as it begins addressing the nation's financial troubles.

Next up is economic stimulus legislation that is expected to be worth more than $800 billion and will challenge the administration's ability to win crucial votes in Congress.
"This was a test of leadership at a time when leadership was desperately needed in our country," said Senate Majority Leader Harry Reid, D-Nev.
But the outcome remained in doubt until early Thursday afternoon. Just a few hours before senators cast their votes, leaders on both sides of the aisle received a letter from Obama providing more details about the conditions he proposes to attach to the remaining $350 billion of bailout money. The Republican caucus requested that information during a meeting with Obama advisers Wednesday night.

Several senators credited other parts of the letter with tipping the scales for the vote. Obama also proposed directing a minimum of $50 billion toward foreclosure mitigation, increased transparency in the financial system and stronger reporting requirements for firms receiving bailout funds. The letter, signed by Lawrence H. Summers, Obama's top economic adviser, also placed the new president in the position to approve any transaction proposed by the Treasury Department.
"[Obama] has to sign off on it," said Iowa Democrat Tom Harkin, who voted against the resolution. "We know where the buck stops."
Obama representatives spent the last week lobbying hard for the release of the next $350 billion from the unpopular Troubled Asset Relief Program (TARP) created last October (PL 110-343). But as of Wednesday night, Republicans were still searching for guarantees that the money would not go to industries outside the financial sector. The letter said the administration intends to use TARP funds only to aid financial institutions. Automakers would receive more funds only to guarantee long-term viability...
Senate Allows Release of Remaining Financial Bailout Funds

Republican senators have questioned the need to release the second half of the TARP money, citing the lack of a pressing crisis. Democrats cited reports that Bank of America and Citigroup are in need of billions more in TARP funds as a way to refute those claims...

Citigroup, Morgan Stanley to Merge Brokerages

January 13, 2009

Reuters - Citigroup Inc agreed to merge its Smith Barney brokerage with Morgan Stanley's wealth management unit, a big step in the possible dismantling of what was once the world's largest bank. The joint venture will create the largest U.S. brokerage, known as Morgan Stanley Smith Barney, with more than 20,000 brokers and $1.7 trillion in client assets. The brokerage force will surpass Bank of America Corp., which bought former No. 1 Merrill Lynch on January 1.

Morgan Stanley will pay Citigroup $2.7 billion in cash for an initial 51 percent stake in the venture that could increase to 100 percent after five years, the companies said on Tuesday.

Citigroup, meanwhile, is expected to shed "non-core" businesses and may announce plans on January 22, a person familiar with the matter said, the same day it is expected to post a big fourth-quarter loss...

Morgan Stanley Could Pay $2-3 Billion for Smith Barney

Janunary 11, 2009

Reuters - Morgan Stanley could pay $2 billion to $3 billion or more for a controlling stake in Citigroup Inc.'s Smith Barney retail brokerage business, two people familiar with the matter said. The cash would be a big boon for Citigroup, which is under tremendous pressure from the U.S. government to shore up its balance sheet after taking $45 billion of government capital in October and November, they said. The bank is considering multiple options in addition to the Morgan Stanley deal...

Officials: Tracking Bailout Money is Difficult

December 31, 2008

AP – Government officials overseeing a $700 billion bailout have acknowledged difficulties tracking the money and assessing the program's effectiveness. The information was contained in a document, released Wednesday, of a Dec. 10 meeting of the Financial Stability Oversight Board. The panel, headed by Federal Reserve Chairman Ben Bernanke, includes Treasury Secretary Henry Paulson and Securities and Exchange Commission chief Christopher Cox.

While offering no details, the document also mentioned that officials at that meeting discussed "potential methods" of using the bailout program to help curb home foreclosures and ease problems in the housing market. More broadly, the officials discussed "the difficulty of isolating the effects" of the bailout program "given the variety of policy actions taken by the U.S. government to support financial stability and promote economic growth."

The officials also noted the "difficulties associated with monitoring the use of specific funds" provided to individual financial institutions, according to the document...

Follow the Money? Treasury Doesn’t Wanna

December 10, 2008

ProPublica - The Treasury Department has invested about $197 billion of the bailout money. About $49 billion more should soon be out the door (see our running tally here). Are banks boosting lending? Are they hording it? Are they using it to gobble up smaller banks?

Who knows. The Treasury Department certainly doesn’t have much of an idea about how that money’s being spent. The reason, as both the Government Accountability Office and a new report (PDF) today from the congressional oversight panel point out, is because Treasury isn’t tracking it. And it remains unclear whether Treasury thinks it ought to...

GMAC Gets $5 Billion From Treasury to Help Revive Auto Lending

December 29, 2008

Bloomberg - The U.S. Treasury said it will purchase a $5 billion stake in GMAC LLC, the financing arm of General Motors Corp. The Treasury will purchase a $5 billion stake in GMAC and lend $1 billion to GM so the automaker can contribute to the lender’s reorganization as a bank holding company, according to a statement issued yesterday. The loan is in addition to $13.4 billion the Treasury agreed earlier this month to lend to GM and Chrysler LLC...

Fed Grants GMAC's Request to Become Bank Holding Company

December 24, 2008

AP - The Federal Reserve gave an early Christmas present to General Motors' finance arm, allowing the ailing provider of auto loans to qualify for the government's $700 billion rescue fund.

The Fed announced late Wednesday that it had approved GMAC Financial Services' request to become a bank holding company. That designation makes GMAC eligible to receive a portion of the bailout fund and get emergency loans directly from the Fed. The plan also significantly reduces the ownership stakes of GM and Cerberus Capital Management LP, in GMAC.

Analysts had speculated that without financial help, GMAC would have had to file for bankruptcy protection or shut down, dealing a serious blow to GM's own chances for survival. The Fed cited "emergency conditions" in justifying its decision.

Before the Fed's decision, GMAC was facing a crucial deadline Friday to complete a deal with its bondholders that would allow it to exchange debt for equity. GMAC was struggling to convince investors to provide the capital that it desperately needed to win approval to become a bank holding company. The U.S. central bank acted before the debt deal deadline, which GMAC says still stands and will expire on Friday.

The Fed's move to provide government aid to one of the nation's biggest suppliers of auto loans was just the latest extension of the federal bailout program, initially designed to shore up ailing banks. As the credit crisis kept ballooning, the program expanded to include insurers, credit card companies, and the automakers themselves. Just last week, President George W. Bush ordered an emergency bailout of the industry, offering $17.4 billion in rescue loans, and citing imminent danger to the national economy.
"To make the auto package complete, they had to do something with the financing," said David Cole, chairman of the Center for Automotive Research. "It's really tied to the whole survival of the industry..."

Federal Reserve Approves CIT Group as Bank Holding Company

December 23, 3008

Xinhua - The Federal Reserve said Monday it has approved commercial financial services firm CIT Group as a bank holding company. "In light of the unusual and exigent circumstances affecting the financial markets, and all other facts and circumstances, the (Federal Reserve) Board has determined that emergency conditions exist that justify expeditious action on this proposal," the U.S. central bank said in a statement.

CIT, with total consolidated assets of approximately 80.8 billion dollars, provides a variety of commercial financing and leasing products and services. The Fed's decision will allow the New York-based company to have permanent access to the central bank's emergency loan window.

Goldman Sachs and Morgan Stanley Have Become Bank Holding Companies

Both Goldman and Morgan, financial institutions owned by the global elite, are reporting record losses for the fourth quarter of 2008; however, both companies were able to post a full-year profit thanks to earnings in each of the prior quarters. Despite posting profits for the first three quarters, the companies received $10 billion each from the government's Troubled Asset Relief Program (Morgan Stanley is a spinoff of JPMorgan, which received $25 billion in TARP money). They were made bank holding companies on September 22, 2008, just in time to be eligible for TARP money. 

As bank holding companies, they have additional access to the federal taxpayers' $700 billion rescue plan, which will allow them to borrow at the Federal Reserve's discount window and make it easier for them to get sources of funding. Translation: These corporate behemoths that were chiefly responsible for the mess, which now threatens to plunge the globe into what even President George Bush openly speculates could be a calamity equaling, perhaps exceeding, the Great Depression, got their bills paid through tax-funded, government bail-outs.

Goldman and Morgan are bullion banks, the Gold Cartel’s hit men, trading the gold market from the short side and bombing the market in coordinated anti-trust fashion at the beck and call of our government, making a great deal of money in the process … as you have all witnessed the past couple of months.
Note that Treasury Secretary Henry Paulson is former CEO of Goldman Sachs.

December 17, 2008

Dow Jones Newswires - Morgan Stanley said Wednesday it lost $2.37 billion during its fiscal fourth quarter as it took a range of losses on assets amid one of the roughest quarters for investment banks. The New York-based firm, which is aggressively building on its new status as a bank holding company, lost $2.34 per share for the quarter ended Nov. 30. It lost $3.61 billion, or $3.61 per share, during the year-ago period when it took a $9.4 billion write-down on mortgage-related assets as the housing crisis began to spiral downward.

Analysts polled by Thomson Reuters, on average, forecast a loss of 34 cents per share. Analysts have been slashing their estimates for the past several weeks amid the ongoing market turmoil. Only a month ago, they were estimating Morgan Stanley would earn 30 cents per share. Over the past year amid the tumult, analyst estimates have often varied wildly from actual results because of uncertainty surrounding banks' holdings and the value of some illiquid assets.

Shares of Morgan Stanley fell $1.07, or 6.6 percent, to $15.06 in late morning trading. Morgan Stanley took a wide range of charges and losses during the quarter as the value of many assets held by banks plummeted amid the ongoing turmoil. Its fixed income division reported losses of just $1.2 billion during the quarter, compared with losses of $7.9 billion last year. The most recent quarter's loss was smaller because mortgage-related losses shrunk and commodities trading revenue increased with growing volatility in the sector.

Morgan Stanley took an additional $1.1 billion in other sales and trading losses tied to acquisition financing and write-downs on securities held by subsidiary banks. Another $1.8 billion was lost on investments in real estate funds, principal investments and investments tied to benefits for employee deferred compensation.

Morgan Stanley's quarterly loss comes just a day after competitor Goldman Sachs Group Inc. reported its first quarterly loss since it went public in 1999. Goldman lost a wider-than-expected $2.29 billion, or $4.97 per share. Like Goldman, though, Morgan Stanley was able to post a full-year profit thanks to earnings in each of the three prior quarters. Morgan Stanley earned $1.59 billion, or $1.45 per share, during fiscal 2008.

The pair's fourth-quarter losses came during a period when the investment banking sector nearly collapsed in September as Lehman Brothers Holdings Inc. filed for bankruptcy protection and Merrill Lynch & Co. sold itself, leaving only Morgan Stanley and Goldman as independent firms.

Both Morgan Stanley and Goldman quickly gained approval to (September 22, 2008) become bank holding companies in an effort to remain independent.

"The rate of change in the global financial system is extraordinary. Now the last of the Wall Street investment banking heavyweights, Goldman Sachs and Morgan Stanley, are about to flee the shadow banking system (and become retail banks). The Federal Reserve Board last night approved applications from the two remaining Wall Street investment banks to become bank holding companies. Their decision to seek refuge within the traditional banking system follows the forced merger of Bear Stearns into JPMorgan Chase, the collapse of Lehman Brothers and the proposed takeover of Merrill Lynch by Bank of America. The change in status will bring the two investment banks least-ravaged by the credit crisis within the supervisory orbit of the Federal Reserve Board and give them permanent access to the Fed’s discount window and the liquidity it provides. It would also enable them to attract retail deposits and reduce the volatility and risk associated with their reliance on markets for funding." - Stephen Bartholomeusz, 'The End of Shadow Banking', Business Spectator, September 22, 2008

M. Stanley Buys $217 Million Stake in Vietnam's State Oil Firm (December 2007)
JP Morgan Earmarks $750 Million for Asia Private Equity (February 2008)
Goldman Sachs Runs the U.S. Economy (September 2008)
Fed Makes Goldman Sachs and Morgan Stanley Bank Holding Companies (September 22, 2008)
Hong Kong Appoints Morgan Stanley Asia Chief to Crisis Group (October 2008
Morgan Stanley Puts $37.5 Million in First India Private Equity Deal (December 2008)
Goldman, M.Stanley, Bain to Buy into China Film Firm (December 2008)
Goldman Sachs' Link to the Fed, Treasury, Bank of England

Paulson Debt Plan May Benefit Mostly Goldman and Morgan

September 23, 2008

Bloomberg - Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries of the $700 billion U.S. plan to buy assets from financial companies while many banks see limited aid, according to Bank of America Corp.

"Its benefits, in its current form, will be largely limited to investment banks and other banks that have aggressively written down the value of their holdings and have already recognized the attendant capital impairment," Jeffrey Rosenberg, Bank of America's head of credit strategy research, wrote in a report dated yesterday, without identifying particular banks.

FDIC Rules Will Ban New Banks

December 17, 2008

Atlanta Business Chronicle - The Federal Deposit Insurance Corp. may be implementing what is effectively a ban on new banks in metro Atlanta and other distressed areas nationwide, as the financial industry’s and broader economy’s deterioration accelerates.

The FDIC, the nation’s bank deposit guarantor, has increased scrutiny of new banks applying for deposit insurance in select areas of the Southeast and other regions, including Western states, industry insiders said. The new reviews, insiders said, make approval difficult in practice, if not impossible.
“It is a de facto ban,” said Stephen Johnson, CEO of Alpharetta-based consultant T. Stephen Johnson & Associates Inc. “I’ve never seen a time this difficult to get a charter.”
Johnson is a longtime bank organizer and consultant in Atlanta, raising $500 million for various bank investments during his two-decade career.

Spurring the new rules are worsening industry performance and an increasing skepticism that new banks can succeed in the same places where others have failed this year, those familiar with the process said.

However, Mark Schmidt, the FDIC’s Atlanta regional director, adamantly denied that a ban, either formal or informal, is in place. He said the FDIC is continuing to review new bank applications, and expects some to receive approval. Schmidt did acknowledge deposit insurance approval is harder to get, and the FDIC is becoming more discriminating in who it approves nationwide, including in metro Atlanta...

Goldman Says Its Investment in China Will Accelerate

December 12, 2008

Reuters - Goldman Sachs will accelerate investment in China as opposition to foreign investment eases and the need for funding rises, an executive said. Kevin Zhang, a managing director for Goldman Sachs (Asia), said he was focusing on opportunities in China's growing consumer sector as well as renewable energy.
"We will continue to accelerate our pace of investment in China," Mr Zhang told reporters. "In the 15 years that I have been with Goldman, this is possibly the best investment environment I have seen," he said.
The executive did not provide any value for Goldman's planned investments.

Mr Zhang was speaking on the sidelines of an event marking a near $US100 million joint investment by Goldman and China's CDH Ventures in Himin Solar Energy Group, the country's top maker of solar water heaters...

Earlier this year, US buyout giant Carlyle Group finally walked away from three years of negotiations to buy Xugong, the country's top construction equipment maker, after running into bureaucratic obstacles. The Xugong deal was seen as strategically sensitive by some Chinese officials and businessmen.

Bank of America Takeover of Merrill Lynch Approved

December 5, 2008

Reuters - Shareholders approved Bank of America Corp's takeover of Merrill Lynch & Co, a transaction fraught with risk but one that will create a banking giant with a leading position in almost every major area of the financial system.

Bank of America will surpass JPMorgan Chase & Co and Citigroup Inc as the largest US bank, with $2.7 trillion of assets. Its brokerage, credit card, investment banking, mortgage and wealth management operations, plus its deposit base, will be the nation's largest or close to it.

The all-stock purchase valued Merrill on Thursday at $19.7 billion, down from an original $50 billion on Sept. 15 because shares of Charlotte, North Carolina-based Bank of America have slid. Shareholders of both companies had to approve the transaction, which is expected to close this month...

The takeover ends 94 years of independence for Merrill, in a year when Wall Street's top investment banks all met their demise or changed their stripes. Bear Stearns Cos was acquired by JPMorgan, Lehman Brothers Holdings Inc filed for bankruptcy, and Goldman Sachs Group Inc and Morgan Stanley converted into bank holding companies...

Rothschild Investment Banking Posts Record Results

November 21, 2008

Seeking Alpha - The inability of the current investment banking model to withstand the ongoing liquidity crisis has forced many investment bankers out of business or those few that have survived to get by on reduced or no bonuses this year. However, as lenders globally continue to write off and provision for a significant volume of soured loans, U.K.’s Rothschild group, one of the world’s leading investment banking organizations, has posted record results. The bank has been able to maintain its very strong performance again this year, despite the credit crunch, economic slowdown and the threat of a U.S. recession, with investment banking and corporate banking businesses both producing record revenues.

The bank, according to Timesonline -- reported a 31%, 459 million euro, improvement in profits. In addition, record results from the organization’s advisory and private banking operations enabled the bank to pay record bonuses to its 2,700 people in June.

The bank’s chairman David de Rothschild, following unconventional investment banking strategies, has steered his organization clear of proprietary trading, prime broking and other activities that have devastated rivals as a result of an environment where asset prices keep falling while liabilities remain fixed. The bank however, still wrote off 96 million euro because of souring loans. At some point, considering the global financial system is galloping off a cliff - today’s difficulties in investment banking will prompt an overhaul of the system favoring those players that have shown themselves to be the most cautious during this cycle.

Alongside its pro-forma group-wide results, Rothschild also unveiled that it had entered into a co-operation agreement in the field of M&A and Equity Capital Markets advisory in the food and agriculture sectors on a global basis with Netherlands’ Rabobank, a premier global financial institution providing financing and other services to food and agri business clients around the world.

As part of the deal, notes Timesonline, Rabobank is buying a 7.5% stake in one of the key holding companies in the Rothschild empire, Rothschild Continuation Holdings, which owns the N M Rothschild business in the U.K.

Rabobank becomes the second biggest investor outside the Rothschild family after the trading group Jardine Matheson, which owns 20%. This is Rothschild’s second joint venture with a Dutch bank.

Rothschild advisory clients include Rio Tinto (RTP), which is fighting a hostile bid from BHP, Billiton (BHP), and British Energy in its deal with France’s power giant EDF, a deal that gives the French company a dominant role in the British nuclear industry.

Bank of America Buys Additional Stake in China Construction Bank Corp.

November 18, 2008

Alibaba - Dow Jones reported that Bank of America Corp. bought an additional 8.4 percent stake in China Construction Bank Corp. for $7 billion, so it now holds 19.13 percent of China Construction Bank with an intent to exercise an option to buy more shares in the bank.

Bank of America Buys Stake in China Construction Bank Corp. (June 2005)

Bailout Helping Bankers Buy Banks and Other Real Assets Cheap

November 15, 2008

Global Research - The financial crisis is deepening, with the risk of seriously disrupting the system of international payments. This crisis is far more serious than the Great Depression. All major sectors of the global economy are affected. Recent reports suggest that the system of Letters of Credit as well as international shipping, which constitute the lifeline of the international trading system, are potentially in jeopardy.

The proposed bank "bailout" under the so-called Troubled Asset Relief Program (TARP) is not a "solution" to the crisis but the "cause" of further collapse.

The "bailout" contributes to a further process of destabilization of the financial architecture. It transfers large amounts of public money, at taxpayers expense, into the hands of private financiers. It leads to a spiraling public debt and an unprecedented centralization of banking power. Moreover, the bailout money is used by the financial giants to secure corporate acquisitions both in the financial sector and the real economy. In turn, this unprecedented concentration of financial power spearheads entire sectors of industry and the services economy into bankruptcy, leading to the layoff of tens of thousands of workers.

The upper spheres of Wall Street overshadow the real economy. The accumulation of large amounts of money wealth by a handful of Wall Street conglomerates and their associated hedge funds is reinvested in the acquisition of real assets. Paper wealth is transformed into the ownership and control of real productive assets, including industry, services, natural resources, infrastructure, etc.

Among the companies on the verge of bankruptcy are some highly lucrative and profitable operations. The important question: who takes over the ownership of bankrupt giant industrial corporations?
Bankruptcies and foreclosures are a money-spinning operation for the financial giants. With the collapse in stock market values, listed companies experience a major collapse of the price of their stock, which immediately affects their creditworthiness and their ability to borrow and/ or to renegotiate debts ( which are based on the quoted value of their assets).

The institutional speculators, the hedge funds, et al have cashed in on their windfall loot. They trigger the collapse of listed companies through short selling and other speculative operations. They then cash in on their large scale speculative gains.

According to a report in the Financial Times, there is evidence that the plunge of the US automobile industry was in part the result of manipulation:
"General Motors and Ford lost 31 per cent to $3.01 and 10.9 per cent to $1.80 despite hopes that Washington may save the industry from the brink of collapse. The fall came after Deutsche Bank set a price target of zero on GM."
The financiers are on a shopping-spree. America’s Forbes 400 billionaires are waiting in limbo. Once they have consolidated their position in the banking industry, the financial giants including JP Morgan Chase, Bank of America, et al will use their windfall money gains and bailout money provided under TARP, to further extend their control over the real economy.

The next step consists in transforming liquid assets, namely money paper wealth, into the acquisition of real economy assets.

Banks Prefer Using Bailout Funds to Buy More Banks

October 28, 2008

About.com - The $700 billion bailout/rescue funds were supposed to help banks stay liquid. As a result, they would presumably continue lending money, helping businesses operate and stimulate the economy. Consumers would also benefit because they would keep their jobs and be able to get loans to buy stuff.

Alas, that's not how all the banks see it. According to the Consumerist, Chase talks about using their $25 billion "as a war chest to buy other banks, and hoard it in case times get tougher."

Of course, if nobody's lending, we haven't solved the problem. This means that either the banks aren't interested in helping, or they don't think the problem is very big and it's just an opportunity to snatch up banks at a bargain.

Banks Use Bailout to Buy Up Other Banks

October 27, 2008

MSNBC - The Treasury's $700 billion program to rescue the financial services industry, which began with a three-page memo six weeks ago, is evolving yet again. When the fleshed-out proposal was passed by Congress and signed into law Oct. 3, Treasury Secretary Hank Paulson's plan was to use the money to buy "toxic" mortgage-related securities weighing down banks and clogging the flow of credit to business and consumers. Then two weeks ago the Bush administration changed course and decided to invest $125 billion directly into some of the nation's biggest banks to restore confidence into the financial system and get capital flowing more quickly.

Now the Treasury is pouring another $125 billion into small and medium-sized banks, but some analysts contend the program has been transformed to a much more grandiose undertaking that will essentially weed out the weak banks from the strong.

Several of the banks that have received preliminary approval from the Treasury for investments have said they plan to use some of the money for acquisitions, including SunTrust and Regions Financial Corp., both of which expect to receive about $3.5 billion apiece. Even smaller institutions, like Seattle-based Washington Federal Inc., which announced a $200 million commitment from the government, plan to deploy some of the money to expand its retail franchise through acquisitions.

Many analysts believe the investments are being doled out to the strongest financial institutions, with the aim of spurring consolidation among banks and protecting the government from having to salvage some of the industry's weakest players. "It appears to us that these 'gifted' banks will receive the capital whether they need it or not, as they will likely do the cleanup on behalf of the Fed and the Treasury by acquiring weaker institutions," wrote Morgan Keegan & Co. analyst Robert Patten in a research note late Friday.

In what was the first instance of a bank using its investment from the government to make an acquisition, Pittsburgh-based PNC Financial Services Group Inc. said Friday it plans to acquire National City Corp. for $5.58 billion. PNC said it had received $7.7 billion in cash through selling stock to the government under the program.

Fox-Pitt Kelton analyst Andrew Marquardt believes a distressed sale was National City's only option after it became apparent that the Cleveland-based bank would not receive approval to participate in the government's program. "Our understanding is that a key reason for National City to sell in the same week that it reported third-quarter results was that National City management became aware that it was highly unlikely to be able to participate in the TARP capital purchase program," Marquardt wrote in a note to clients.

Critics of the program contend that the government will in effect wind up handpicking which banks win and which lose.

Assistant Treasury Secretary David Nason said Monday that the administration's major aim is to stabilize the financial system and that stronger institutions will be in a better position to make loans and support the overall economy. The emphasis on acquisitions makes sense, said Jason O'Donnell, senior research analyst at Boenning & Scattergood, but there are also significant ramifications.
"While on the whole it's positive in terms of its implications for improving capital, improving lending," O'Donnell said, "it is likely to have the unintended consequence of separating the winners and losers, which is normally a process that the free market is engaged in."
And while further consolidation could very well lead to improved lending, it may take longer to achieve, said John Jay, senior analyst at Aite Group, a Boston-based financial services research firm. Meanwhile, the smaller institutions that don't get any government support will wind up walking around with a big target on their back, he said.
"If they're not given any type of government help, that is a pretty explicit statement on where they stand," Jay said.
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