Here’s a breakdown of the numbers. The report, citing White House budget office figures, estimated $46 billion of costs under the Troubled Asset Relief Program to support struggling homeowners. It showed $2 billion of overall gains on the Treasury’s investments in various bailed-out companies, such as American International Group Inc. (AIG), some of which are held outside of TARP. Other Treasury programs to buy mortgage-backed securities and to guarantee money-market funds would produce $26 billion of gains, the report said.

Add up those categories, and the projected net cost so far is $18 billion. On top of that, there’s the current net cost of the government-sponsored housing financiers Fannie Mae and Freddie Mac, which the Treasury pegged at $151 billion. So how did Treasury project a potential gain overall?

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Filed under: * Economics, Politics • Economy • Credit Markets • The Banking System/Sector • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Federal Reserve • The National Deficit • Treasury Secretary Timothy Geithner • Politics in General • * Theology • Ethics / Moral Theology

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[Scott] Pelley: How would you rate the likelihood of dipping into recession again?

[Ben] Bernanke: It doesn't seem likely that we'll have a double dip recession. And that's because, among other things, some of the most cyclical parts of the economy, like housing, for example, are already very weak. And they can't get much weaker. And so another decline is relatively unlikely. Now, that being said, I think a very high unemployment rate for a protracted period of time, which makes consumers, households less confident, more worried about the future, I think that's the primary source of risk that we might have another slowdown in the economy.

Pelley: You seem to be saying that the recovery that we're experiencing now is not self-sustaining.

Bernanke: It may not be. It's very close to the border. It takes about two and a half percent growth just to keep unemployment stable. And that's about what we're getting. We're not very far from the level where the economy is not self-sustaining.

The debate on Capitol Hill this week is over whether to extend the Bush tax cuts, which would likely increase the budget deficit.

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Foreign banks were among the biggest beneficiaries of the $3,300bn in emergency credit provided by the Federal Reserve during the crisis, according to new data on the extraordinary efforts of the US authorities to save the global financial system.

The revelation of the scale of overseas lenders’ borrowing underlines the global nature of the turmoil and the crucial role of the Fed as the lender of last resort for the world’s banking sector.

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The bailout became law because the legislative branch was stampeded with the threats of certain doom. It vested unprecedented economic authority in a single unelected official, the secretary of the Treasury. And it used public funds to insulate well-connected private actors from the consequences of their recklessness. Its creation short-circuited republican self-government, and its execution created moral hazard on an epic scale. It may have been an economic necessity, but it felt like a travesty nonetheless.

This is why it should be possible to both sympathize with the politicians who voted for the bailout and welcome their rebuke at the ballot box. Faced with extraordinary circumstances — wars, natural disasters, economic crises — political leaders will always incline toward a blunt utilitarianism, in which the need for stability trumps more high-minded ideals. But after a crisis has passed, it’s immensely important that the ideals reassert themselves, so that the moral compromises made amid extraordinary times aren’t repeated in ordinary ones as well.

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The U.S. government will face pressure to bail out struggling states in the next 12 months, said Meredith Whitney, the banking analyst who correctly predicted Citigroup Inc.’s dividend cut in 2008.

While saying a bailout might not be politically viable, Whitney joined investor Warren Buffett in raising alarm bells about the potential for widespread defaults in the $2.8 trillion municipal bond market. She said state and local issuers have taken on too much debt and that the gap between public spending and revenue is unsustainable.

“People will think the federal government will bail these states out,” Whitney, 40, the founder of Meredith Whitney Advisory Group Inc., said in an interview on Bloomberg Television’s “In the Loop.” “It’s going to be an incredibly divisive issue.”

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Bob Moon: What's the rush? That's what investment consultant Chris Whalen was asking today at Institutional Risk Analytics. He says the government seems to be in a hurry to get the word out that it's aiming to start unloading its $49 billion in AIG shares within the coming year. Whalen warns the market isn't ready and won't support it.

Chris Whalen: We're trying to do a public offering of shares in a company that can't stand by itself, that has to have government support. That's not going to work.

Flooding the market with shares, he cautions, is a money-losing proposition. He says it's the same catch-22 the government faces with General Motors, and has already run up against trying to sell its Citigroup shares. Gauging by AIG's total market capitalization -- the value of all outstanding shares -- he argues the idea of taxpayers making all their money back is pie-in-the-sky.

Whalen: The market cap of this company is single digits. They owe us $100 billion, right? So what the market's telling you is that the company is worth, today, a tenth of what they owe us.

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Pundits are restless, an election looms – so this week, President Barack Obama is proposing yet another round of special favors, aimed at improving the economy. Prominent columnist Paul Krugman wants the plans to be “bold” and to involve huge amounts of money. Here’s a contrasting view: government should stop declaring recovery plans, bold or otherwise.

Maybe the constant announcing of new plans – especially plans backed by borrowing or tax cuts – is, itself, an impediment to economic growth.

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We don’t have alternative universe laboratories to run control bailout experiments, but we can imagine the alternative outcomes if different actions were taken.

So let’s do just that. Imagine a nation in the midst of an economic crisis, circa September-December 2008. Only this time, there are key differences: 1) A President who understood Capitalism requires insolvent firms to suffer failure (as opposed to a lame duck running out the clock); 2) A Treasury Secretary who was not a former Goldman Sachs CEO, with a misguided sympathy for Wall Street firms at risk of failure (as opposed to overseeing the greatest wealth transfer in human history); 3) A Federal Reserve Chairman who understood the limits of the Federal Reserve (versus a massive expansion of its power and balance sheet).

In my counter factual, the bailouts did not occur. Instead of the Japanese model, the US government went the Swedish route of banking crises: They stepped in with temporary nationalizations, prepackaged bankruptcies, and financial reorganizations; banks write down all of their bad debt, they sell off the paper. Int he end, the goal is to spin out clean, well financed, toxic-asset-free banks into the public markets.

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The administration's second assumption, meanwhile, is a matter of academic theories about the sizes of the relevant economic multipliers. Textbook Keynesian economics tells us that government-purchases multipliers are larger than tax-cut multipliers. And, as we have seen, the Obama administration's economic team consulted these standard models in deciding that spending would be significantly more effective than tax cuts.

But a great deal of recent economic evidence calls that conclusion into question. In an ironic twist, one key piece comes from Christina Romer, who is now chair of Obama's Council of Economic Advisers. About six months before she took the job, Romer teamed up with her husband and fellow Berkeley economist David Romer to write a paper ("The Macroeconomic Effects of Tax Changes") that sought to measure the influence of tax policy on GDP. Crucial to the Romers' method was their effort to identify changes in tax policy made during times of relative economic stability, and driven by a desire to influence economic behavior or activity (to encourage growth, say, or reduce a deficit), rather than those changes made in response to a recession or crisis. By studying such "exogenous" tax-policy changes, the Romers could be more confident that they were in fact measuring the effects of taxes and not those of extraneous conditions.

The Romers' conclusion, which is at odds with most traditional Keynesian analysis, was that the tax multiplier was 3 — in other words, that every dollar spent on tax cuts would boost GDP by $3. This would mean that the tax multiplier is roughly three times larger than Obama's advisors assumed it was during their policy simulations.

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A new Time poll reveals just how hard the task is: Two-thirds of respondents say they oppose a second government stimulus package. And 53% say the country would have been better off without the first one.

The result is a White House pulled in three directions at once as it tries to repair the economy — and ensure that Obama and the Democrats can survive a rising tide of public anger. First, the Obama team is improvising ways to pass piecemeal spending items through a Congress where stimulus has become a toxic word. At the same time, the White House is signaling its concern about that budget deficit that has Tea Partyers raging — both through token gestures, like a White House contest that lets the public vote on cost-cutting ideas submitted by federal employees (the winner gets to meet Obama and see his or her idea go in the President's next budget), and through Obama's support for the work of a bipartisan deficit commission. And finally, the White House is trying to explain to angry liberals that it's doing everything possible to keep the economy moving and fight Republican resistance to new spending.

It's a delicate balancing act, on a par with Obama's effort to pass health care reform without appearing to get too involved in the details. And just as it did in the health care battle, the future of Obama's presidency — as well as the fate of the American economy — may hang on the outcome.

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To believe Christopher Dodd, the Connecticut Democrat who is chairman of the Senate Banking Committee, the end of government bailouts is near. In truth, the financial-overhaul legislation now before Congress would do little to arrest the bailouts already in progress.

When the U.S. government rescued American International Group Inc. in 2008, it reasoned that a disorderly failure of the financial-services giant would lead to an economic catastrophe. What the Treasury and Federal Reserve said they needed was a way to wind down systemically important institutions without sending them into bankruptcy courts, to keep the companies from triggering defaults on their obligations that would cascade throughout the broader financial system.

Congressional leaders say their final bill will deliver the resolution authority regulators have been seeking. “It will end bailouts, ensuring that failing firms can be shut down without relying on taxpayer bailouts or threatening the stability of our economy,” Dodd said June 10 at the House-Senate conference committee where the differences between the two chambers’ bills are being negotiated.

It wouldn’t end AIG’s rescue, though. The reason AIG hasn’t failed is that the Fed and the Treasury continue to stand behind it. There’s no sign this will change anytime soon. Nor would the legislation force the government to do otherwise.

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“My best guess is that we’ll have a continued recovery, but it won’t feel terrific,” Ben S. Bernanke, the Fed chairman, said at a dinner at the Woodrow Wilson International Center for Scholars on Monday night. “And the reason it won’t feel terrific is that it’s not going to be fast enough to put back eight million people who lost their jobs within a few years.”

One could almost envision the winces in the White House as Mr. Bernanke observed that the unemployment rate “will stay high for some time.” He went on to note that even if the economy grew at 3 percent, which would be considered a healthy pace, it would do little more than keep pace with the normal rate of growth of the work force.

Virtually every day of late, White House officials have struggled to explain how their strategies to provide economic stimulus to bring down the unemployment rate square with Mr. Obama’s oft-expressed commitment to tackle a record budget deficit. They talk about spending this year — in modest amounts — while waiting for the prescriptions of the president’s commission on debt reduction, which reports, conveniently, a few weeks after the midterm elections.

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It is past time to end the conspiracy of silence about Fannie Mae and Freddie Mac, government-sponsored companies that buy and sell mortgages and related securities. Both were taken over by the Treasury Department in 2008. So far Washington has shelled out $140 billion to keep them afloat. A Congressional Budget Office study says their losses could reach $400 billion. Other estimates put them at $500 billion.

In contrast, the net cost to date of TARP, after loan repayments and other government income, is $172.5 billion, nearly half of which is owed by the auto industry.

While optimists foresee the repayment of most TARP funds, the same cannot be said of Fannie and Freddie, which own well over a trillion dollars in risky mortgages and mortgage-backed securities.

Unlike TARP funds, the subsidies to Fannie and Freddie do not show up in the government's budget. If they did, it would be even further out of balance.

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When U.S. authorities faced financial panic in 2008, their first response was to pump liquidity into the system. It was access to credit, not the quality of credit, that was the issue, they thought.

It turned out they were wrong. U.S. banks were facing a full-fledged solvency crisis. They owned assets that weren’t worth the paper their financial statements were printed on. Congress appropriated $700 billion to recapitalize the banks.

Fast forward 19 months and travel east across the Atlantic where Europe’s leaders confronted a home-grown sovereign debt crisis, a rout in financial markets and a loss of confidence in the euro. Their solution? Lend more money to already indebted countries.

Europe’s leaders must have been snoozing in the back row when the teacher conducted the TARP review class. (TARP stands for Troubled Asset Relief Program.) You can’t recapitalize a sovereign nation by issuing more debt. In the same way that more lending couldn’t enhance U.S. banks’ capital adequacy, “extending more credit to (European) nations that can’t service their accumulated debt won’t make them more creditworthy,” says Carl Weinberg, chief economist at High Frequency Economics in Valhalla, New York.

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Despite a real estate implosion, property tax revenue collected by states and localities actually rose 2.7% last year to $421.8 billion.

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The Federal Reserve's Flow of Funds report reveals more deleveraging, with U.S. debt growing at the slowest pace on record and nearly offsetting the huge rise in federal debt. Nonfinancial debt increased at just 1.6% annually, to $34.7Trillion.

Moneyquote:

Household debt contracted at an annual rate of 1¼ percent in the fourth quarter, its seventh consecutivequarter of decline.

You can check the full document out here (pdf and a long one).

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The US economy is in a mess – even if growth has resumed, and bankers are once again receiving huge bonuses. More than one out of six Americans who would like a full-time job cannot get one; and 40% of the unemployed have been out of a job for more than six months.

As Europe learned long ago, hardship increases with the length of unemployment, as job skills and prospects deteriorate and savings gets wiped out. The 2.5-3.5 million foreclosures expected this year will exceed those of 2009, and the year began with what is expected to be the first of many large commercial real-estate bankruptcies. Even the Congressional Budget Office is predicting that it will be the middle of the decade before unemployment returns to more normal levels, as America experiences its own version of “Japanese malaise....”

Three things can make a difference: a second stimulus, stemming the tide of housing foreclosures by addressing the roughly 25% of mortgages that are worth more than the value the house, and reshaping our financial system to rein in the banks.

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It is payback time for Fannie Mae and Freddie Mac on some mortgages sold to the finance companies by lenders.

Stuck with about $300 billion in loans to borrowers at least 90 days behind on payments, Fannie and Freddie have unleashed armies of auditors and other employees to sift through mortgage files for proof of underwriting flaws. The two mortgage-finance companies are flexing their muscles to force banks to repurchase loans found to contain improper documentation about a borrower's income or outright lies.

The result: Freddie Mac required lenders to buy back $2.7 billion of loans in the first nine months of 2009, a 125% jump from $1.2 billion a year earlier. Fannie Mae won't disclose its figure, but trade publication Inside Mortgage Finance said Fannie made $4.3 billion in loan-repurchase requests in the first nine months of 2009.

"Because taxpayers are involved, we're being very vigilant," said Maria Brewster, who oversees Fannie's repurchase team. "No taxpayer should have to pay for a business decision that caused a bad loan to be sold to Fannie Mae."

Read it all from the weekend Wall Street Journal.

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Scott Brown has a lot to answer for. His stunning Senate victory for the Republicans in Massachusetts sent the White House into a spin. President Obama promptly decided on the populist gesture of targeting Wall Street with vague proposals to outlaw banks’ risky activities and limit their size. Though seemingly hastily wheeled out, the ideas were first floated a few months ago by Paul Volcker, former chairman of the Federal Reserve Board, a man widely regarded as the best US central banker of the modern era. As a result they have some credibility, though they are far from being a panacea.

Many believe the banks have brought this on their own heads. The return of big bonuses so soon after a crisis of their own making, for which ordinary people will be paying for years, showed crass insensitivity and greed. America’s banks rushed to pay off their obligations to taxpayers under the Tarp (troubled asset relief programme) precisely so that they could get back on the bonus gravy train. The behaviour of the banks, however, is no excuse for flawed policy. Nobody yet knows the detail of Mr Obama’s plans, probably not even the president. But from what we know so far, they suffer from two serious shortcomings.

The first is that they would not have stopped the current crisis....

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According to e-mails released this month, AIG was asked to limit what the public knew about the Maiden Lane transactions. The payments have been called a “backdoor bailout” by lawmakers because banks, including Goldman Sachs Group Inc. and Societe Generale SA, were reimbursed at 100 cents on the dollar for mortgage-linked securities that had declined in value.

“This has been terribly mishandled,” said James D. Cox, a professor of corporate and securities law at Duke University School of Law. “There’s this pattern that emerges that the New York Fed, for a variety of reasons including not causing nervousness about who was an AIG counterparty, covered up its rather heavy-handed approach to the bailout.”

Absolutely sickening--read it all.

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A professor at Columbia University, Mr. Stiglitz uses his experience teaching to give the lay reader a lucid account of how overleveraged banks, a shoddy mortgage industry, predatory lending and unregulated trading contributed to the meltdown, and how, in his opinion, ill-conceived rescue efforts may have halted the freefall but have failed to grapple with more fundamental problems.

He is eloquent on how the American economy was sustained before the crisis by “a debt-financed consumption binge supported by a housing bubble” and impassioned in describing what he sees as the government’s failure to make substantial reforms to the economic system: though “excesses of leverage will be curbed,” he writes, “the too-big-to-fail banks will be allowed to continue much as before, over-the-counter derivatives that cost taxpayers so much will continue almost unabated, and finance executives will continue to receive outsized bonuses.” In each case, he writes, “something cosmetic will be done, but it will fall far short of what is needed.”

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The effect of free money is remarkable. A year ago investors were panicking and there was talk of another Depression. Now the MSCI world index of global share prices is more than 70% higher than its low in March 2009. That’s largely thanks to interest rates of 1% or less in America, Japan, Britain and the euro zone, which have persuaded investors to take their money out of cash and to buy risky assets.

For all the panic last year, asset values never quite reached the lows that marked other bear-market bottoms, and now the rally has made several markets look pricey again. In the American housing market, where the crisis started, homes are priced at around fair value on the basis of rental yields, but they are overvalued by almost 30% in Britain and by 50% in Australia, Hong Kong and Spain.

Stockmarkets are still shy of their record peaks in most countries. The American market is around 25% below the level it reached in 2007. But it is still nearly 50% overvalued on the best long-term measure, which adjusts profits to allow for the economic cycle, and is on a par with two of the four great valuation peaks in the 20th century, in 1901 and 1966.

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The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

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Happy New Year, readers, but before we get on with the debates of 2010, there's still some ugly 2009 business to report: To wit, the Treasury's Christmas Eve taxpayer massacre lifting the $400 billion cap on potential losses for Fannie Mae and Freddie Mac as well as the limits on what the failed companies can borrow.

The Treasury is hoping no one notices, and no wonder. Taxpayers are continuing to buy senior preferred stock in the two firms to cover their growing losses—a combined $111 billion so far. When Treasury first bailed them out in September 2008, Congress put a $200 billion limit ($100 billion each) on federal assistance. Last year, the Treasury raised the potential commitment to $400 billion. Now the limit on taxpayer exposure is, well, who knows?

The firms have made clear that they may only be able to pay the preferred dividends they owe taxpayers by borrowing still more money . . . from taxpayers. Said Fannie Mae in its most recent quarterly report: "We expect that, for the foreseeable future, the earnings of the company, if any, will not be sufficient to pay the dividends on the senior preferred stock. As a result, future dividend payments will be effectively funded from equity drawn from the Treasury."

The loss cap is being lifted because the government has directed both companies to pursue money-losing strategies by modifying mortgages to prevent foreclosures.

Read it all and there is more from John Huffman here.

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The second important lesson involves understanding why markets often do not work the way they are meant to. There are many reasons for market failures. In this case, too-big-to-fail financial institutions had perverse incentives: if they gambled and succeeded, they walked off with the profits; if they lost, the taxpayer would pay. Moreover, when information is imperfect, markets often do not work well - and information imperfections are central in finance. Externalities are pervasive: the failure of one bank imposed costs on others, and failures in the financial system imposed costs on taxpayers and workers all over the world.

The third lesson is that Keynesian policies do work. Countries, like Australia, that implemented large, well-designed stimulus programs early emerged from the crisis faster. Other countries succumbed to the old orthodoxy pushed by the financial wizards who got us into this mess in the first place.

Whenever an economy goes into recession, deficits appear, as tax revenues fall faster than expenditures. The old orthodoxy held that one had to cut the deficit - raise taxes or cut expenditures - to "restore confidence." But those policies almost always reduced aggregate demand, pushed the economy into a deeper slump, and further undermined confidence - most recently when the International Monetary Fund insisted on them in East Asia in the 1990's.

The fourth lesson is that there is more to monetary policy than just fighting inflation....

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Filed under: * Culture-Watch • Globalization • History • * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Federal Reserve • The National Deficit

The last two quarters were even more extreme: Productivity in the nonfarm business sector grew at a shocking 8.1% annual rate. There are two possible explanations. One: The last two quarters were among the most technologically innovative and entrepreneurial in the history of the United States. Two: Fearful businesses pared payrolls to the bone. If the second is closer to the truth, payrolls are extraordinarily lean right now. Which means that firms will need to hire more workers as their sales and production grow. Which means that employment may start growing sooner than the pessimists think.

I have been pointing this out for months, but until the last employment report, it was a hypothesis supported by no evidence. Not anymore. While payrolls continued to decline in November, it was by only a scant 11,000 jobs; and the job counts for September and October were revised upward. The data now show a clear trend that suggests that net job creation may be only a month or two away. We'll see.

There is more to the case for optimism. For one thing, less than 30% of February's $787 billion fiscal stimulus has been spent to date; over 70% is still in the pipeline. Pessimists dote on the fact that the rate of increase of stimulus spending has probably peaked and will be lower in 2010. True. But the level of GDP will continue to get support from fiscal policy, and a second job-creation package ("Please don't call it a stimulus!") looks to be in the works.

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Filed under: * Economics, Politics • Economy • Consumer/consumer spending • Corporations/Corporate Life • Credit Markets • Housing/Real Estate Market • Labor/Labor Unions/Labor Market • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Federal Reserve

White House budget director Peter Orszag has his hands full these days trying to wrangle down a deficit that has ballooned to an estimated $1.4 trillion. Part of that borrowing was necessitated by the recession, while part of it was designed to shorten the economic crisis.

Orszag says the federal deficit needs to be cut to about 3 percent of economic growth in the coming years to reduce the sea of debt. At the same time, the U.S. has to guard against sending the economy into a tailspin by pulling back too soon on stimulus programs.

Striking a balance is "extraordinarily challenging," Orszag tells NPR's Steve Inskeep....

Orszag makes no apologies for not projecting a balanced budget anytime in the near-term: "You have to remember the situation that we inherited."

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Filed under: * Economics, Politics • Economy • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Budget • The National Deficit

Yet the urgent problem now isn't TBTF [too big to fail], or even banker bonuses. These are distractions. The urgent problem is the giant riverboat gamble that Washington can save the economy by doing what comes naturally—spending money carelessly, creating massive new entitlements without funding them, dishing out cheap credit to politically favored sectors, telling business people where and how to invest.

Mr. Feinberg is an apt symbol indeed, for this gamble is built on the conceit that Washington can hector the recipients, whether auto companies, banks or homeowners, into behaving in ways that are "responsible." So far, however, human nature is proving a disappointment: Take the outbreak of tax fraud related to the government's emergency home-buyer's credit.

Nor is the larger gamble looking so good either. Banks continue to fail at an alarming rate, the dollar is under assault, and Washington is looking at a future of trillion-dollar deficits. One might have guessed it would take a decade of Obamanomics to produce European welfare state levels of youth unemployment, but at 18.5% we're there.

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Budget • The National Deficit • The United States Currency (Dollar etc) • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

The United States economy is now out of the emergency room and appears to be on a slow path to recovery. But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself.

To understand this threat, we need to look at where we stand historically. If we leave aside the war-impacted years of 1942 to 1946, the largest annual deficit the United States has incurred since 1920 was 6 percent of gross domestic product. This fiscal year, though, the deficit will rise to about 13 percent of G.D.P., more than twice the non-wartime record. In dollars, that equates to a staggering $1.8 trillion. Fiscally, we are in uncharted territory.

Because of this gigantic deficit, our country’s “net debt” (that is, the amount held publicly) is mushrooming. During this fiscal year, it will increase more than one percentage point per month, climbing to about 56 percent of G.D.P. from 41 percent. Admittedly, other countries, like Japan and Italy, have far higher ratios and no one can know the precise level of net debt to G.D.P. at which the United States will lose its reputation for financial integrity. But a few more years like this one and we will find out.

An increase in federal debt can be financed in three ways: borrowing from foreigners, borrowing from our own citizens or, through a roundabout process, printing money....

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Filed under: * Economics, Politics • Economy • Taxes • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • The National Deficit • The United States Currency (Dollar etc) • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

Why hasn’t President Obama insisted on public hearings over what happened during this financial crisis?

Not a single top executive of a Wall Street securities firm responsible for causing the financial crisis has had the courage or the decency to step forward in front of the cameras and explain to the American people in his own words exactly how and why he allowed his firm to cause the crisis. Both Mr. Fuld and Alan Schwartz, the chief executive of Bear Stearns at the end, in their Congressional testimony blamed the proverbial once-in-a-century financial tsunami. Do they or any of their peers really think this is true?

There may be a way to find out. There is much talk nowadays coming from top bankers — Lloyd Blankfein of Goldman Sachs, Jamie Dimon of JPMorganChase, John Mack of Morgan Stanley and even Ken Lewis of Bank of America — about seeing how quickly they can repay to the Treasury the TARP money Mr. Paulson forced on them. One precondition of their being allowed to repay the funds should be a requirement that each gives a public deposition and explains, under oath, what truly happened and why.

This piece was given an astonishing full page on yesterday's New York Times op-ed page. Read it all.

Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

Many of Mr. Obama's supporters surely thought this young, dynamic generation of public leaders would elevate the hip, cutting edge of the U.S. economy -- nanotechnology, genomics, robotics, even health and medicine technology. Instead, we've gotten the Old Economy on dialysis. General Motors has been commanded to restart aging UAW factories to output product on behalf of the administration's hybrid-car obsession. Where's the New Economy in any of this?

Or ObamaCare. How will a build-out of Medicare (b. 1965) to cover everyone and costing $1.2 trillion over 10 years not kill innovation in medical and health technology by siphoning away growth capital and its potential financial rewards?

All of this seems so out of sync with the persona and promise Barack Obama conveyed in the campaign. A lot of his Web-based supporters probably thought Mr. Obama was going to be about promoting young guns with new ideas seeking risk capital for the next big thing. Instead, it looks as if the Obama years will be about managing soft landings for mature industries and old unions in the American autumn.

Congress is talking about a "bad behavior" tax on beer and soda pop to reduce obesity and fund mega-Medicare. How about a bad-behavior tax on government? Slim as the president looks, Uncle Sam is looking like quite the fat boy.

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Filed under: * Culture-Watch • Science & Technology • * Economics, Politics • Economy • Consumer/consumer spending • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • The National Deficit • Politics in General • Office of the President • President Barack Obama

Such government micromanagement of the economy is everywhere. The Post recently reported that Richard Wagoner, the former CEO of General Motors who was removed by the government, remains on GM's payroll "because senior Treasury officials have yet to decide whether he should get the $20 million severance package that the company had promised him." His 2009 compensation -- $1 -- is payable Dec. 31. The $20 million promised to him includes contractual awards, deferred compensation and pension benefits accrued over 32 years with the company. Promise-keeping, including honoring contracts, is the default position of a lawful society. But suddenly, many citizens' legal claims are merely starting points for negotiations with an overbearing government.

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • The National Deficit • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

[BARRY] RITHOLTZ: Most of Wall Street is furious at what happened. Most of Wall Street aren't involved in mortgage securitization or derivatives or any of the other bad assets that have been blowing up. The average guy -- you know Wall Street is a meritocracy, eat what you kill, as much as you can earn in profits you get to take as a bonus -- and I know a lot of guys, everywhere from Merrill Lynch to Bear Stearns to Lehman, that actually were really profitable. But because this one division was run by rogue pirate traders and reckless derivatives salesmen, they wiped up the entire bonus pool for the entire firm, and then some, all the while engaging in really reckless behavior.

[Kai] Ryssdal: Do you figure we're stuck now as a bailout nation? We're going to be subsidizing banks and car companies and insurance companies for some time to come.

RITHOLTZ: You know we've already seen the trucking industry make hints they want stuff. And we've seen the homebuilders who are key players in this, who just overbuilt everything. They've been asking for a bailout. That's the slippery slope. Once you reward people for their worst behavior, for speculative, irresponsible investing and punish the prudent and the people who are careful with that money. Everybody seems to think it's a free for all. Hey, you've got yours. How do I get mine?

Ryssdal: What's the alternative to these bailouts? I mean should we have just done nothing?

RITHOLTZ: What you do is what the FDIC does when a bank is found to be insolvent. Look what happened with Washington Mutual....

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Filed under: * Economics, Politics • Economy • Corporations/Corporate Life • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Treasury Secretary Timothy Geithner

It has been widely reported that Treasury Secretary Hank Paulson and Fed chief Ben Bernanke summoned the CEOs of America's nine largest financial institutions to a meeting on October 13, 2008, at which they were told that their banks would be required to accept TARP money and give the federal government an ownership interest in their institutions, whether they wanted to do so or not. We have it on good authority that some of the bankers, at least, were told that they would not be allowed to leave the room until they signed documents that were presented to them at that meeting.

These chilling reports have now been confirmed by Treasury documents that were obtained by Judicial Watch through a FOIA request. These were Paulson and Bernanke's "talking points" for the meeting....

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Filed under: * Economics, Politics • Economy • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Budget • Treasury Secretary Timothy Geithner

Dealers across the United States reacted with a mixture of anger and sadness on Thursday to word that bankrupt automaker Chrysler LLC plans to eliminate franchise agreements with them as part of its restructuring efforts.

But most, even those surprised by the news, entertained little hope they could stop Chrysler from following through on the proposed closures, the latest chapter in the decline of a company that was -- for a brief period in the 1990s -- the most profitable car manufacturer in the world.

As a result, the dealers said they were already taking the sad but necessary preliminary steps to close or consolidate businesses that, in many cases, had carried their family names as well as those of the automaker for generations.

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Filed under: * Economics, Politics • Economy • Labor/Labor Unions/Labor Market • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General • Office of the President • President Barack Obama

The California state treasurer called Wednesday on U.S. Treasury Secretary Timothy Geithner to extend debt guarantees through the Troubled Asset Relief Program to financially strapped states and local governments facing declining revenues.

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Filed under: * Economics, Politics • Economy • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Treasury Secretary Timothy Geithner • Politics in General • State Government

Still, the tea parties are not based on the cold wonkery of budget data. They are based on an "ethical populism." The protesters are homeowners who didn't walk away from their mortgages, small business owners who don't want corporate welfare and bankers who kept their heads during the frenzy and don't need bailouts. They were the people who were doing the important things right -- and who are now watching elected politicians reward those who did the important things wrong.

Voices in the media, academia, and the government will dismiss this ethical populism as a fringe movement -- maybe even dangerous extremism. In truth, free markets, limited government, and entrepreneurship are still a majoritarian taste. In March 2009, the Pew Research Center asked people if we are better off "in a free market economy even though there may be severe ups and downs from time to time." Fully 70% agreed, versus 20% who disagreed.

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Filed under: * Economics, Politics • Economy • Taxes • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • The National Deficit • Politics in General • Office of the President • President Barack Obama

. Asked about the tea parties, President Barack Obama responded that he was not aware of them. As Marie Antoinette said, "Let them drink Lapsang Souchong." His Imperial Majesty at Barackingham Palace having declined to acknowledge the tea parties, his courtiers at the Globe and elsewhere fell into line. Talk-show host Michael Graham spoke to one attendee at the 2009 Boston Tea Party who remarked of the press embargo: "If Obama had been the king of England, the Globe wouldn't have covered the American Revolution."

The American media, having run their own business into the ground, are certainly qualified to run everybody else's into the same abyss. Which is why they've decided that hundreds of thousands of citizens protesting taxes and out-of-control spending and government vaporization of Americans' wealth and their children's future is no story. Nothing to see here. As Nancy Pelosi says, it's AstroTurf – fake grass-roots, not the real thing.

Besides, what are these whiners so uptight about? CNN's Susan Roesgen interviewed a guy in the crowd and asked why he was here:

"Because," said the Tea Partier, "I hear a president say that he believed in what Lincoln stood for. Lincoln's primary thing was he believed that people had the right to liberty, and had the right …"

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Filed under: * Economics, Politics • Economy • Taxes • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Budget • The National Deficit • Politics in General • Office of the President • President Barack Obama

An infographic that flowcharts the nearly $12 Trillion allocated in government progams affecting the financial services industry.

Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Budget • Federal Reserve • The National Deficit • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

In all the uproar over AIG, the most important lesson has been ignored. AIG failed because it sold large amounts of credit default swaps (CDS) without properly offsetting or covering their positions. What we must take away from this is that CDS are toxic instruments whose use ought to be strictly regulated: Only those who own the underlying bonds ought to be allowed to buy them. Instituting this rule would tame a destructive force and cut the price of the swaps. It would also save the U.S. Treasury a lot of money by reducing the loss on AIG's outstanding positions without abrogating any contracts.

CDS came into existence as a way of providing insurance on bonds against default. Since they are tradable instruments, they became bear-market warrants for speculating on deteriorating conditions in a company or country. What makes them toxic is that such speculation can be self-validating.

Up until the crash of 2008, the prevailing view -- called the efficient market hypothesis -- was that the prices of financial instruments accurately reflect all the available information (i.e. the underlying reality). But this is not true. Financial markets don't deal with the current reality, but with the future -- a matter of anticipation, not knowledge. Thus, we must understand financial markets through a new paradigm which recognizes that they always provide a biased view of the future, and that the distortion of prices in financial markets may affect the underlying reality that those prices are supposed to reflect.

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Filed under: * Economics, Politics • Economy • Credit Markets • Stock Market • The 2009 Obama Administration Bank Bailout Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

I ran into an Indian businessman friend last week and he said something to me that really struck a chord: “This is the first time I’ve ever visited the United States when I feel like you’re acting like an immature democracy.”

You know what he meant: We’re in a once-a-century financial crisis, and yet we’ve actually descended into politics worse than usual. There don’t seem to be any adults at the top — nobody acting larger than the moment, nobody being impelled by anything deeper than the last news cycle. Instead, Congress is slapping together punitive tax laws overnight like some Banana Republic, our president is getting in trouble cracking jokes on Jay Leno comparing his bowling skills to a Special Olympian, and the opposition party is behaving as if its only priority is to deflate President Obama’s popularity.

I saw Eric Cantor, a Republican House leader, on CNBC the other day, and the entire interview consisted of him trying to exploit the A.I.G. situation for partisan gain without one constructive thought. I just kept staring at him and thinking: “Do you not have kids? Do you not have a pension that you’re worried about? Do you live in some gated community where all the banks will be O.K., even if our biggest banks go under? Do you think your party automatically wins if the country loses? What are you thinking?”

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Budget • Treasury Secretary Timothy Geithner • Politics in General • House of Representatives • Office of the President • President Barack Obama • Senate

Can we all just calm down a little?

Yes, the $165 million in bonuses handed out to executives in the financial products division of American International Group was infuriating. Truly, it was. As many others have noted, this is the same unit whose shenanigans came perilously close to bringing the world’s financial system to its knees. When the Federal Reserve chairman, Ben Bernanke, said recently that A.I.G.’s “irresponsible bets” had made him “more angry” than anything else about the financial crisis, he could have been speaking for most Americans.

But death threats? “All the executives and their families should be executed with piano wire — my greatest hope,” wrote one person in an e-mail message to the company. Another suggested publishing a list of the “Yankee” bankers “so some good old southern boys can take care of them.”

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • * Theology • Ethics / Moral Theology

When President-elect Barack Obama picked Timothy F. Geithner to be his Treasury secretary four months ago, numerous analysts praised the choice because of Geithner's expertise in the financial industry. He was president of the Federal Reserve Bank of New York at the time, and had helped craft the response to the troubles roiling global credit markets. But as the debacle over the American International Group bonuses has made clear, Geithner's knowledge about Wall Street is matched by his ignorance about the political culture of Washington. And the blunders committed by Geithner (and others, including the Federal Reserve and previous Treasury Secretary Henry M. Paulson) could undermine key elements of President Obama's economic recovery plan.

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • The National Deficit • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

Some bank executives warned yesterday that the government is forcing them toward a disastrous choice between accepting restrictions on compensation that could cripple their ability to compete with rivals, or returning billions in federal aid, which could retard lending and damage the economy.

The possibility of a newly weakened banking industry also raised concerns among businesses in the wider economy that already are struggling to find financial firms willing to lend them needed money.

"We're all going to lose on this thing," said an executive at a large bank that took federal aid. He and other bankers expressed shock at the rapid progress of legislation that could impose large pay cuts on thousands of workers, and dismay that the industry is at the mercy of an angry Congress.

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Filed under: * Economics, Politics • Economy • Credit Markets • The 2009 Obama Administration Bank Bailout Plan • The Banking System/Sector • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Treasury Secretary Timothy Geithner

You have to wonder what else has to go wrong, how much more wealth will need to be destroyed, before the people on Wall Street get the message that it's no longer business as usual.

The latest outrage, of course, is over the $400 million in retention bonuses promised to those financial geniuses at AIG's Financial Products unit last year, months before the insurance giant was essentially taken over by the government in a bailout that already has required an injection of $170 billion in taxpayer money.

The legal argument for honoring these ill-considered contracts is that a deal is a deal and that trying to abrogate them will only wind up costing the government even more in legal fees and punitive damages. But that doesn't mean the government and its handpicked new management team at AIG were powerless to renegotiate those contracts long before last weekend's deadline.

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Filed under: * Economics, Politics • Economy • Stock Market • The 2009 Obama Administration Bank Bailout Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General • Office of the President • President Barack Obama • * Theology • Ethics / Moral Theology

Sixteen years ago, two economists published a research paper with a delightfully simple title: “Looting.”

The economists were George Akerlof, who would later win a Nobel Prize, and Paul Romer, the renowned expert on economic growth. In the paper, they argued that several financial crises in the 1980s, like the Texas real estate bust, had been the result of private investors taking advantage of the government. The investors had borrowed huge amounts of money, made big profits when times were good and then left the government holding the bag for their eventual (and predictable) losses.

In a word, the investors looted. Someone trying to make an honest profit, Professors Akerlof and Romer said, would have operated in a completely different manner. The investors displayed a “total disregard for even the most basic principles of lending,” failing to verify standard information about their borrowers or, in some cases, even to ask for that information.

The investors “acted as if future losses were somebody else’s problem,” the economists wrote. “They were right.”

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

American International Group, the insurer that has received more than $170 billion in taxpayer bailout money from the U.S. Treasury and Federal Reserve, plans to pay about $165 million in bonuses to executives in the same business unit that brought the company to the brink of collapse last year.

Word of the bonuses last week stirred such deep consternation inside the administration of President Barack Obama that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.

Lawrence H. Summers, director of the National Economic Council, on Sunday called the A.I.G. bonuses "outrageous." Having said that, he quickly added on the ABC "This Week with George Stephanopoulos" program: "The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system."

Another top White House economic adviser, Austan D. Goolsbee, described a seemingly visceral reaction by Mr. Geithner to word of the bonuses. "He was really upset by the news. He stepped in and berated them, got them to reduce the bonuses." Mr. Goolsbee, speaking on "Fox News Sunday," added: "I don't know why they would follow a policy that's really not sensible, that's obviously going to ignite the ire of millions of people."

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Filed under: * Economics, Politics • Economy • Stock Market • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package

The misguided policy response from Washington has focused almost exclusively on squandering public money and burdening our children with indebtedness in order to defend the bondholders of mismanaged financial institutions (blame Paulson and Geithner – I've got a lot of respect for our President, but he's been sold a load of garbage by banking insiders). Meanwhile, I suspect that the little tapes in Bernanke's head playing “we let the banks fail in the Great Depression” and “we let Lehman fail and look what happened” are so loud that he is making no distinction about the form of those failures. Simply letting an institution unravel is quite different from taking receivership, protecting the customers, keeping the institution intact, replacing management, properly taking the losses out of stockholder and bondholder capital, and issuing it back into private ownership at a later date. This is what it would mean for these banks to “fail.” Nobody is advocating an uncontrolled unraveling of major financial institutions or permanent nationalization as if we've suddenly become Venezuela.

Make no mistake. Buying up “troubled assets” will not materially ease this crisis, nor will it even improve the capital position of financial institutions (see You Can't Rescue the Financial System if You Can't Read a Balance Sheet). Homeowners will continue to default because their payment obligations have not been restructured to any meaningful extent. We are simply protecting the bondholders of mismanaged financial institutions, even though that bondholder capital is more than sufficient to cover the losses without harm to customers. Institutions that cannot survive without continual provision of public funds should be taken into receivership, their assets should be restructured to better ensure repayment, their stockholders should be wiped out, bondholders should take a major haircut, customer assets should (and will) be fully protected, and these institutions should be re-issued to the markets when the economy stabilizes.

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Filed under: * Economics, Politics • Economy • Consumer/consumer spending • Stock Market • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

The day after the report I heard from a young Naval aviator in predeployment training north of San Diego. He flies a Super Hornet, sister ship to the plane that went down. He said the Marine investigation "kept me up last night" because of how it contrasted with "the buck-passing we see" in the government and on Wall Street. He and his squadron were in range of San Diego television stations when they carried the report's conclusions live. He'd never seen "our entire wardroom crowded around a television" before. They watched "with bated breath." At the end they were impressed with the public nature of the criticism, and its candor: "There are still elements within the government that take personal responsibility seriously." He found himself wondering if the Marines had been "too hard on themselves." "But they are, after all, Marines."

By contrast, he says, when the economy came crashing down, "nowhere did we see a board come out and say: 'This is what happened, these are the decisions these particular people made, and this was the result. They are no longer a part of our organization.' There was no timeline of events or laymen's explanation of how a credit derivative was actually derived. We did not see congressmen get on television with charts and eviscerate their organization and say, 'These were the men who in 2003 allowed Freddie and Fannie unlimited rein over mortgage securities.' Instead we saw . . . everybody against everybody else with no one stepping forth and saying, 'We screwed up.'" There is no one in national leadership who could convincingly "assign blame," and no one "who could or would accept it."

Read it all or you may also find it here.

Filed under: * Culture-Watch • Military / Armed Forces • * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Politics in General

Here’s what is most infuriating: Here we are now, fully aware of how these scams worked. Yet for all practical purposes, the government has to keep them going. Indeed, that may be the single most important reason it can’t let A.I.G. fail. If the company defaulted, hundreds of billions of dollars’ worth of credit-default swaps would “blow up,” and all those European banks whose toxic assets are supposedly insured by A.I.G. would suddenly be sitting on immense losses. Their already shaky capital structures would be destroyed. A.I.G. helped create the illusion of regulatory capital with its swaps, and now the government has to actually back up those contracts with taxpayer money to keep the banks from collapsing. It would be funny if it weren’t so awful.

I asked Mr. Arvanitis, the former A.I.G. executive, if the company viewed what it had done during the bubble as a form of gaming the system. “Oh no,” he said, “they never thought of it as abuse. They thought of themselves as satisfying their customers.”

That’s either a remarkable example of the power of rationalization, or they were lying to themselves, figuring that when the house of cards finally fell, somebody else would have to clean it up.

That would be us, the taxpayers.

Simply infuriating. Read it all.

Filed under: * Economics, Politics • Economy • Credit Markets • The 2009 Obama Administration Bank Bailout Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • The National Deficit • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

The U.S. government waded deeper into the bailout of one of the nation's largest banks Friday when it announced a deal that will give it control over as much as 36% of Citigroup's common stock.

Citigroup shares tumbled 46% in premarket trading.

The deal will convert preferred shares that Treasury already holds in Citigroup for common shares, a shift that is designed to improve the embattled bank's capital base, which in turn will hopefully allow it to increase its lending.

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The Banking System/Sector • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • The National Deficit • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

Bill Clinton declared more than a decade ago "the era of big government is over." With his new budget, President Barack Obama has brought it back.

Obama's $3.55 trillion budget proposal represents a gamble that Americans are ready for the sort of change they embraced by electing him in November, including a tax increase on Americans making more than $250,000 a year.

He proposes expansion of spending on the U.S. healthcare system, on greater energy independence and on education, hoping Americans weary of paying for a raft of expensive bailouts for banks and the car industry will go along.

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

President Obama has concentrated enormous power on a few aides in the West Wing of the White House. These aides are unrolling a rapid string of plans: to create 3 million jobs, to redesign the health care system, to save the auto industry, to revive the housing industry, to reinvent the energy sector, to revitalize the banks, to reform the schools - and to do it all while cutting the deficits in half.

If ever this kind of domestic revolution were possible, this is the time and these are the people to do it. Yet they set off my Burkean alarm bells.

I fear that in trying to do everything at once, they will do nothing well. I fear that we have a group of people who haven't even learned to use their new phone system trying to redesign half the U.S. economy.

I fear they are going to try to undertake the biggest administrative challenge in American history while refusing to hire the people who can help the most: agency veterans who are registered lobbyists.

I worry that we're operating far beyond our economic knowledge.

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • The National Deficit • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

The government faced mounting pressure on Monday to put billions more in some of the nation’s biggest banks, two of the biggest automakers and the biggest insurance company, despite the billions it has already committed to rescuing them.

The government’s boldest rescue to date, its $150 billion commitment for the insurance giant American International Group, is foundering. A.I.G. indicated on Monday it was now negotiating for tens of billions of dollars in additional assistance as losses have mounted.

Separately, the Obama administration confirmed it was in discussions to aid Citigroup, the recipient of $45 billion so far, that could raise the government’s stake in the banking company to as much as 40 percent.

The Treasury Department named a special adviser to work with General Motors and Chrysler, two of Detroit’s biggest automakers, which are seeking $22 billion on top of the $17 billion already granted to them.

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • The National Deficit • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

Ugh.

Filed under: * Economics, Politics • Economy • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • The National Deficit • Politics in General

It seems like politicians for months have been throwing around numbers in the billions and saying that unless the government acts right now everything will get worse. What is going on?

The economic system was hit was a flurry of crises at roughly the same time, and there isn't a single solution to all of the problems, even though they are connected.

What is the housing crisis?

Both political parties have supported the idea that individuals should own their own homes. But in pursuing that goal, some financial institutions lent money to people who could not afford the long-term commitment, which often included rising interest rates after an initial period of low payments. Critics complain that a variety of financing vehicles snared people into impossible situations, especially as prices of homes fell and the monthly mortgage payment rose.

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Filed under: * Economics, Politics • Economy • Consumer/consumer spending • Credit Markets • Housing/Real Estate Market • Labor/Labor Unions/Labor Market • The 2009 Obama Administration Bank Bailout Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • The National Deficit • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

The Obama administration is committing huge sums of money to rescuing banks, but the veterans of Japan’s banking crisis have three words for the Americans: more money, faster.

The Japanese have been here before. They endured a “lost decade” of economic stagnation in the 1990s as their banks labored under crippling debt, and successive governments wasted trillions of yen on half-measures.

Only in 2003 did the government finally take the actions that helped lead to a recovery: forcing major banks to submit to merciless audits and declare bad debts; spending two trillion yen to effectively nationalize a major bank, wiping out its shareholders; and allowing weaker banks to fail.

By then, Tokyo’s main Nikkei stock index had lost almost three-quarters of its value. The country’s public debt had grown to exceed its gross domestic product, and deflation stalked the land. In the end, real estate prices fell for 15 consecutive years.

More alarming? Some students of the Japanese debacle say they see a similar train wreck heading for the United States.

“I thought America had studied Japan’s failures,” said Hirofumi Gomi, a top official at Japan’s Financial Services Agency during the crisis. “Why is it making the same mistakes?”

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Filed under: * Economics, Politics • Economy • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General • Office of the President • President Barack Obama • * International News & Commentary • America/U.S.A. • Asia • Japan

A: Basically what happens is that after a period of time, economies go through a long-term debt cycle -- a dynamic that is self-reinforcing, in which people finance their spending by borrowing and debts rise relative to incomes and, more accurately, debt-service payments rise relative to incomes. At cycle peaks, assets are bought on leverage at high-enough prices that the cash flows they produce aren't adequate to service the debt. The incomes aren't adequate to service the debt. Then begins the reversal process, and that becomes self-reinforcing, too. In the simplest sense, the country reaches the point when it needs a debt restructuring. General Motors is a metaphor for the United States.

Q: As goes GM, so goes the nation?

A: The process of bankruptcy or restructuring is necessary to its viability. One way or another, General Motors has to be restructured so that it is a self-sustaining, economically viable entity that people want to lend to again.

This has happened in Latin America regularly. Emerging countries default, and then restructure. It is an essential process to get them economically healthy.

We will go through a giant debt-restructuring, because we either have to bring debt-service payments down so they are low relative to incomes -- the cash flows that are being produced to service them -- or we are going to have to raise incomes by printing a lot of money.

It isn't complicated. It is the same as all bankruptcies, but when it happens pervasively to a country, and the country has a lot of foreign debt denominated in its own currency, it is preferable to print money and devalue.

Q: Isn't the process of restructuring under way in households and at corporations?

A: They are cutting costs to service the debt. But they haven't yet done much restructuring. Last year, 2008, was the year of price declines; 2009 and 2010 will be the years of bankruptcies and restructurings. Loans will be written down and assets will be sold. It will be a very difficult time. It is going to surprise a lot of people because many people figure it is bad but still expect, as in all past post-World War II periods, we will come out of it OK. A lot of difficult questions will be asked of policy makers. The government decision-making mechanism is going to be tested, because different people will have different points of view about what should be done.

--Ray Dalio, Chief Investment Officer, Bridgewater Associates in this weekend's Barrons (full content limited to subscribers)

Filed under: * Economics, Politics • Economy • Consumer/consumer spending • Credit Markets • Housing/Real Estate Market • Personal Finance • Stock Market • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General • Office of the President • President Barack Obama

The "massive overhaul" of the banking bailout will be announced a day later than expected.

Treasury Secretary Timothy Geithner was originally scheduled to give full details about the changes to the rescue plan in a speech midday Monday. But the Treasury Department said Sunday that the plan will be announced Tuesday instead, in order for Geithner to focus on the stimulus bill that is being debated in the Senate.

"With record high job losses, and weakening economic forecasts, we're focused on working with Congress to pass an economic recovery bill so we can create the jobs and make the investments necessary to get our economy moving again," said Treasury spokesperson Isaac Baker in a statement. "Economic officials administration wide will be working and consulting with senators throughout the day."

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Filed under: * Economics, Politics • Economy • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General • Office of the President • President Barack Obama

It began as a subprime surprise, became a credit crunch and then a global financial crisis. At last week's World Economic Forum in Davos, Switzerland, Russia and China blamed America, everyone blamed the bankers, and the bankers blamed you and me. From where I sat, the majority of the attendees were stuck in the Great Repression: deeply anxious but fundamentally in denial about the nature and magnitude of the problem....

[Leaders] need to grow up and face the harsh reality: The Western world is suffering a crisis of excessive indebtedness. Governments, corporations and households are groaning under unprecedented debt burdens. Average household debt has reached 141% of disposable income in the United States and 177% in Britain. Worst of all are the banks. Some of the best-known names in American and European finance have liabilities 40, 60 or even 100 times the amount of their capital.

The delusion that a crisis of excess debt can be solved by creating more debt is at the heart of the Great Repression. Yet that is precisely what most governments propose to do.

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Filed under: * Culture-Watch • Globalization • * Economics, Politics • Economy • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package

The federal government overpaid for stocks and other assets in attempting to help financial institutions last year, a government watchdog said Thursday, taking further issue with the beleaguered $700 billion rescue program.

Elizabeth Warren, chairwoman of the Congressional Oversight Panel for the bailout funds, told the Senate Banking Committee on Thursday that Treasury in 2008 paid $254 billion and received assets worth about $176 billion.

The figures were reached by extrapolating the results of a study of 10 government transactions, comparing the price paid by Treasury and the value of the asset at the time of purchase. Warren did not present details of the transactions the panel analyzed. A full report will be released Friday.

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Filed under: * Economics, Politics • Economy • Credit Markets • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package

The Obama administration is expected to impose a cap of $500,000 for top executives at companies that receive large amounts of bailout money, according to people familiar with the plan.

Executives would also be prohibited from receiving any bonuses above their base pay, except for normal stock dividends.

President Obama and Treasury Secretary Timothy F. Geithner plan to announce the executive compensation plan on Wednesday morning at the White House.

The new rules would be far tougher than any restrictions imposed during the Bush administration, and they could force executives to accept deep reductions in their current pay. They come amid rising public fury about huge pay packages for executives at financial companies being propped up by federal tax dollars.

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Filed under: * Economics, Politics • Economy • Stock Market • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General • Office of the President • President Barack Obama

Call it the Great Repression. The reality being repressed is that the western world is suffering a crisis of excessive indebtedness. Many governments are too highly leveraged, as are many corporations. More importantly, households are groaning under unprecedented debt burdens. Worst of all are the banks. The best evidence that we are in denial about this is the widespread belief that the crisis can be overcome by creating yet more debt.

The US could end up running a deficit of more than 10 per cent of gross domestic product this year (adding the cost of the stimulus package to the Congressional Budget Office’s optimistic 8.3 per cent forecast). Today’s born-again Keynesians seem to have forgotten that their prescription of a deficit-financed fiscal stimulus stood the best chance of working in a more or less closed economy. But this is a globalised world, where unco-ordinated profligacy by national governments is more likely to generate bond market and currency market volatility than a return to growth.

There is a better way to go but it is in the opposite direction. The aim must be not to increase debt but to reduce it. Two things must happen. First, banks that are de facto insolvent need to be restructured – a word that is preferable to the old-fashioned “nationalisation”....

The second step we need to take is a generalised conversion of American mortgages to lower interest rates and longer maturities.

Read it all from the Financial Times.

Filed under: * Economics, Politics • Economy • Credit Markets • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package

The central question facing policy makers: How does the government help banks exorcise their bad bets? For many of these assets, there is no current market price. If the government buys the assets for more than they are ultimately worth, taxpayers will take the hit. If the government pays too little, banks will have to record losses on other similar assets, exacerbating the problem.

Read it all from the front page of today's Wall Street Journal.

Filed under: * Economics, Politics • Economy • Credit Markets • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General • Office of the President • President Barack Obama

Some of Mr. Obama’s advisers have asked who the government would get to run the banks. Many of the most experienced executives are tainted by the decisions they made during the age of excess. And how would the government attract the best talent if it demanded that they take minimal pay — a political reality in the current environment?

Another option is for the government to buy the banks’ most toxic assets either through a giant fund, or, more likely, a federally supported bad bank designed to buy up troubled investments. But in that case, taxpayers might well be the losers: They would have all of the banks’ worst assets and none of their performing loans. And unless a deal is worked out to take a larger share of the banks whose bad loans are shuffled off to the government, the taxpayers would not have the chance to benefit by selling the shares back to private investors.

Moreover, cleaning up the banks’ bad assets, without extracting a heavy price for the bank managers, shareholders and their lenders, is exactly what Mr. Summers and Mr. Geithner warned against during the Asian financial crisis.

“We told the Asians that they had to be willing to let banks and companies fail,” said Jeffrey Garten, a professor at the Yale School of Management and a top official in the Clinton administration. “We warned that there was great moral hazard if governments just bailed them out.”

“And now,” he said, “we are doing the polar opposite of our advice.”

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Filed under: * Economics, Politics • Economy • Credit Markets • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General • Office of the President • President Barack Obama

President Bush is leaving office amid the worst recession in 25 years, and naturally his economic policies are getting the blame. But before we move on to the era of Obamanomics, it's important to understand what really happened during the Bush years -- not least so we don't repeat the same mistakes....

By pushing all of this excess credit into the economy, the Fed created a housing and mortgage mania that Wall Street was only too happy to be part of. Yes, many on the Street abandoned their normal risk standards. But they were goaded by an enormous subsidy for debt. Wall Street did get "drunk" but Washington had set up the open bar.

For that matter, most everyone else was also drinking the free booze: from homebuyers who put nothing down for a loan, to a White House that bragged about record home ownership, to the Democrats who promoted and protected Fannie Mae and Freddie Mac. (Those two companies helped turbocharge the mania by using a taxpayer subsidy to attract trillions of dollars of foreign capital into U.S. housing.) No one wanted the party to end, though sooner or later it had to....

This history is crucial to understand, both for the Democrats who now assume the levers of power and for Republicans who will want to return to power some day. Mr. Bush and his team did many things right after inheriting one bubble. They were ruined by monetary excess that created a second, more dangerous credit mania. They forgot one of the main lessons of Reaganomics, which is the importance of stable money.

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Filed under: * Economics, Politics • Economy • Credit Markets • Housing/Real Estate Market • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General • Office of the President • President George Bush

Why save banks if they will not lend?

That has become a significant political issue on both sides of the Atlantic as governments confront the reality that preventing the financial system from collapsing is not the same as repairing it.

In Britain, that led the government of Prime Minister Gordon Brown to announce a new round of bailouts, with a twist. “In return to access to any government support, there will have to be an increase in lending, and that will be legally binding,” Mr. Brown told a news conference today.

In the United States, aides to President-elect Barack Obama sounded a similar theme. “The focus isn’t going to be on the needs of banks,” Mr. Obama’s chief economic adviser, Lawrence H. Summers, said. “It’s going to be on the needs of the economy for credit.”

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Filed under: * Economics, Politics • Economy • Credit Markets • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package

Many commentators have suggestions for Barack Obama on what should be his first meeting at the White House. Here is mine: Mr. Obama and his economic team should convene the 300 leading bank presidents in the East Room and the president should say to each one of them something like this:

“Ladies and gentlemen, this crisis started with you, the bankers, engaging in reckless practices, and it will only end when we clean up your mess and start afresh. The banking system is the heart of our economy. It pumps blood to our industrial muscles, and right now it’s not pumping. We all know that in the past six months you’ve gone from one extreme to another. You’ve gone from lending money to anyone who could fog up a knife to now treating all potential borrowers, no matter how healthy, as bankrupt until proven innocent. And, therefore, you’re either not lending to them or lending under such onerous terms that the economy can’t get any liftoff. No amount of stimulus will work without a healthy banking system.

“So here’s what we’re going to do: we’re going to unclog the arteries. My banking experts have analyzed each of your balance sheets. You will tell us if we’re right. Those of you who are insolvent, we will nationalize and shut down. We will auction off your viable assets and will hold the toxic ones in a government reconstruction fund and sell them later when the market rebounds. Those of you who are weak will be merged. And those of you who are strong will receive added capital for your balance sheets, after you write down all your remaining toxic waste. I am not going to continue rewarding the losers and dimwits amongst you with handouts.”

Without this sort of come-to-Jesus strategy, we’re going to continue to just limp along. We’ll never quite confront the real problem because we don’t want to take the upfront pain. Therefore, the market will never clear — meaning start-ups in need of capital will be choked in their cribs and profit-making firms won’t be able to grow as they should.

Read it all. As far as I am concerned, Mr. Friedman hits this one out of the park. This crisis is about massive overleveraging at every level of the economy, especially in the banking system. It has to be fixed, and those who want to fix it need to get ahead of the problem (they are still behind)--KSH.

Filed under: * Economics, Politics • Economy • Credit Markets • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General • Office of the President • President Barack Obama

At the Palm Beach Ritz-Carlton last November, John C. Hope III, the chairman of Whitney National Bank in New Orleans, stood before a ballroom full of Wall Street analysts and explained how his bank intended to use its $300 million in federal bailout money.

“Make more loans?” Mr. Hope said. “We’re not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans.”

As the incoming Obama administration decides how to fix the economy, the troubles of the banking system have become particularly vexing.

Congress approved the $700 billion rescue plan with the idea that banks would help struggling borrowers and increase lending to stimulate the economy, and many lawmakers want to know how the first half of that money has been spent before approving the second half. But many banks that have received bailout money so far are reluctant to lend, worrying that if new loans go bad, they will be in worse shape if the economy deteriorates.

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Filed under: * Economics, Politics • Economy • Credit Markets • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General • Office of the President • President Barack Obama

This week, banks ran into yet deeper crisis: the sector is in more trouble than was feared. As Ben Bernanke, chairman of the US Federal Reserve, noted in a speech in London this week, however, economic recovery will not begin until the financial sector recovers its health. Governments must act.

In October, following a British lead, governments around the world recapitalised their banks. This drastic measure saved the sector from collapse. But, as the events of this week have demonstrated, the banks are still on the ropes....

Governments must now act swiftly to move ahead of the crisis. Ad hoc nationalisation of insolvent banks and recapitalisation of impaired ones is simply not enough. Governments must act to draw out the poisonous uncertainty caused by the toxic assets held by solvent banks.

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Filed under: * Economics, Politics • Economy • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General

The government moved early Friday morning to shore up Bank of America with an additional $20 billion from the bailout fund. The government is still spending the first half of the bailout money. The Senate released the other half of the $750 bailout package Thursday. David Wessel of The Wall Street Journal talks with Renee Montagne about how well the plan is working.

Listen to it all from NPR

Filed under: * Economics, Politics • Economy • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package

Filed under: * Economics, Politics • Economy • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General • Senate

The U.S. government is close to committing billions in additional aid to Bank of America Corp. as the nation's largest bank by assets tries to digest its Jan. 1 acquisition of Merrill Lynch & Co., according to people familiar with the situation.

The discussion began in mid-December when Bank of America, already the recipient of $25 billion in federal rescue funds, told the U.S. Treasury Department it was unlikely to complete its purchase of the ailing Wall Street securities firm because of Merrill's larger-than-expected losses in the fourth quarter, according to a person familiar with the talks.

Treasury, concerned the deal's failure could affect the stability of U.S. financial markets, agreed to work with the Charlotte, N.C. lender on the "formulation of a plan" that includes new government capital. The terms are still being finalized, this person said, and details are expected to be announced with Bank of America's fourth-quarter earnings, due out Jan. 20.

Simply unbelievable. Read it all.

Filed under: * Economics, Politics • Economy • Credit Markets • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package

In Olmstead Falls, Ohio, Superintendent Todd Hoadley sent in the paperwork two days before Thanksgiving to request $100 million from the federal government, half of it for school construction. He has yet to see a check and concedes he dabbling in a bit of hyperbole by latching onto the program, but he says the problems are real.

"We were trying to make the statement: 'Don't forget public education,' " Hoadley says.

In Olmstead Falls, 1,200 students cram into a 40-year-old high school built for 800. The school board wants to cut $1 million from the district's $34 million budget, and Gov. Ted Strickland has asked advisers to see what a 25% statewide school funding cut would look like.

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Filed under: * Culture-Watch • Education • * Economics, Politics • Economy • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package

Republican and Democratic Senate leaders signaled on Monday that they would support the release of the second half of the Treasury's $700 billion financial system bailout fund, despite anger among many rank-and-file lawmakers over the Bush administration's management of the program.

As Congress prepared to act, regulators directed thousands of banks to provide more information about how they have used the money received through the bailout program, responding to concern that financial institutions were hoarding the cash rather than lending it to businesses and consumers.

President-elect Barack Obama said on Monday that like Democrats and Republicans on Capitol Hill, his administration would demand substantially greater oversight of the program.

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Filed under: * Economics, Politics • Economy • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General

In a move being coordinated with the Obama transition team, senior Bush administration officials are preparing to ask lawmakers for the second half of the $700 billion financial rescue package, despite intense opposition in Congress, sources familiar with the matter said.

The initiative, if it goes ahead, could create an unusual political straddle between the Bush and Obama administrations. If Congress were to vote down the measure, either President Bush or Obama might have to exercise a veto in order to get the money. While Obama officials prefer that current administration issue a veto, the White House is declining to address that question.

Democratic Senate aides were notified in a meeting this afternoon that the request could come as soon as this weekend and that a vote could be held as soon as next week, congressional sources said.

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Filed under: * Economics, Politics • Economy • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General

"See the USA in your Chevrolet!" trilled Dinah Shore week after week on TV.

Can you still see the USA in your Chevrolet? Through a windscreen darkly.

General Motors now has a market valuation about a third of Bed, Bath & Beyond, and no one says your Swash 700 Elongated Biscuit Toilet Seat Bidet is too big to fail. GM has a market capitalization of about $2.4 billion. For purposes of comparison, Toyota's market cap is $100 billion and change (the change being bigger than the whole of GM). General Motors, like the other two geezers of the Old Three, is a vast retirement home with a small money-losing auto subsidiary. The UAW is AARP in an Edsel: It has three times as many retirees and widows as "workers" (I use the term loosely). GM has 96,000 employees but provides health benefits to a million people.

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Filed under: * Economics, Politics • Economy • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General

With a record amount of commercial real-estate debt coming due, some of the country's biggest property developers have become the latest to go hat-in-hand to the government for assistance.

They're warning policymakers that thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies. The reason: according to research firm Foresight Analytics LCC, $530 billion of commercial mortgages will be coming due for refinancing in the next three years -- with about $160 billion maturing in the next year. Credit, meanwhile, is practically nonexistent and cash flows from commercial property are siphoning off.

Unlike home loans, which borrowers repay after a set period of time, commercial mortgages usually are underwritten for five, seven or 10 years with big payments due at the end. At that point, they typically need to be refinanced. A borrower's inability to refinance could force it to give up the property to the lender.

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Filed under: * Economics, Politics • Economy • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package

UNFORTUNATELY, Treasury Secretary Henry M. Paulson Jr. has turned this old song into the unofficial theme of the Troubled Assets Relief Program, the $700 billion bailout. His frequent changes of direction are not only embarrassing, they also upset the very markets this program was designed to calm.

It pains me to say this, because I was among the first to call upon Congress to create two institutions to deal with the financial crisis: one to buy and refinance home mortgages, the other to buy what came to be called “troubled assets.” The legislation signed in October empowered the TARP to do both. Sadly and amazingly, it has done neither.

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Filed under: * Economics, Politics • Economy • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General

President Bush has grudgingly allowed General Motors and Chrysler to drive away with the last few billion bucks in Treasury's TARP till, which boasted $350 billion a mere 77 days ago.

How did it all slip away so fast?

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Filed under: * Economics, Politics • Economy • Credit Markets • Housing/Real Estate Market • Labor/Labor Unions/Labor Market • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General

“We need a Czar Czar, to crack the whip on all the czars. … P.S.: Also a federal czar policy. Right now, czar decisions are made on an ad hoc, case-by-case basis, with no attempt at czar harmonization.”

Mickey Kaus

Filed under: * Economics, Politics • Economy • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General

MS. CARLY FIORINA: ...I think all of those statistics are an important reminder. While we have been focused in Washington on big companies...

...the Detroit automakers, and big unions, the truth is we're not as concerned, and we should be, about the hundreds and thousands of small businesses who actually create two-thirds of the jobs in this country. Which brings me all the way back to the original problem. We have a recession, a deepening recession right now because credit is unavailable. Credit is unavailable to small businesses so they can't hire. When hundreds of small businesses can't hire 10 and 15 people, over time that creates big unemployment numbers. They may not have big unions to represent their interests in Washington. They're the little guy, but the little guy matters. When credit isn't available, consumers don't have the money they need to spend. So I think we have to go back to the root of this problem, ultimately, which is credit is still unavailable. And that is despite massive bailouts of big financial institutions who are still not lending (my emphasis).

Read it all from today's edition of Meet the Press (and comments from two others besides these three also).

Filed under: * Economics, Politics • Economy • Credit Markets • Housing/Real Estate Market • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General

"Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt," said [Jim] Rogers, who is now a private investor.

"What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent," he said. "What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics."

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Filed under: * Economics, Politics • Economy • Credit Markets • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package

BTW, while...[the] folks in the Big Media churned out hundreds of thousands of words...waxing euphoric about the prospect for enhanced back office clearing of CDS contracts, the real issue is the festering credit situation in the front office. Truth is that the DTCC and the other dealers, working at the behest of Mr. Geithner, Gerry Corrigan and many others, have largely fixed the operational issues dogging the CDS markets. The danger of CDS is not a systemic blowup - though that will come soon enough. It is the normal operation of the now electronically enabled CDS market wherein lies the threat to the entire global financial system, this via the huge drain in liquidity illustrated above as CDS contracts are triggered by default events.

The only way to deal with this ridiculous Ponzi scheme is bankruptcy. The way to start that healing process, in our view, is by the Fed emulating the FDIC's treatment of DSL, withdrawing financial support for AIG and pushing the company into the arms of the bankruptcy court. The eager buyers for the AIG insurance units, cleansed of liability via a receivership, will stretch around the block.

By embracing Geithner, President-elect Barack Obama is endorsing the ill-advised scheme to support AIG directed by Hank Paulson et al at Goldman Sachs and executed by Tim Geithner and Ben Bernanke. News reports have already documented the ties between GS and AIG, and the backroom machinations by Paulson to get the deal done. This scheme to stay AIG's resolution cannot possibly work and when it does collapse, Barak Obama and his administration will wear the blame due through their endorsement of Tim Geithner.

Read it carefully and read it all.

Filed under: * Economics, Politics • Economy • Credit Markets • Stock Market • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • US Presidential Election 2008

American International Group Inc. owes Wall Street's biggest firms about $10 billion for speculative trades that have soured, according to people familiar with the matter, underscoring the challenges the insurer faces as it seeks to recover under a U.S. government rescue plan.

The details of the trades go beyond what AIG has explained to investors about the nature of its risk-taking operations, which led to the firm's near-collapse in September. In the past, AIG has said that its trades involved helping financial institutions and counterparties insure their securities holdings. The speculative trades, engineered by the insurer's financial-products unit, represent the first sign that AIG may have been gambling with its own capital.

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Filed under: * Economics, Politics • Economy • Credit Markets • Stock Market • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package

i found this helpful.

Filed under: * Economics, Politics • Economy • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package

To understand how the short-term response might serve the country’s long-term economic interest, I called up Michael Porter, the competitiveness guru at Harvard Business School. Porter wrote an outstanding overview of America’s long-term economic challenges in the Oct. 30 issue of BusinessWeek.

Porter wrote that the U.S. economy has historically benefited from several great assets: an unparalleled environment for entrepreneurialism, a tremendous infrastructure for scientific research, the world’s best universities, a strong commitment to competition and free markets, decentralized regional economies, and efficient capital markets.

But, Porter continued, these advantages are starting to erode. The U.S. has an inadequate rate of reinvestment in science and technology. America’s confidence in free markets is waning. Lack of regulatory oversight has undermined capital markets. Universities have not sufficiently increased graduation rates. American workers do not have a credible safety net. Regulations and litigation have inflated the cost of business. Most important, there is no long-term economic strategy to organize responses to these problems.

I asked Porter how this short-term crisis might serve as an opportunity to address those long-term problems. First, he said, the Obama team will have to avoid a few temptations: Don’t just try to throw out money as fast as possible to stimulate demand. Don’t spread the spending around too thinly. Don’t try to save jobs that are going to disappear anyway.

Then he threw out a bunch of ideas that could be part of a stimulus package....

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Filed under: * Culture-Watch • Science & Technology • * Economics, Politics • Economy • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General

In the old days -- from the Venetian Republic to, oh, the Bear Stearns rescue -- if you wanted to get rich, you did it the Warren Buffett way: You learned to read balance sheets. Today you learn to read political tea leaves. If you want to make money on Wall Street (or keep from losing your shirt), you do it not by anticipating Intel's third-quarter earnings but by guessing instead what side of the bed Henry Paulson will wake up on tomorrow.

Today's extreme stock market volatility is not just a symptom of fear -- fear cannot account for days of wild market swings upward -- but a reaction to meta-economic events: political decisions that have vast economic effects.

As economist Irwin Stelzer argues, we have gone from a market-driven economy to a politically driven economy....

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Filed under: * Economics, Politics • Economy • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General

Pub-owner Sean Hughes, who's his 20s, has seen a big change in people's spending habits even in his young life.

SEAN HUGHES, Pub Owner: When I was very young, I mean, it was different then, because credit wasn't a real kind of thing in people's lives. It was obviously -- you know, if you had the money to buy something, then you could buy it.

Whereas now, people just seem to look at something like a television, and be like, "I want that," and they can get it, because they can get on no percent interest or they can get it on whatever.

SELLER: We got things for 5 pounds, 10 pounds, 20 pounds.

MARGARET WARNER: That attitude led many British consumers, especially younger ones, to run up huge levels of personal debt, more than even in the United States. Total household indebtedness here, credit card and mortgage debt combined, stands at 160 percent of GDP, the highest in the developed world....

MARGARET WARNER: But now British banks are squeezing these consumers through their credit cards. Credit counselor Jahanara Hussain works for a nonprofit in London's East End.

Read or watch the whole thing.

Filed under: * Economics, Politics • Economy • Credit Markets • Personal Finance • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • * International News & Commentary • England / UK

Here is one:

Re “For Detroit, Chapter 11 Would Be the Final Chapter” (Op-Ed, Nov. 24): Spencer Abraham, like all who have spoken in support of the auto industry, talks as if Chapter 11 would kill the American auto industry. When will he and others present a more realistic scenario?

A Chapter 11 filing may be the middle ground between the government-financed “trust me,” pain-free, business-as-usual path Detroit prefers and its straw man, the draconian forecast of Chapter 7 with its accompanying specter of a near-term liquidation of the entire American auto industry. It may also be the only way the automakers can revise their contracts to shrink their businesses to the existing market.

General Motors, for one, has too many models, too many plants, too many employees and too many dealers to support the 20 percent share it has whittled itself down to over 30 years.

Its leaders must demonstrate a willingness to make what’s good for the United States taxpayer good for G.M.

Roy Fuchs
Trumbull, Conn

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Filed under: * Economics, Politics • Economy • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General

The 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.

When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some Congress members are calling for the Fed to be reined in.

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Update:Barry Ritholtz notes that "Jim Bianco of Bianco Research crunched the inflation adjusted numbers. The bailout has cost more than all of these big budget government expenditures – combined":

• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion

______________________________________________________________________

data courtesy of Bianco Research

Read all he has to say as well.

Filed under: * Economics, Politics • Economy • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package

The Federal Reserve said Tuesday that it would buy up to $600 billion in mortgage-backed assets in another attempt to deal with the financial crisis.

The Fed said it would purchase up to $100 billion in direct obligations from the mortgage finance giants Fannie Mae and Freddie Mac as well as the Federal Home Loan Banks. It also will purchase another $500 billion in mortgage-backed securities, pools of mortgages that are bundled together and sold to investors.

The $600 billion effort on mortgages came as the Fed also unveiled a program to help unfreeze the market that backs consumer debt such as credit cards, auto loans and student loans.

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Filed under: * Economics, Politics • Economy • Credit Markets • Housing/Real Estate Market • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package

The trillions of dollars in public funds U.S. officials are putting on the line to stabilize financial markets and protect the economy from a deep recession would, in normal times, inspire fear of soaring inflation and a tumbling dollar.

But these are not normal times.

"The patient's on the floor right now. You want to get him up off the floor; then you worry about diet and exercise," said James Horney of the Center on Budget and Policy Priorities.

Read it all. Well, the Reuters headline says it is not a worry now but it is to a lot of us, and it should be as demonstrated in this article in this past weekend's Barrons by Jack Willoughby. Make sure to read that also--KSH.

Filed under: * Economics, Politics • Economy • Credit Markets • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package

Rushing to rescue Citigroup, the government agreed to shoulder hundreds of billions of possible losses at the stricken bank and to plow a fresh $20 billion into the company.

Regulators hope the dramatic action will bolster badly shaken confidence in the once mighty banking giant as well as the nation's financial system, a goal that so far has been elusive despite a flurry of government interventions to battle the worst global crisis since the 1930s.

The action, announced late Sunday by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp., is aimed at shoring up a huge financial institution whose collapse would wreak havoc on the already fragile financial system and the U.S. economy.

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Filed under: * Economics, Politics • Economy • Credit Markets • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package

This is the real "Code Red." As one banker remarked to me: "We finally found the WMD." They were buried in our own backyard - subprime mortgages and all the derivatives attached to them.

Yet, it is obvious that President Bush can't mobilize the tools to defuse them - a massive stimulus program to improve infrastructure and create jobs, a broad-based homeowner initiative to limit foreclosures and stabilize housing prices, and therefore mortgage assets, more capital for bank balance sheets and, most importantly, a huge injection of optimism and confidence that we can and will pull out of this with a new economic team at the helm.

The last point is something only a new President Obama can inject. What ails us right now is as much a loss of confidence - in our financial system and our leadership - as anything else. I have no illusions that Obama's arrival on the scene will be a magic wand, but it would help.

Right now there is something deeply dysfunctional, bordering on scandalously irresponsible, in the fractious way our political elite are behaving - with business as usual in the most unusual economic moment of our lifetimes. They don't seem to understand: Our financial system is imperiled.

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Filed under: * Economics, Politics • Economy • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General • US Presidential Election 2008

Federal regulators were considering a new rescue for Citigroup on Sunday, a step that could mark a third leg of the government’s broader efforts to bolster the nation’s financial industry, according to people briefed on the plan.

Under the proposal, the government would shoulder losses at Citigroup if those losses exceeded certain levels, according to these people, who spoke on the condition that they not be identified because the plan was still under discussion.

If the government should have to take on the bigger losses, it would receive a stake in Citigroup. The banking giant has been brought to its knees by gaping losses on mortgage-related investments.

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Filed under: * Economics, Politics • Economy • Credit Markets • Housing/Real Estate Market • Stock Market • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General

Whatever our personal views on this election might be, the outcome is the same for all of us. All of us, no matter what our political perspective or our hopes for our nation and our world, are in this together.

Part of the deep tradition of the Episcopal Church is to pray for our leaders: rarely if ever have these prayers been more needed. Our nation and our world face vast and staggeringly complex problems; none of which can be solved quickly and easily. The problems are economic but they are aspirational as well. Bluntly put: how do we pay for things, and why do we make the particular choices that we do. As we answer that question we raise the deepest question of all: to what end do we live and move and have our being?

These will be testing times; times that, unless we are careful, will tempt us to pit one part of the population against another. Increasingly it will become clear to all that the journey will be long and it will be difficult. Speaking in economic terms, there will be a price to be paid: no one will be exempt. That being said, it is of fundamental importance that we, as a people, not give in to the temptation to balance budgets at the expense of those who simply lack the power to make their needs heard: the poor and those who serve the poor. However, sad to say, if history is any indicator, this is exactly what will happen.

I find it more than a little ironic that when the issue of meeting basic human needs is raised: be that education, or healthcare, or housing for the homeless, a common objection is the firm and wise sounding declaration: you know, you can't just throw money at a problem. And yet, when financial institutions are in crisis, led by the very well paid people, who did so much to bring us this crisis in the first place, when they ask for aid that is exactly what happens. Money has been thrown at the problem. And it has been thrown without a really clear understanding of exactly what it will actually accomplish. As you know so well, we're not talking here about billions of dollars, or tens of billions, not even hundreds of billions, but, in the end, something in excess of a trillion dollars. In human terms this is more money than the human mind can fathom.

Mind you, I am not saying that this shouldn't be done, or that it won't work. What I am saying is that we should keep all these things in perspective and be mindful of just who finally is asked to actually pay the price for the national excess that has brought us to this sad moment.

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Filed under: * Anglican - Episcopal • Episcopal Church (TEC) • TEC Bishops • TEC Diocesan Conventions/Diocesan Councils • * Economics, Politics • Economy • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • US Presidential Election 2008

You have a Treasury Secretary that seems to have left the field before the end of the third quarter.

--Charles Gabriel at Alpha Partners speaking this week about Hank Paulson

Filed under: * Economics, Politics • Economy • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General

Citigroup Inc. will probably get rescued by the U.S. government after a crisis in confidence erased half its stock-market value in three days, investors and analysts said.

Citigroup has more than $2 trillion of assets, dwarfing companies such as American International Group Inc. that got U.S. support this year. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid the chaotic aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September.

“There is no question that Citi is in the category of ‘too big to fail,’” said Michael Holland, chairman and founder of Holland & Co. in New York, which oversees $4 billion. “There is a commitment from this administration and the next to do what it takes to save Citi.”

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Filed under: * Economics, Politics • Economy • Credit Markets • Housing/Real Estate Market • Stock Market • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • Politics in General