Government Takeover of Banks and Businesses
Greenspan Backs Bank Nationalization
February 19, 2009Financial Times - The U.S. government may have to nationalize some banks on a temporary basis to fix the financial system and restore the flow of credit, Alan Greenspan, the former Federal Reserve chairman, has told the Financial Times...
Illegal Aliens & the Mortgage Mess
Originally Published on September 24, 2008New York Post - AS panicked politicians prepare to fork over $1 trillion in taxpayer funding to rescue Wall Street, they've fingered regulation, deregulation, Fannie Mae and Freddie Mac, the Community Reinvestment Act, Jimmy Carter, Bill Clinton, both Bushes, greedy banks, greedy borrowers, greedy short-sellers and minority-home-ownership promoters for blame.
But there's one villain that has slipped notice: how illegal immigration, crime-enabling banks and open-borders Bush policies fueled the mortgage crisis. It's no coincidence that the areas hardest hit by the foreclosure wave - Loudoun County, Va., California's Inland Empire, Stockton and San Joaquin Valley, and Las Vegas and Phoenix - also happen to be some of the nation's largest illegal alien sanctuaries. Half of the mortgages to Hispanics are subprime. A quarter of all those subprime loans are in default and foreclosure...
IRS Rules Opened Back Door for Illegal Aliens to Enter U.S. Credit Market
Originally Published on October 19, 2008CNSNews - Internal Revenue Service rules have opened up a back-door through which illegal immigrants can obtain an Individual Taxpayer Information Number (ITIN), which in turn helps them enter the U.S. credit market.
The IRS uses ITINs to process tax payments owed by people who are not eligible for a Social Security Number. It is issued regardless of immigration status to people living both inside and outside the country.
Although the IRS states explicitly that ITINs are not to be used for any purpose other than tax administration, banks across the country are accepting ITINs to open new accounts and extend lines of credit to customers who are not eligible for a Social Security Number...
Exxon Mobil Shatters U.S. Record for Annual Profit
January 30, 2009AP - Exxon Mobil Corp. (the Rockefeller family has the primary ownership/control of Exxon) on Friday reported a profit of $45.2 billion for 2008, breaking its own record for a U.S. company, even as its fourth-quarter earnings fell 33 percent from a year ago. The previous record for annual profit was $40.6 billion, which the world's largest publicly traded oil company set in 2007.
The extraordinary full-year profit wasn't a surprise given crude's triple-digit price for much of 2008, peaking near an unheard of $150 a barrel in July. Since then, however, prices have fallen roughly 70 percent amid a deepening global economic crisis...
Rothschild Investment Banking Posts Record Results
November 21, 2008Seeking 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.
Billions More Needed for Financial Rescue
January 28, 2009The Obama administration is developing proposals to help rescue the banking system that could cost taxpayers hundreds of billions of dollars beyond the $700 billion bailout Congress already has approved. Details are still being worked out. But the administration is looking to spend hundreds of billions more to address the foreclosure crisis, help banks get out from under weighty bad assets and expand liquidity programs.
Looming above these is a proposal to set up a federal bank — dubbed a "bad bank" — that would buy troubled assets clogging financial institutions' balance sheets. This would free the institutions to lend money and would entice wary investors back into the market, proponents say.
But the government will have to commit far more money than policymakers were discussing even a few weeks ago. "I think we're talking hundreds of billions of dollars," said Brian Gardner, an analyst with the research firm Keefe, Bruyette & Woods. "I don't think there's anyone who doubts the administration will be going back to the Hill for more than the $350 billion" recently released from this fall's $700 billion bailout package...
Fed Says Ready to Buy Debt to Aid Economy
January 28, 2009Reuters - The Federal Reserve on Wednesday said it is prepared to buy long-term government debt if that would help improve credit conditions and signaled some concern that deflation risks were rising...
"The committee... is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets," it said. In December, the Fed had said only that it was studying that option.
The panel voted 8-1 in support of the decision. Richmond Federal Reserve Bank President Jeffrey Lacker dissented, saying he thought the Fed should immediately move to a program to purchase government bonds...
What “Bank Nationalization” Means For You
January 21, 2009Wall Street Journal - It only takes one good bank-stock rout to turn Americans into big believers in government control. Yesterday’s precipitous plummet in shares of Bank of America, PNC Financial, State Street and other financials may have done the job; the controversy of the day centers around “bank nationalization,” or giving our government the license to run U.S. banks.
What does bank nationalization mean? Bank nationalization, in the most practical form, means giving the U.S. government the power to control banks. That could mean taking control of the public shares, to the power to pick and install new management and boards of directors, and set corpotate strategy. The shocks of the credit crisis last fall spurred lawmakers to semi-nationalize the banking sector; nearly 314 institutions have already signed over some of their shares and other securities to the Treasury in return for $350 billion in government aid.
The government has taken a dramatic intermediate step toward nationalization by taking effective control of American International Group, Fannie Mae and Freddie Mac, but leaving some of their shares on the public markets and their management in private hands. Proponents of U.S. bank nationalization now envision a program by which the government would take over only the largest banks, for a short period of time, in order to loosen the ties on lending. The government may also inject more capital into the banks if necessary, but the belief is that the presence of a government overlord acts more as an implied guarantee to soothe customers and prevent assets from going out the door...
Read TIME's Top 10 Financial Collapses of 2008
Big Government Takes Over
November 11, 2008Business Spectator - Whether we have a recession or a depression, and whether or not Barack Obama turns into a version of FDR and comes up with a New Deal next year, we are already entering a new era of big government. Every day, in every way, the world is looking to government following a rich variety of market-based failures. Yesterday it was the motor industry relief package in Australia, on which Robert Gottliebsen has written brilliantly this morning (Turbo charged losses, November 11) and the 4 trillion yuan stimulus package in China. Last night the US government topped up its rescue of insurer AIG by buying another $US40 billion in preferred equity.
Governments are now so deeply enmeshed in the global financial system, as owners of banks, direct providers of credit and guarantors of deposits, that it is effectively a part of the public service. Soon they will probably own a big part of the car industry. In Australia the government will have to take over a large part of the child-care industry following the collapse of ABC Learning.
The small-government warriors who emerged in the 1980s with Ronald Reagan and Margaret Thatcher, and who morphed into neo-cons during the past decade under George W Bush, are in full retreat.
Governments have become the employers, the spenders and the lenders of last resort.
For China, it’s not such a big step, of course, because of that country’s tentative relationship with capitalism in the first place. There are also questions about how much new money is involved in yesterday’s $A860 billion spending package: much of it appears to have been stuff that was already happening. Nevertheless, it’s quite a lot of money and demonstrates how worried the Chinese leadership is about what they euphemistically call “mass incidents” (riots) as a result of rising unemployment. As a blogger called Macro Man calculates this morning, the money would buy HSBC, JP Morgan, Wells Fargo, Bank of America, Citigroup and Deutsche Bank.
China now sits on the edge of an export-bust precipice and its ability to generate growth internally will be tested as never before. For the rest of us, China qualifies under the heading “too big to fail”, along with the global banking industry, which is now in the hands of governments everywhere, plus AIG, the Australian car industry, General Motors and Ford.
David Roche, who is president of a London-based consultancy called Independent Strategy, and author of the book New Monetarism, had an excellent essay in the Wall Street Journal yesterday in which he set out in the clearest form that I have seen the credit problems that governments are trying to overcome. The global banking system, he says, had $5 trillion of capital on the eve of the credit crisis. Those in the US and Europe had about $3.3 trillion supporting loans of $43 trillion. Recognised losses so far have reached $700 billion, which has been matched by $420 billion of private capital raisings and $250 billion of government capital injections. Leverage is now back to what it was.
So why is the crisis not over? Because leverage was too high and must still be reduced, because capital is only sufficient to maintain existing assets, not to grow them, and mostly because none of this accounts for future losses.
Says Roche: “I estimate that, based on economic values, these losses will amount to a further $800 billion to $900 billion, putting total credit losses north of $1.7 trillion for the whole period of the crisis. Such future losses would eat up all the fresh capital contributions and reduce US and EU financial institutions' tier-one capital to around $2.3 trillion yet again.”
“The bottom line is that, assuming further credit losses from global recession take US and EU tier-one bank capital back to where it was before state injections and capital raisings, then financial-sector credit would have to shrink 37 percent just to keep leverage constant at pre-crisis levels – that's how you get global depression.” “But government is now part of bank management,” he says, concluding that further government intervention is needed to avoid depression...
And now it looks like governments will be forced to take ownership of “real economy” corporations that are too important to fail, such as GM and Ford. The governor of Michigan, Jennifer M Granholm, went on NBC’s Today Show last night and pointed out that the collapse of the US auto industry would cost between 3 million and 5 million jobs adding, superfluously, that “that would have a devastating effect on the American economy".' President-elect Obama’s new chief of staff, Rahm Emanuel, added that it’s an “essential” part of the US economy. The trouble is that a thousand “non-essentials” can add up to one essential.
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