Bush, Obama to Tag-team Lawmakers for Bailout Cash
Stimulus Plan Mixes Short, Long-Term Job Goals
January 31, 2009AP - Economic downturns predominantly used to hit blue-collar and young workers. But in this recession, layoffs and business closings are affecting bankers, middle managers, even scientists and journalists. White collar unemployment jumped 1.6 percentage points — to 4.6 percent — from December of 2007 to December of 2008. But blue-collar workers are still bearing the largest brunt of unemployment, at 11.3 percent.
The shared pain helps explain the varied priorities in the $800 billion-plus rescue package put together by President Barack Obama and Democrats in Congress. The $50 billion for building roads, bridges and schools addressed the hardest hit of the unemployed first — hardhat workers. But there are also piles of wage-producing money for college-educated workers: $62 billion in the House version for health information and renewable energy technology, improving the nation's power grid and scientific research. Getting it all to them will take longer.
Policymakers are also counting on greater public acceptance for social spending — on the likes of food stamps, unemployment and health insurance — because the victims of the collapse in housing and credit markets cross socio-economic levels...
The White House economic team, in an analysis earlier this month, concluded the spending would directly create nearly 1.5 million jobs by the end of the fourth quarter of 2010. It also determined the indirect effects — the pass-along benefits of newly employed workers spending more — would create more than 2.2 million jobs. Included are 305,000 in direct energy jobs and 166,000 in direct health care jobs. Those jobs would, in turn, indirectly produce another 230,000 jobs, according to the analysis.
Mark Anderson, President of ExecuNet, a Connecticut-based firm that provides recruitment services, said executive recruiters are beginning to show more confidence in the market than they had in November. "The big industry winners are environmental technologies, IT technologies, health care and hospitals and pharmaceutical and bio-tech firms ... where all the new developments are going to come from," Anderson said.
But the White House's 3.5 million job projection by the end of 2010 could be more optimistic than the spending patterns for the stimulus would suggest. The Congressional Budget Office estimates $525.5 billion of the $816 billion in the House stimulus bill would be spent in the first two years. That's a lower spending rate than the 75 percent White House officials want to spend in the first 18 months after the stimulus becomes law...
House Passes $819 Billion Stimulus Bill as Obama Prods
January 28, 2009AP - In a swift victory for President Barack Obama, the Democratic-controlled House approved a historically huge $819 billion stimulus bill Wednesday night with spending increases and tax cuts at the heart of the young administration's plan to revive a badly ailing economy...
House Hurries to Pass Economic Stimulus Bill
January 28, 2009AP - Moving with remarkable speed, the Democratic-controlled House lined up eagerly Wednesday to approve $819 billion in spending increases and tax cuts at the heart of President Barack Obama's economic recovery program....
Bush Asks Congress for Final $350 Billion from Bailout
January 12, 2009AP - Acting at Barack Obama's behest, President George W. Bush on Monday asked Congress for the final $350 billion in the financial bailout fund, effectively ceding economic reins to the president-elect in an extraordinary display of transition teamwork. Obama also sharply criticized Bush's handling of the money and promised radical changes.
Bush's move sets the stage for Obama to get swift access to the $350 billion and the opportunity to overhaul the much-criticized rescue package after taking office next Tuesday. Obama said that it would be "irresponsible ... to enter into the administration without any potential ammunition should there be some sort of emergency or weakening of the financial system..."
Bush, Obama to Tag-team Lawmakers for Bailout Cash
January 12, 2009AP - A request for the remaining $350 billion in financial industry bailout funds could come as early as Monday as the Bush administration and President-elect Barack Obama tag-team uneasy lawmakers for the money.
A vote in Congress is likely soon, possibly this week, several senators predicted after a briefing from Obama economic adviser Larry Summers on the Wall Street bailout, as well as on Obama's separate plan for roughly $800 billion in spending and tax breaks to spur the economy.
President George W. Bush would request the additional money for the Troubled Asset Relief Program but the incoming administration would sell the plan by laying out a series of changes in how the program is run. More of the money would go directly to relieve homeowners threatened with foreclosure, said Senate Banking Committee Chairman Christopher Dodd, D-Conn. A fuller accounting of the money already spent is needed as well, Dodd said...
Obama: $350 Billon Bailout Needs to Help People
January 11, 2009AP - President-elect Barack Obama wants more transparency and strict guidelines for using the second $350 billion of the bailout fund Congress approved last fall to stabilize the nation's financial system.
Obama's economic team has been talking with the Bush administration about having Treasury Secretary Henry Paulson ask Congress as early as this week for access to the $350 billion remaining in the bailout fund. If Congress rejected such a request, a presidential veto could still free up the money, unless Congress overrode the veto.
The Congressional Oversight Panel raised detailed questions last week about how banks are spending the first $350 billion, how the money will combat the rising tide of home foreclosures and Treasury's overall strategy for the rescue. In instance after instance, the panel said, the Treasury Department did not offer adequate responses.
In an interview aired Sunday, Obama declined to say whether he wants President George W. Bush to request the rest of the money, but he said he has asked his economic team to develop a set of principles to ensure more openness about how the money is spent and to focus on using it more to help homeowners and small businesses...
Obama Makes Urgent Pitch for His Huge Spending Proposal
January 8, 2009AP - President-elect Barack Obama warned of dire and long-lasting consequences if Congress doesn't pump unprecedented dollars into the national economy, making an urgent pitch Thursday for his mammoth spending proposal in his first speech since the election.
"In short, a bad situation could become dramatically worse" if Washington doesn't go far enough to address the spreading crisis, the Democrat said as fresh economic reports showed an outlook growing increasingly grim.
Since his November election, Obama has deferred to President George W. Bush on foreign policy matters such as the Middle East. But, with the worsening of the economic situation, Obama has waded deeply into domestic issues as he works to generate support for his plan to create jobs and jolt the economy into recovery.
Obama's $1.2 Trillion Economic Plan
January 7, 2009AP – President-elect Barack Obama said Wednesday that reforming massive government entitlement programs — such as Social Security and Medicare — would be "a central part" of his effort to control federal spending. Obama made the pledge but provided few details as he named Nancy Killefer as his administration's chief performance officer, creating a new White House position aimed at eliminating government waste and improving efficiency.
Noting that the Congressional Budget Office had just estimated he would inherit a $1.2 trillion federal deficit for fiscal 2009, Obama promised to cut unnecessary spending. "We expect that discussion around entitlements will be a part, a central part of those plans," Obama said. "And I would expect that by February in line with the announcement of at least a rough budget outline we will have more to say about how we're going to approach entitlement spending."
For the first time, Obama gave a ballpark price tag for his massive economic plan aimed at generating jobs and jolting the country out of recession. Aides have said it could cost as much as $775 billion over two years. Outside economists have suggested as much as $1.2 trillion would be needed...
The Bailout List Keeps Growing
December 23, 2008Word comes today that the queue for bailout money is lengthening, with commercial real estate developers the latest sector rattling its cup for taxpayers’ money.
The developers see mortgages totaling about $530 billion coming due in the next three years for thousands of office buildings, shopping centers, and other commercial buildings. The developers warn that without a government infusion of taxpayer money, the properties are headed for defaults, foreclosures, and bankruptcies.
Real estate interests are joining the bailout line-up that as of this media alert includes telecommunications companies, state and local governments, U.S. auto makers, and financial-services firms.
And more inevitably will join the ranks, say experts at The Heartland Institute, a free-market think-tank based in Chicago...
Obama Increases Government Jobs Goal to Three Million
December 21, 2008President-elect Barack Obama has increased his employment goal with the nation's economic outlook worsening, seeking to create or save 3 million jobs in the next two years instead of the 2.5 million he proposed last month. Obama set the more ambitious target earlier this week after meeting with top economic advisers who cautioned that the nation's unemployment rate could exceed 9 percent given the current pace of job losses, Obama transition officials said Saturday.
During the presidential campaign, Obama pledged to create or save 1 million jobs. He increased that goal to 2.5 million over two years just last month. Obama met with Vice President-elect Joe Biden and his economic leadership team Tuesday in Chicago.
Transition officials said Christina Romer, an economics professor who Obama has chosen as chair of his Council of Economic Advisers, opened the meeting by arguing that historical data and wide-ranging expert opinions suggest that upcoming economic problems could be more severe than anything the country has faced over the past half century. She said the country is likely to lose another 3 million to 4 million jobs over the next year without significant action.
Biden and Obama responded by pushing for a more ambitious jobs plan, driven by federal investments in health care, education and energy that could have a stimulative effect and lay the ground work for long term reform and a more sustainable economy. Ideas included weatherizing 1 million homes, shifting to a paperless health system, investing in disease prevention and modernizing schools.
Obama's team and congressional staff over the last week have been scrambling to come up with details of a plan to pump up the droopy economy with $650 billion or more in government spending over the next few years. The aides met in the basement of the Capitol on Friday to devise ways to pump public money into science, energy, education, health care and infrastructure programs, as well as to help the poor and unemployed. They hope unleashing a torrent of spending in the near term will create jobs and lift the economy.
Obama and his Democratic allies in Congress want to enact the still-emerging plan as soon as possible after he takes office on Jan. 20. The plan, which some Obama aides think could swell to about $850 billion after negotiations with Congress, would be the largest investment in public infrastructure since the federal highway system was established in the 1950s. It also would provide tens of billions in dollars of aid to financially strapped states...
Cheney Says Congress Failed Struggling Automakers
December 21, 2008Vice President Dick Cheney blamed Congress for failing to bail out the auto industry, saying the White House was forced to step in to save U.S. car companies.
In an interview broadcast Sunday, Cheney said the economy is in such bad shape that the car companies might not have survived without the $17.4 billion in emergency loans that President George W. Bush approved on Friday. "The president decided specifically that he wanted to try to deal with it and not preside over the collapse of the automobile industry just as he goes out of office," Cheney said in an interview broadcast on "Fox News Sunday." Lawmakers "had ample opportunity to deal with this issue and they failed," Cheney said. "The president had no choice but to step in."
Congress rejected an auto bailout package after many Republicans and some Democrats opposed it. Some said U.S. auto companies would be better off if they were required reorganize through bankruptcy.
Cheney leaves office Jan. 20 as one of the most powerful, if unpopular, vice presidents in recent history. He played a key role in many of Bush's major policy decisions and, in the interview, was unapologetic in his review of the past eight years. He staunchly defended the Bush administration's use of executive power in the fight against terrorism and disagreed with calls to limit presidential authority. "If you think about what Abraham Lincoln did during the Civil War, what FDR did during World War II. They went far beyond anything we've done in a global war on terror," the vice president contended.
Cheney said he was unconcerned about polls showing him as unpopular, saying that people who spend too much time reading polls "shouldn't serve in these jobs..."
Bush OKs $17.4 Billion Bailout of the Auto Industry
December 19, 2008Associated Press - Citing imminent danger to the national economy, President Bush ordered an emergency bailout of the U.S. auto industry Friday, offering $17.4 billion in rescue loans and demanding tough concessions from the deeply troubled carmakers and their workers.
Detroit's Big Three cheered the action and vowed to rebuild their once-mighty industry, though they acknowledged the road would be anything but smooth as they fight their way back from the brink of bankruptcy.
The autoworkers union complained the deal was too harsh on its members, while Bush's fellow Republicans in Congress said it was bad business to bail out yet another big industry.
Bush, who signed the massive $700 billion rescue for financial institutions only this fall, said he was reluctant to approve yet another government bailout of private business. But he said that allowing the massive auto industry to collapse in the middle of what is already a severe downturn "could send our suffering economy into a deeper and longer recession."
Speaking at the White House, he also said he didn't want to "leave the next president to confront the demise of a major American industry in his first days of office..."
Some $13.4 billion of the money will be available this month and next — $9.4 billion of it for General Motors Corp. and $4 billion for Chrysler LLC, two auto giants that have said they could be facing bankruptcy soon without government help. GM is slated to receive the remaining $4 billion in loans after more money is released from the financial rescue account. Ford Motor Co. says it doesn't need federal cash now but would be badly damaged if one or both of the other two went under.
Under terms of the loans, the government will have the option of becoming a stockholder in the companies, much as it has with major banks, in effect partially nationalizing the industry. Bush said the companies' workers should agree to wage and work rules that are competitive with foreign automakers by the end of next year.
And he called for elimination of a "jobs bank" program — negotiated by the United Auto Workers and the companies — under which laid-off workers can receive about 95 percent of their pay and benefits for years. Early this month, the UAW agreed to suspend the program.
Meanwhile, Treasury Secretary Henry Paulson said Congress should release the second $350 billion from the financial rescue fund that it approved in October to bail out huge financial institutions. Tapping the fund for the auto industry basically exhausts the first half of the $700 billion total.
If the carmakers fail to prove viability by March 31, they will be required to repay the loans, which they would find all but impossible. A firm will be deemed viable only if it can show positive cash flow and can fully repay the government loans.
Friday's rescue plan retains the idea of a "car czar" to make sure the companies are keeping their promises and moving toward long-term viability...
The Obama Boomtowns
December 18, 2008Forbes - Mayors across America line up at the trough with projects ready for stimulus money.
As part of his plan to revive a flailing economy, President-elect Barack Obama recently pledged to "Create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s."
His plan would include potentially hundreds of billions of dollars for infrastructure projects. And while economists debate whether this is the most effective form of fiscal stimulus, the mayors of the nation's cities line up at the trough. Schools, roads, rails, pipes and airports? Can we have some more, sir?
Even by Washington standards this would be a once-in-a-lifetime spending spree on projects that would be called pork in less-prodigal times. Cities across the country are ready to pig out.
On Dec. 8, just two days after Obama's pledge for massive infrastructure spending, the U.S. Conference of Mayors released an 803-page report--a wishlist of some 11,391 infrastructure projects they would love to press ahead with.
Talk about a dream scenario. Build all those projects, do it with federal money, say you're rescuing the economy with the spending and, since it's not your local taxpayers' money, don't even stress too much about whether or not the project's cost effective.
Give the money to banks or individuals and they might just horde it. Give it to states or the federal government and it will get stuck in the bureaucracy. But give it to the cities and they'll spend, says Miami Mayor Manny Diaz, the president of the Conference of Mayors. (Not that the governors are sitting idly by--they have $136 billion in plans they'd like to initiate.)
Perhaps it's no surprise then that Diaz's city outlined the boldest request, with 456 projects in Miami that could be completed for a cool $3.4 billion. They estimate the projects would create 55,355 jobs.
Major projects in Miami waiting for cash range from $281 million in various airport projects to $200 million for parking garages throughout the city to dozens of little projects from school renovations to upgrading fleets. Perhaps the most exciting project? $280 million to put a new public transit system on Miami roads: streetcars.
Sacramento, second on the list, wants to plow $560 million into an assortment of road and interstate projects to take pressure off congested roads. The city would also like $200 million to protect the city from floods by improving levees in the Natomas Basin. Other big safety items include $250 million requested to purchase equipment for the fire and police departments...
All told, the conference collected lists from 427 cities with $73 billion in proposed projects. The mayors say that with funding they could start the projects and hence start pumping money into the economy in 2009, and finish them by 2010.
The mayors have big eyes. Those cities that responded would like $17 billion for streets, $15 billion for water and sewage, $13 billion in community development grants, $7 billion for transit systems, $6 billion for energy projects, $4 billion for schools, $4 billion for public safety, $4 billion for airports, $2 billion for public housing and $1 billion for Amtrak infrastructure.
Lawrence Summers, the former Treasury Secretary who will head Obama's National Economic Council, has said a fiscal stimulus will have to be "speedy, substantial and sustained." Congressional leaders have indicated that spending could even be as large as the $700 billion bailout, but details of how and where the money will be distributed are unknown.
10 Reasons to Oppose a Stimulus Package for the States - Cato Institute
Obama Looking at $850 Billion Jolt to the Economy
December 17, 2008Associated Press - Anxious to jolt the economy back to life, President-elect Barack Obama appears to be zeroing in on a stimulus package of about $850 billion, dwarfing last spring's tax rebates and rivaling drastic government actions to fight the Great Depression. Obama has not settled on a grand total, but after consulting with outside economists of all political stripes, his advisers have begun telling Congress the stimulus should be bigger than the $600 billion initially envisioned, congressional officials said Wednesday.
Obama is promoting a recovery plan that would feature spending on roads and other infrastructure projects, energy-efficient government buildings, new and renovated schools and environmentally friendly technologies.
There would also be some form of tax relief, according to the Obama team, which is well aware of the political difficulty of pushing such a large package through Congress, even in a time of recession. Any tax cuts would be aimed at middle- and lower-income taxpayers, and aides have said there would be no tax increases for wealthy Americans.
While some economists consulted by Obama's team recommended spending of up to $1 trillion over two years, a more likely figure seems to be $850 billion. There is concern that a package that looks too large could worry financial markets, and the incoming economic team also wants to signal fiscal restraint.
In addition to spending on roads, bridges and similar construction projects, Obama is expected to seek additional funds for numerous programs that experience increased demand when joblessness rises, one Democratic official said. Among those programs are food stamps and other nutrition programs, health insurance, unemployment insurance and job training programs.
Obama advisers, including Christina Romer and Lawrence Summers, have been contacting economists from across the political spectrum in search of advice as they assemble a spending plan that would meet Obama's goal of preserving or creating 2.5 million jobs over two years.
Among those whose opinions Obama sought were Lawrence B. Lindsey, a top economic adviser to President George W. Bush during his first term, and Harvard professor Martin Feldstein, an informal John McCain adviser and the chairman of the Council of Economic Advisers under President Ronald Reagan. Feldstein recommended a $400 billion investment in one year, Obama aides said, and Lindsey said the package should be in the range of $800 billion to $1 trillion. The aides revealed the discussions on condition of anonymity because no decisions had been reached. "I do recommend $400 billion in year one and expect a similar amount in year two," Feldstein said in an e-mail message. "The right amount depends on how it is used." Lindsey could not be reached.
Obama aides also pointed to recommendations by Mark Zandi, the lead economist at Moody's Economy.com and an informal McCain adviser who has been proposing a $600 billion plan. "I would err on the side of making it larger than making it smaller," Zandi said in an interview. "The size of the plan depends on the forecast — the economic outlook — and that is darkening by the day." "Even a trillion is not inconceivable," he said.
Only one outside economist contacted by Obama aides, Harvard's Greg Mankiw, who served on President Bush's Council of Economic Advisers, voiced skepticism about the need for an economic stimulus, transition officials said.
The advisers say they agree with economic forecasts that predict that without a government infusion unemployment will rise above 9 percent and not begin to come down until 2011...
$14 Billion Auto Bailout Dies in Senate
December 12, 2008A bailout-weary Congress killed a $14 billion package to aid struggling U.S. automakers Thursday night after a partisan dispute over union wage cuts derailed a last-ditch effort to revive the emergency aid before year's end.
Republicans, breaking sharply with President George W. Bush as his term draws to a close, refused to back federal aid for Detroit's beleaguered Big Three without a guarantee that the United Auto Workers would agree by the end of next year to wage cuts to bring their pay into line with U.S. plants of Japanese carmakers. The UAW refused to do so before its current contract with the automakers expires in 2011.
The breakdown left the fate of the auto industry — and the 3 million jobs it touches — in limbo at a time of growing economic turmoil. General Motors Corp. and Chrysler LLC have said they could be weeks from collapse. Ford Motor Co. says it does not need federal help now, but its survival is far from certain.
Democratic leaders called on Bush to immediately tap the $700 billion Wall Street bailout fund for emergency aid to the auto industry...
The stunning disintegration was eerily reminiscent of the defeat of the $700 billion Wall Street bailout in the House, which sent the Dow tumbling and lawmakers back to the drawing board to draft a new agreement to rescue financial institutions and halt a broader economic meltdown. That measure ultimately passed and was signed by Bush.
It wasn't immediately clear, however, how the auto aid measure might be resurrected, with Congress now set to depart for the year...
Government Bailout Hits $8.5 Trillion
December 2, 2008The federal government committed an additional $800 billion to two new loan programs on Tuesday, bringing its cumulative commitment to financial rescue initiatives to a staggering $8.5 trillion, according to Bloomberg News. That sum represents almost 60 percent of the nation's estimated gross domestic product.
Given the unprecedented size and complexity of these programs and the fact that many have never been tried before, it's impossible to predict how much they will cost taxpayers. The final cost won't be known for many years. The money has been committed to a wide array of programs, including loans and loan guarantees, asset purchases, equity investments in financial companies, tax breaks for banks, help for struggling homeowners, and a currency stabilization fund.
Most of the money, about $5.5 trillion, comes from the Federal Reserve, which as an independent entity does not need congressional approval to lend money to banks or, in "unusual and exigent circumstances," to other financial institutions. To stimulate lending, the Fed said on Tuesday it will purchase up to $600 billion in mortgage debt issued or backed by Fannie Mae, Freddie Mac and government housing agencies. It also will lend up to $200 billion to holders of securities backed by consumer and small-business loans. All but $20 billion of that $800 billion represents new commitments, a Fed spokeswoman said.
About $1.1 trillion of the $8.5 trillion is coming from the Treasury Department, including $700 billion approved by Congress in dramatic fashion under the Troubled Asset Relief Program. The rest of the commitments are coming from the Federal Deposit Insurance Corp. and the Federal Housing Administration. Only about $3.2 trillion of the $8.5 trillion has been tapped so far, according to Bloomberg. Some of it might never be. Relatively little of the money represents direct outlays of cash with no strings attached, such as the $168 billion in stimulus checks mailed last spring.
Automakers to Submit Plans to Congress
December 2, 2008Detroit's automakers, making a second bid for $25 billion in funding, are presenting Congress with plans Tuesday to restructure their ailing companies and provide assurances that the funding will help them survive and thrive.
General Motors Corp., Ford Motor Co., and Chrysler LLC would refinance their companies' debt, cut executive pay, seek concessions from workers and find other ways of reviving their staggering companies.
UAW leaders, meanwhile, summoned local union leaders from across the country to an emergency meeting Wednesday in Detroit to discuss concessions the union could make to help auto companies get government loans.
U.S. automakers are struggling to stay afloat heading into 2009 under the weight of an economic meltdown, the worst auto sales in decades and a tight credit market. General Motors, Ford and Chrysler went through nearly $18 billion in cash reserves during the last quarter, and GM and Chrysler have said they could collapse in weeks.
Top executives from the Big Three failed last month to convince a skeptical Congress that they were worthy of $25 billion in loans. House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., ordered them to outline major changes, including the elimination of lavish executive pay packages and assurances that taxpayers would be reimbursed for the loans.
All three companies are filing separate plans. Congressional hearings are planned for Thursday and Friday. "I believe the industry will make a compelling case for bridge loans that will allow the companies to return to firm financial footing," said Sen. Carl Levin, D-Mich.
GM will outline efforts to negotiate swapping some of the company's debt for equity stakes in the automaker, either shares or warrants for them, said two people briefed on the company's plan.
The Truth Behind the Citigroup Bank "Nationalization"
November 24, 2008On Friday November 21, the world came within a hair’s breadth of the most colossal financial collapse in history according to bankers on the inside of events with whom we have contact. The trigger was the bank which only two years ago was America’s largest, Citigroup. The size of the US Government de facto nationalization of the $2 trillion banking institution is an indication of shocks yet to come in other major US and perhaps European banks thought to be ‘too big to fail.’
The clumsy way in which US Treasury Secretary Henry Paulson, himself not a banker but a Wall Street ‘investment banker’, whose experience has been in the quite different world of buying and selling stocks or bonds or underwriting and selling same, has handled the unfolding crisis has been worse than incompetent. It has made a grave situation into a globally alarming one.
A case in point is the secretive manner in which Paulson has used the $700 billion in taxpayer funds voted him by a labile Congress in September. Early on, Paulson put $125 billion in the nine largest banks, including $10 billion for his old firm, Goldman Sachs. However, if we compare the value of the equity share that $125 billion bought with the market price of those banks’ stock, US taxpayers have paid $125 billion for bank stock that a private investor could have bought for $62.5 billion, according to a detailed analysis from Ron W. Bloom, economist with the US United Steelworkers union, whose members as well as pension fund face devastating losses were GM to fail.
That means half of the public's money was a gift to Paulson’s Wall Street cronies. Now, only weeks later, the Treasury is forced to intervene to de facto nationalize Citigroup. It won’t be the last.
Paulson demanded, and got from a labile US Congress, Democrat as well as Republican, sole discretion over how and where he can invest the $700 billion, to date with no effective oversight. It amounts to the Treasury Secretary in effect ‘spitting into the wind’ in terms of resolving the fundamental crisis.
It should be clear to any serious analyst by now that the September decision by Paulson to defer to rigid financial ideology and let the fourth largest US investment bank, Lehman Brothers fail, was the proximate trigger for the present global crisis. Lehman Bros.’ surprise collapse triggered the current global crisis of confidence. It was simply not clear to the rest of the banking world which US financial institution bank might be saved and which not, after the Government had earlier saved the far smaller Bear Stearns, while letting the larger, far more strategic Lehman Bros. fail...
Paulson soon realized the scale of crisis, largely triggered by his inept handling of the Lehman Brothers case, had created an impossible situation. Were Paulson to use the $700 billion to buy up toxic waste ABS assets from the select banks at today’s market price, the $700 billion would be far too little to take an estimated $2 trillion ($2,000 billion) in Asset Backed Securities off the books of the banks.
The Levy Economics Institute economists state, ‘It is probable that many and perhaps most financial institutions are insolvent today -- with a black hole of negative net worth that would swallow Paulson's entire $700 billion in one gulp.’
That reality is the real reason Paulson was forced to abandon his original ‘crony bailout’ TARP plan and opt to use some of his money to buy equity shares in the nine largest banks.
That scheme as well is ‘dead on arrival’ as the latest Citigroup nationalization scheme underscores. The dilemma Paulson has created with his inept handling of the crisis is simple: If the US Government paid the true value for these nearly worthless assets, the banks would have to write down huge losses, and, as Levy economists put it, ‘announce to the world that they are insolvent.’ On the other hand, if Paulson raised the toxic waste purchase price high enough to protect the banks from losses, $700 billion ‘will buy only a tiny fraction of the 'troubled' assets.’ That is what the latest nationalization of Citigroup is about.
It is only the beginning. The 2009 year will be one of titanic shocks and changes to the global order of a scale perhaps not experienced in the past five centuries. This is why we should speak of the end of the American Century and its Dollar System.
How destructive that process will be to the citizens of the United States who are the prime victims of Paulson’s crony capitalists, as well as to the rest of the world depends now on the urgency and resoluteness with which heads of national Governments in Germany, the EU, China, Russia and the rest of the non-US world react. It is no time for ideological sentimentality and nostalgia of the postwar old order. That collapsed this past September along with Lehman Brothers and the Republican Presidency. Waiting for a ‘miracle’ from an Obama Presidency is no longer an option for the rest of the world.
Government Working on Citigroup Rescue
November 23, 2008Citigroup is such a large, interconnected player in the financial system that if it were to collapse it would wreak havoc on already fragile financial and economic conditions. The company has operations stretching around the globe in more than 100 countries.
Analysts consider Citigroup the most vulnerable among the major U.S. banks — especially after it failed to nab Wachovia Corp., which was bought instead by Wells Fargo & Co. That was a missed opportunity for Citi to gets its hands on much-needed U.S. deposits that would bolster its cash position.
Citigroup was especially hard hit by the meltdown in risky, subprime mortgages made to people with tarnished credit or low incomes. Foreclosures on those mortgages spiked, leaving Citi and other financial companies wracking up huge losses on the soured investments. The company has failed to turn a profit during the past four quarters.
The company has already received a $25 billion from the Treasury Department's $700 billion financial bailout program. In return for the cash infusion, the government gets a partial ownership stake.
Citi's woes reflect depth of crisis
Government plans massive Citigroup rescue effort
U.S. Pledges Top $7.7 Trillion To Ease Frozen Credit
November 24, 2008The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.
The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.
Obama Wants Economic Rescue Approved 'Right Away'
November 24, 2008With the economy in crisis, President-elect Barack Obama urged the new Congress to pass a quick economic stimulus bill, pledged help for the troubled auto industry and blessed the Bush administration's bailout of the financial industry...
Obama's principal theme was urgency. "We do not have a minute to waste," he said, citing the turmoil in the financial markets as well as the deterioration of the broader economy. He also said he would "honor the commitments made by the current administration" to deal with the problems, signaling approval of the Bush administration's latest effort to rescue Citigroup as well as the broader $700 billion bailout designed to shore up the financial markets.
Homebuilders Seek $270 Billion in Housing Aid
November 18, 2008In recent weeks, homebuilders have ratcheted up pressure on Congress to take steps that go beyond trying to reduce foreclosures. the industry wants lawmakers to enact new incentives aimed at getting reluctant homebuyers back into the market. Specifically, they're asking for a 10 percent tax credit of up to $22,000 for homebuyers that purchase a home over the next year and a temporary interest-rate reduction on 30-year mortgages.
"The housing downturn has already cost America three million jobs in construction and related industries, and this downward momentum cannot be stemmed without substantive government intervention," said David Crowe, the association's chief economist.
The builders' proposed housing aid measures would cost the government an estimated $270 billion, and would amount to a short-term fix at best, Deutsche Bank North America analyst Nishu Sood concluded in a research note earlier this month.
Builders have grown increasingly convinced that only government intervention will help stem the downward spiral in home prices and rising foreclosures that have led to a dearth in demand for new and preowned homes. Major public builders such as D.R. Horton Inc., KB Home, and Centex Corp., have seen their stocks hammered as housing woes have worsened. The latest builder index reflects a survey of 422 residential developers nationwide, tracking builders' perceptions of market conditions.
Auto Industry To Be "Partially" Nationalized?
November 12, 2008Urgently shifting course, the Bush administration is abandoning the centerpiece of its massive $700 billion economic rescue plan and exploring new ways to shore up not only banks but credit-card, auto-loan and other huge nonbank businesses. Democrats are pressing hard to include a multibillion-dollar bailout for faltering automakers, too — over administration objections. Unimpressed by any of the talk on Wednesday, Wall Street dove ever lower.
"The facts changed and the situation worsened," Treasury Secretary Henry Paulson said at a news briefing, explaining the administration's switch from its original plan to help financial institutions by buying up troubled assets, primarily securities backed by bad home loans.
Despite its new flexibility, the administration remained opposed to using the rescue fund to bail out the ailing auto industry or to provide guarantees for home loans, an idea that supporters contend offers the greatest hope for helping legions of Americans who are facing foreclosure.
Congressional Democrats felt otherwise on autos, and strongly. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid were pressing for quick passage of a major package for carmakers during a postelection session that begins next Tuesday, and one key House Democrat was putting together legislation that would send $25 billion in emergency loans to the beleaguered industry in exchange for a government ownership stake in the Big Three car companies.
AIG to Receive $40 Billion More in Restructured Bailout Package
November 10, 2008In a record bailout of a private company, the government on Monday provided a new $150 billion financial-rescue package to troubled insurance giant American International Group, including $40 billion for partial ownership. The government is buying preferred shares of AIG stock, giving taxpayers an ownership stake in the company. In turn, restrictions will be placed on executive compensation at the firm.
It marked the first time money from the $700 billion bailout package Congress enacted last month has gone to any company other than a bank.
The Treasury Department, which is overseeing the program, has promised to inject $250 billion into banks in return for partial ownership. The original notion behind the bailout package was to help financial institutions lend money more freely again, one of the main reasons the economy is in danger of getting stuck in a long and painful recession.
Until Monday, all of AIG's bailout relief was coming from the Fed.
The Fed, earlier this year, said it would loan a total of $123 billion to AIG. The insurance company was later allowed to access another $20.9 billion through the Fed's "commercial paper" program. That's where the Fed is buying mounds of companies' short-term debt often used for crucial day-to-day expenses, such as payrolls and supplies.
Monday's restructuring provides AIG with easier terms on the original Fed loan. The new package reduces the interest rate AIG will pay and will extend the loan term to five years from two, reducing the need for AIG to sell off business lines and other assets at firesale prices to repay the government.
Fed Hides Destination of $2 Trillion In Bailout Money
November 11, 2008The Federal Reserve is facing a lawsuit after it failed to comply with congressional demands for transparency and disclose the destination of at least $2 trillion dollars in bailout funds, underscoring once again the failure of top down socialism and the folly of trusting the foxes to guard the henhouse.
“The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral,” reports Bloomberg.
“Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn’t require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.”
Bloomberg has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a separate lawsuit in an effort to find out where the money has gone.
Paulson Says Troubled Assets Will Not Be Purchased
November 12, 2008Treasury Secretary Henry Paulson said Wednesday the $700 billion government rescue program will not be used to purchase troubled assets as originally planned. Paulson said the administration will continue to use $250 billion of the program to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending.
He announced a new goal for the program to support financial markets, which supply consumer credit in such areas as credit card debt, auto loans and student loans. Paulson said that 40 percent of U.S. consumer credit is provided through selling securities that are backed by pools of auto loans and other such debt. He said these markets need support.
"This market, which is vital for lending and growth, has for all practical purposes ground to a halt," Paulson said. The administration decided that using billions of dollars to buy troubled assets of financial institutions at the current time was "not the most effective way" to use the $700 billion bailout package, he said.
The announcement marked a major shift for the administration which had talked only about purchasing troubled assets as it lobbied Congress to pass the massive bailout bill. Paulson said the administration is exploring other options, including injecting more capital into banks on a matching basis, in which government funds would be supplied to banks that were able to raise capital on their own.
U.S. Cities Seek Federal Help to Ease Economic Crisis
November 14, 2008Three major American cities buffeted by the global financial crisis are requesting at least $50 billion in federal funds to help pay for infrastructure improvements, pensions and short-term borrowing.
Philadelphia, Phoenix and Atlanta are asking U.S. Treasury Secretary Henry Paulson to release funds from the $700 billion financial bailout authorized by Congress last month. Philadelphia Mayor Michael Nutter will hand-deliver the request to Paulson on Friday, spokesman Luke Butler said. Five or six other cities, including Chicago, may also sign on, Butler added.
Congress set up the so-called Troubled Asset Relief Program to help banks and other institutions that were ensnared in the global credit crisis. But since President George W. Bush signed the bill into law, numerous other entities, including the U.S. auto industry, have lined up for help.
In recent weeks, some cities have announced layoffs and service cuts as slumping tax receipts create budget shortfalls. Philadelphia, for example, will eliminate hundreds of jobs and shut libraries and swimming pools to close a $108 million gap in its current $4 billion budget.
"We who run some of America’s larger cities are dealing with the economic damage wrought by the credit and housing crises," the mayors' letter to Paulson said. "The economic contraction precipitated by these twin crises is forcing us, and mayors all over the country, to dramatically reduce programs and services for millions of residents."
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