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The TRUTH About the $700 Billion "BAILOUT": Options
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zigzagman		Posted: Tuesday, October 14, 2008 11:19:12 PM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		THIS ARTICLE REFERS TO THE $250 BILLION THE FED SENT TO NINE U.S. BANKS TODAY: So you stole $250 billion that you allegedly were going to buy mortgages with (we knew that was a scam up front, as I said, but heh, you had to keep up the appearances until the ink was dry right?) and blew it on preferred stock in the banks - directly. Sounds kinda Swedish. Except its not, because the Swedes, when they had this same sort of problem with their banks, did two things you didn't: 1. Forced shareholders to take all loss before taxpayer money was used. 2. Forced full, complete balance sheet transparency. The second is the critical item and the one that you and Bernanke have continually refused to address. Yet this is the root of the problem with trust, when you get down to it. Nobody trusts the banks to lend to them because they have been shown repeatedly, over the last year, to be lying about their exposures and the state of their balance sheets, to the point of their CEOs showing up on national television days before they filed bankruptcy (as in the case of Bear Stearns)! You have repeatedly thrown tens or even hundreds of billions of dollars at these institutions and it has, in each and every instance, disappeared into a black hole. This will continue to happen until the truth is disclosed. At best you've gotten a transient improvement in the credit markets but as the liars have continued to be exposed, and the prosecutions haven't begun, the market has come to discount everything you say to zero and now your "saves" don't even get a full day's worth of market reaction before spreads start to blow out and the stock market once again tanks! We the people are not stupid Ben and Hank. You can only lie to people, both here in America and elsewhere, for a certain amount of time before your credibility is destroyed - from that point forward people demand proof before believing anything that might come out of your mouth. You and Ben (not to mention George Bush) crossed that Rubicon months ago. We know, for example, that Ben threw $630 billion dollars into the system on the very day you (Hank) were claiming martial law would be imposed in America if you didn't get "your" bill, and yet the credit markets did not unlock. You got your $700 billion bill, but the credit markets did not unlock. A month earlier, you did the same thing with Fannie and Freddie to the tune of $300 billion, and the credit markets did not unlock. Today you made your announcement and every bank in the world knew that these institutions in the United States were guaranteed with the full faith and credit of the United States, yet the credit markets still did not unlock! How much more can you guarantee beyond the full faith and credit of The United States? Answer: There is no further guarantee you can extend beyond the sovereign credit of The United States. You have used the last shell in the gun, and the credit monster singularity is still sucking up all the money. If this doesn't work this nation's economy is finished, and it won't work because the root cause of this problem isn't too little liquidity - its that too much liquidity has been provided for too long to cover up insolvencies. This has allowed rampant lying and fraud to become so prevalent that everyone is both doing it and believes everyone else is engaged in it too! As a result they trust nobody because they are dirty and presume (accurately so, it seems) that everyone else is concealing the same sort of trash they're hiding. Ben, Hank, Congress - there is exactly one way to stop this. You must force full and complete balance sheet transparency for every firm on Wall Street. Period. No mark to model, no Level 3, no SIVs, no concealment of any kind. You have put in place the most mighty of guarantees of both solvency and liquidity that you possess - the full faith and credit of The United States, in conjunction with the full faith and credit of other G7 nations. It did not unlock the markets. Congress: You have listened to Ben and Hank repeatedly sing the same song, and each and every time they do so, you have given them what they demand and what they claim will solve the problem. In each case the prescribed medicine has been laughed at by the cancer in the financial system, as it has sucked up every dime you have provided. If this disastrous course of action is not altered we will find ourselves with an unfundable budget deficit and a Bond Market dislocation. This will result in an economic depression, just as it did in the 1930s. You may be getting to the dislocation by a different path than they did in the 1930s, but we are headed both the same event and an identical result! I repeat for you this chart from previous Tickers: See the end of that "Quality Flight" ramp job? That's where we are - just going over the edge. 2 year swap spreads widened today, the TED spread is still at historic highs, and worse, Fannie and Freddie's spreads blew out to record wides. Huh? Well why would you own agencies if you can have a full faith and credit guarantee on bank debt that has a higher coupon? You wouldn't, which means that we now get.... So much for helping the housing industry. You didn't say you needed a mortgage by chance, did you? Do not believe for a second that a single thing done by these folks is going to help Main Street - or you. It will not, just as it has not. Oil and food price ramps, mortgage spreads, the stock market and the economy after jawboning repeatedly with "the economy is fundamentally strong" (instead of warning people that we were headed into a recession and might want to prepare for that!) and more. "Main Street" will continue to get the most unpleasant of surprises if the course of action in Washington, most particularly the actions undertaken by The Fed and Treasury, is not reversed now. How bad can it get? "Oct. 14 (Bloomberg) -- Iceland's benchmark stock index plunged 77 percent, the biggest decline on record, as trading resumed after a three-day suspension and the nationalization of the country's largest banks." Think it can't happen here? The price of every imported good tripling overnight as the currency crashes by 2/3rds instantly? That is what happened to Iceland - literally overnight. If we don't force transparency of all financial institutions balance sheet and capital positions, this may be coming to a stock market - and grocery market - near you. THIS ARTICLE ALSO REFERS TO THE $250 BILLION SENT TO NINE U.S. BANKS TODAY: "See, buried in that bill was a nasty little catch-all "any other asset the Treasury says promotes financial stability." One little sentence, with which you surrendered forever the principles of economic capitalism and replaced them with government totalitarianism. Fascism. And a week later half of that money was instead spent on a massive bailout of Wall Street through the injection of perpetual preferred stock, saving every single nickel of executive stock and options. No dilution of existing shareholders, nor any haircut for their bondholders, thereby preventing the capital structure of the firms from absorbing the losses as is intended and required under the law. In other words, you, The Taxpayer, have been intentionally looted by the puppet-masters at Treasury (Hank Paulson) and The Fed (Bernanke, Geithner, et.al) to the tune of $250 billion dollars, while these folks in the so-called "private sector" keep each and every nickel of the money they stole from you while peddling their fraudulently-sold and packaged subprime and Option ARM mortgages. Law standing for more than 200 years intended to guarantee that the stockholders and bondholders of a firm stand in a carefully-chosen capital structure as the cushion when a firm becomes incapable of providing for itself was destroyed not through the operation of law or statute, but by executive fiat. Instead of being forced to accept the loss that should have come from the imprudent and even felonious acts of these firms and their executives, we, the taxpayer, are instead having our pockets picked, with our children and grandchildren, along with those not yet born, being forced to absorb the bill. Instead of those stockholders being expected to shoulder the loss as a direct consequence of their refusal to hold management accountable for its bad conduct, we the people are handed that loss in the form of foreclosures, higher interest rates and insane inflationary spirals. Unlike in Sweden, which had a similar banking crisis, no disclosure of balance sheet "asset values" has been required, no executives were fired, compensation was not clawed back and no executive stock or options were voided. Those who "invested" in these firms were "protected" from the just cost of the foibles and even felonies committed by any and all up and down the chain, and the executives have kept their homes and yachts in The Hamptons - not because they earned them, but because our so-called "government" granted to them a monstrous bailout check written on your wallet, your children and your grandchildren. You, on the other hand, will get exactly nothing out of this. Not one job will be created. House prices will continue to fall and foreclosures will continue to mount. The "bankruptcy reform" law remains, meaning if you can't pay you will be turned into a perpetual debt slave. The real economy will get nothing from this. Bridges, roads and schools will receive not one nickel from this massive transfer of your money to the wealthy bankers who robbed, cheated and stole from you. States will get nothing, even though their budgets are squeezed as well. In short, none of the money is going to help you, the consumer, the real economy, or the state in which you live. All of it is being spent to bail out the institutions, shareholders and executives in the firms that intentionally created this mess in the first place by screwing people up and down the line for the previous ten years." http://market-ticker.denninger.net/authors/2-Karl-Denninger www.stock-market-lessons.com
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stockman		Posted: Tuesday, October 14, 2008 11:39:09 PM
Rank: Advanced Member Joined: 6/15/2008 Posts: 240		zigzagman: So our economy will be like Iceland? What is your interpretation of our future and do you agree?
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zigzagman		Posted: Tuesday, October 14, 2008 11:39:10 PM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		New Bailout Package Helps, But More May Be Needed: By Albert Bozzo Senior Features Editor | 14 Oct 2008 | 02:25 PM ET The US government’s latest effort to prop up financial institutions and defrost global credit markets takes a big step in the right direction, but it also contains significant shortcomings that show policymakers may still not be ahead of the curve, analysts say. "This is second or third variation of what [Treasury Secretary Henry] Paulson's expected he'd have to do," says William Niskanan, chairman emeritus of the Cato Institute and a former White House economist. The three-part plan outlined Tuesday, mirrored by Washington’s G7 partners, calls for a recapitalization of banks, a guarantee on inter-bank lending and FDIC insurance on non-interesting bearing bank accounts. “I wish we had taken today's steps three weeks ago,” says former FDIC Chairman William Isaac. The $250 billion recapitalization plan, in which the government injects capital in exchange for an equity stake, is drawing the most attention, partly because it follows similar moves by European governments. "This was done by Treasury sooner than it wanted to," says Harvard University's Robert Glauber, who as a top Treasury official helped oversee the government's savings and loan rescue plan almost two decades ago. Glauber says unlike previous measures aimed at liquidity, the currenct batch address confidence and solvency. "This is certainly an admission that the TARP [auction] was taking too long," says Robert Brusca, chief economist at FAO Economics, referring to the controversial Treasury-Federal Reserve plan of three weeks ago, which creates a government auction to purchase bad debts from financial institutions. Regardless of the timing, others say the government needs to commit more money than presently earmarked. “I was a little disappointed with the $250 billion number,” adds Isaac. “It wouldn't surprise me if there is a need for more. I don’t why they couldn’t have said we're prepared to put in what it takes." Under the plan, half of the $250 billion will go to nine big institutions, with the rest available for the other 8,400 banks, savings and loans and credit unions in the country. Though there’s a general perception that the recapitalization has a better and faster chance of working than the auction model, skepticism remains about its effectiveness. “How many banks are going to take a look at this and say thanks but no thanks,” says independent bank analysts Bert Ely. “I think its a major mistake to twist the arms of these banks.” Though the government does not get voting rights with its equity stakes under the plan, it does require participating banks to agree to restrictions on executive compensation, including a ban on so-called golden parachutes, or exit packages, as well as corporate governance rules.. Isaac says the banks have incentive enough in the current economic environment. “I can see some banks coming in” he says. "Banks don't have a lot of room to grow,” so they need new capital to borrow. In essence, every dollar in cash injection, gives them another ten in leverage. Even if the recap plan enjoys only modest success, it still throws doubt on the future of the auction plan, which was never wildly. Some analysts say the government will stick with the fairly unpopular plan, using it sparingly, if only for face-saving reasons. Others say though the auction's value has been diminished, it has some utility. "They need to get bad loans off the balance sheet," says Glauber “It could provide an alternative to mark-to-market [accounting],” says Brusca. “If it helps with price discovery it could become very useful in helping banks reprice their troubled securities.” Isaac, who adamantly opposes the auction process, says if all the budgeted funds don’t go to a recap, some of the money could be used for an economic stimulus package or put to “good use” guaranteeing inter-bank debt. The government lending guarantee measure outlined Tuesday has been sought by many. By reducing, if nor eliminating, risk, it encourages banks to lend money among themselves. That would lower global lending rates, as manifested in Libor, and supposedly start a chain reaction of lending, trickling down to the rest of the economy. The interbank plan “appears to be the one possible aspect of all this," says Ely. But not without risk, says Glauber. "By guaranteeing all the debt, you make it possible for the weak [banks] to borrow a lot of money to try to make themselves whole," doing even more damaage to their balance sheets, what he calls "the S&L problem." Skeptics say even if that works, it does not mean banks will want to lend to consumers and businesses, which is often the case during recessions. “Right now all this propping up is to solve the confidence problem,” says Brusca. “You still haven't fixed the mortgage market, which is a cesspool of securities values.” He says if that’s not fixed – and that’s another rescue plan or group of measures-- then lenders capital wins up getting hurt again. In sum, the latest measures—along with the spate of previous ones—might be considered the beginning of the solution. Much remains to be seen about their implementation and to what extent theory meets reality, particularly because it is sometimes difficult to separate this one-of-a-kind financial crisis and the conventional cyclical economic downturn. "I think the Treasury is asking for almost a blank check because they don't what what's going to work," says Niskanen. http://www.cnbc.com/id/27181300 © 2008 CNBC www.stock-market-lessons.com
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zigzagman		Posted: Tuesday, October 14, 2008 11:57:03 PM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		stockman wrote: zigzagman: So our economy will be like Iceland? What is your interpretation of our future and do you agree? stockman, I doubt if we'll end up like Iceland did today, ever. We have MUCH more money than that tiny country does, and we can keep printing it like crazy when needed. Apparently, we are going to make our children and grand-children pay for this fiasco as the national debt spirals out of control. I do agree with the articles in this thread that we MUST HAVE COMPLETE TRANSPARENCY like they now have in Sweden, or our economy is in for a world of hurt in the very near future. We also need to give the SEC a bigger mandate and budget to enforce violators, and get a better leader than Director Cox. I vote for Elliot Spitzer! He's the kind of "bulldog" we need running the SEC. Of course, his days of public office are over now, but someone like him would be best. They also need to reinstate the uptick rule, and avoid emergency rules like not being able to short 800 financial stocks, which was the stupidest thing I've ever seen them come up with. It blows my mind that $250 billion was spent today on supporting nine U.S. banks that were essentially responsible for the mess we find ourselves in now. This bailout bill was sold to Congress saying it was to support other things than it was just used for today. So now, the crooks on Wall Street walk away without even a slap on the wrist. In fact, they just got rewarded today for their illegal behavior. And they are the ones that created this mess to begin with. The article says it all, and much better. But to be honest, I'M PISSED!!! nuff said... zz www.stock-market-lessons.com
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zigzagman		Posted: Saturday, October 18, 2008 5:28:33 PM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		Why The $700 Billion Landgrab By Wall Street Won't Work, And Other Miscellanea Location: Blogs Bob O'Brien's Sanity Check Blog Posted by: bobo 10/18/2008 6:29 AM America is Wall Street's bitch. It's official. Not that anyone should be surprised. Let's face it, the same lying cheats who created the financial swindle of the century, via now worthless CDO and CMO products, who took out hundreds of billions of dollars in profits directly attributable to the creation of these instruments (a large number of which are likely worthless, as they are backed by non-existent mortgages or the same mortgages re-used countless times), created a crisis of their own devising (by shorting those same CDOs into the ground, thereby reducing the value of the collateral value, thus creating single handedly the "credit crisis"), after lobbying hard in 2004 to eliminate rules that barred the industry from eliminating reality-based loan loss reserves and levering up to dangerous levels, have put the pork to the nation's taxpayers yet again. Never mind that the bailout plan isn't working. Credit markets are still locked up, because the recipients of the bailout aren't doing what they are supposed to with the money - lending it out. No, instead, they are holding on to it, which is sort of the same as saying the plan never would have worked given the character of those involved. But what are they doing with all the taxpayer money they are holding onto? See below from the UK's Guardian: Wall Street banks in $70bn staff payout Pay and bonus deals equivalent to 10% of US government bail-out package * Morgan Stanley $10.7bn * Goldman Sachs $11.4bn, * Morgan Stanley $10.73bn, * JP Morgan $6.53bn * Merrill Lynch $11.7bn. Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned. Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government's cash has been poured in on the condition that excessive executive pay would be curbed. http://www.guardian.co.uk/business/2008/oct/17/executivesalaries-banking Yes, you are reading this right. You were told by the ex-head of Goldman that this wasn't a theft of billions by the Wall Street bankers, no, rather, that this was a necessary stimulus package required to free-up the frozen credit markets. We were treated to countless articles from NY types about how we were all going to die if the bill wasn't passed. Our elected officials overrode the express will of the people, and approved the bill, even as our liar president drove home the canard that this, like most of his other "it's an emergency, do it now!" edicts, needed to happen or the world would end. You know, cause financial weapons of mass destruction were about to be used by, well, some faceless enemy, unless we shelled out $700 billion. We even got to read about how this whole mess was really Main Street's fault, not Wall Street's, and how Main Street would lose unless the bankers got most of Main Street's remaining savings to lubricate the markets. Tisk tisk, the money needed to be approved IMMEDIATELY!!!!! And now we, in a non-US paper, of course, discover what is actually going on. Our money goes, exactly as suspected, to the same Wall Street bankers who screwed us on the whole deal in the first place. My disgust knows no bounds, even as I have zero surprise. It's just amusing to me how quickly they moved, and how brazen the grab is. Anyone who believed this wasn't what it appeared to be, the last theft by our administration's rich white friends, can now digest the above, as well as the articles describing how the banks aren't lending the money they just got for the express purpose of lending. And once again, we can all enjoy another spirited round of Bunny, "I told you so!" Copyright ©2008 Bob O'Brien http://www.thesanitycheck.com/BobsSanityCheckBlog/tabid/56/EntryID/722/Default.aspx www.stock-market-lessons.com
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zigzagman		Posted: Saturday, October 18, 2008 7:46:09 PM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		'We're All Hosed': A Wall Street Insider on the Economic Crisis: by Laura Rowley Posted on Wednesday, October 15, 2008, 12:00AM Earlier this week I interviewed a veteran banker at a major Wall Street investment firm, seeking an insider's view on what caused the current economic crisis, what life is like for people on Wall Street, and what's ahead for the economy. On condition of anonymity, the banker provided a blunt assessment of the risks taken, mistakes made, and the toll of the financial destruction. Here are the highlights: Q: What's the cause of the economic crisis from your perspective? A: There is an awful lot of blame to go around on Wall Street, in Washington, and in the irresponsible behavior of individuals. But stepping back, the critical error was that everyone [thought] there would not be a substantial, nationwide decrease in real estate prices. The whole subprime debacle was predicated on the fact that people said, "Well, this borrower is not really credit worthy and can't afford the house, but in four years it will be up 20 percent or more." It was widely believed that if you had bad mortgages from different geographic areas that all those [real estate markets] weren't going to go down together. You had a pool of 100 bad mortgages from borrowers with low income or bad credit, that were each a piece of [expletive]. The idea was you put them together and now it's not a piece of [expletive]. People believed that through geographic diversification you can diversify risk. That was what undergirded the entire breakdown, and this was not a 3-year phenomenon, it was building for 10 years. Fannie Mae and Freddie Mac were absurdities; those firms were recklessly and incompetently run. Q: What role did the rating agencies play? A: The rating agencies facilitated this by giving investment-grade ratings to the securities. In the stretch for yield, you could [buy] AA-rated corporate bonds and earn 50 basis points over Treasuries, but if you bought AA-rated mortgage-backed securities you'd get 150 basis points. From the buy side, there was a real breakdown in their fiduciary obligation, because they overly relied on ratings agencies and didn't do their own research. Rating agencies are incredibly powerful; you can't do debt financing without them. You have to play by their rules. They hold themselves out as these objective providers of ratings advice, but they are human beings, and [rating structured finance deals] was a higher-margin profit [center] for them. But I think [the bad ratings] were more due to sheer incompetence than being bribed. Q: But weren't these the so-called "smartest guys in the room"? A: These are not the smartest guys in the room. The ratings agencies don't pay as well, so people working there are using it as platform to get on the Street, or they work there because they're tired after a career on the Street, or they couldn't get hired on the Street. Q: But wasn't leverage the real problem? Lehman was leveraged about 30 to 1 when it collapsed. A: The investment banks were imprudently leveraged, but what killed Lehman and Bear was they had bad assets. You can survive a painful downturn -- and believe me, de-leveraging has been painful for everyone, but you can survive. Wachovia was only levered ten times, but had terrible exposure [to bad mortgages] and therefore couldn't raise capital. In hindsight Lehman shouldn't have been leveraged 30 times, but in a bull market having [a leverage ratio] of 25 times is not necessarily crazy. The real issue is asset quality. Q: What's your view of the government's $700 billion-plus bailout? A: I think Paulson was well intentioned around the notion of moral hazard, but he was wrong. I think if he could redo it, he would have saved Lehman. The devastation of Lehman failing -- the implication of their failure is hard to predict. I think you're seeing it play out in the stock market and the credit markets; I think you're going to see some hedge funds go out of business. Some of it has already been made public and some will come soon, but there are a lot of implications of Lehman reflected in the capital markets. Q: What about the move to backstop the commercial-paper market and guarantee money market funds? A: I think it's unfortunate, but it's one of the situations where the government has to step in. You've got to have confidence in the basic functioning of the banking system. The risk borne by the government is quite small, and the benefits are incredibly high. Unlike industrial companies, where bankruptcy works well, it does not work well at all in the financial system and Lehman is a poster child in that regard. If you're one of the big car companies and you go bankrupt, you can keep making cars; it's an ongoing business. With financial institutions, so much of what you do is predicated on confidence -- business literally evaporates overnight. Q: What do you say to the taxpayers who didn't participate in the borrowing frenzy of the last few years, who saved diligently and are now paying the price with their tax dollars? And who may have to pay it again when the baby boomers retire and the government raises taxes to bail out people who haven't saved? A: I also lived very conservatively and did not borrow, and I think we're all going to get hosed. But the reality is it's in our interest that the economy doesn't melt down. I'm a right-wing free market [supporter], and the last person to ask for government intervention, but if we allow a breakdown in the financial system you're going to have a depression. It's like the military -- incredibly expensive, but the cost of not doing it is far worse. Q: What about the characterization that the greedy Wall Street bankers made their millions in the boom and left others holding the bag? A: Everyone on Wall Street wants to make as much money as he can -- we're not missionaries. But no one thought, "Let's do this loan because we know it won't blow up for a while, and we can get fees today or get this year's bonus." Because everyone knows his stock position at a firm is worth far more than this year's bonus. Look at the stock prices and the value of Bear, Lehman, Merrill, Morgan Stanley, Goldman, Deutsche Bank -- that's hundreds of billions of dollars evaporating, and a good chunk of that was owned by employees. For most employees that was the majority, and in some cases all, of their net worth, because of deferred compensation. People read these big numbers that bankers make in good years, but much of it you don't have yet, it's locked up for three to five years; you thought you made $2 million but you actually made $1 million. It's huge value destruction for people who work on Wall Street. There are thousands of unemployed bankers with no prospects to get a job. And on Wall Street, if you're out a year or two, it's as if you never worked there. There's a real bias toward young people. If you're in your mid- to late 40s and you're shot, and you don't get a job in 12 to 18 months, you may never work on the Street again. But I don't feel bad for anybody on Wall Street, because we knew what we signed up for when we got the job. No one complains in the good years, and you have to live your [financial] life accordingly. The guys who bought big houses or a second house or who lived a lifestyle they couldn't afford -- some of those guys have a very tough next couple of years, because they'll be caught on the wrong side of the spiral. Q: What do you see ahead? Should long-term investors be buying equities? A: I think the equity markets will recover before the credit markets will. I think you're going to see much more cautious lending. The U.S. continues to have the best, most innovative workforce, and the core fundamentals are good. There could be more legs down, but over a long period of time as long as we maintain our free markets and have reasonable capital gains taxes and a framework where risk-taking is rewarded, you'll still get the best risk-adjusted rewards in the U.S. http://finance.yahoo.com/expert/article/moneyhappy/115184 www.stock-market-lessons.com
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zigzagman		Posted: Sunday, October 19, 2008 2:28:53 PM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		The Guys From ‘Government Sachs’ Treasury faces, from left: Steve Shafran (formerly of Goldman), Kendrick Wilson III (ditto), Henry Paulson Jr. (you guessed it), Edward Forst (yep) and Neel Kashkari (see a trend?). By JULIE CRESWELL and BEN WHITE Published: October 17, 2008 THIS summer, when the Treasury secretary, Henry M. Paulson Jr., sought help navigating the Wall Street meltdown, he turned to his old firm, Goldman Sachs, snagging a handful of former bankers and other experts in corporate restructurings. In September, after the government bailed out the American International Group, the faltering insurance giant, for $85 billion, Mr. Paulson helped select a director from Goldman’s own board to lead A.I.G. And earlier this month, when Mr. Paulson needed someone to oversee the government’s proposed $700 billion bailout fund, he again recruited someone with a Goldman pedigree, giving the post to a 35-year-old former investment banker who, before coming to the Treasury Department, had little background in housing finance. Indeed, Goldman’s presence in the department and around the federal response to the financial crisis is so ubiquitous that other bankers and competitors have given the star-studded firm a new nickname: Government Sachs. Robert Rubin, right, an ex-Goldman co-chairman and a Treasury secretary in the Clinton administration, promoted Timothy F. Geithner at Treasury. Mr. Geithner now leads the New York Fed The power and influence that Goldman wields at the nexus of politics and finance is no accident. Long regarded as the savviest and most admired firm among the ranks — now decimated — of Wall Street investment banks, it has a history and culture of encouraging its partners to take leadership roles in public service. Joshua B. Bolten, top, a former Goldman executive, is President Bush’s chief of staff. Stephen Friedman, a former chairman of Goldman, is chairman of the New York Fed. This fall, as part of its bailout, the government put Edward M. Liddy, then a Goldman director, in charge of A.I.G. It is a widely held view within the bank that no matter how much money you pile up, you are not a true Goldman star until you make your mark in the political sphere. While Goldman sees this as little more than giving back to the financial world, outside executives and analysts wonder about potential conflicts of interest presented by the firm’s unique perch. They note that decisions that Mr. Paulson and other Goldman alumni make at Treasury directly affect the firm’s own fortunes. They also question why Goldman, which with other firms may have helped fuel the financial crisis through the use of exotic securities, has such a strong hand in trying to resolve the problem. The very scale of the financial calamity and the historic government response to it have spawned a host of other questions about Goldman’s role. Analysts wonder why Mr. Paulson hasn’t hired more individuals from other banks to limit the appearance that the Treasury Department has become a de facto Goldman division. Others ask whose interests Mr. Paulson and his coterie of former Goldman executives have in mind: those overseeing tottering financial services firms, or average homeowners squeezed by the crisis? Still others question whether Goldman alumni leading the federal bailout have the breadth and depth of experience needed to tackle financial problems of such complexity — and whether Mr. Paulson has cast his net widely enough to ensure that innovative responses are pursued. “He’s brought on people who have the same life experiences and ideologies as he does,” said William K. Black, an associate professor of law and economics at the University of Missouri and counsel to the Federal Home Loan Bank Board during the savings and loan crisis of the 1980s. “These people were trained by Paulson, evaluated by Paulson so their mind-set is not just shaped in generalized group think — it’s specific Paulson group think.” Not so fast, say Goldman’s supporters. They vehemently dismiss suggestions that Mr. Paulson’s team would elevate Goldman’s interests above those of other banks, homeowners and taxpayers. Such chatter, they say, is a paranoid theory peddled, almost always anonymously, by less successful rivals. Just add black helicopters, they joke. “There is no conspiracy,” said Donald C. Langevoort, a law professor at Georgetown University. “Clearly if time were not a problem, you would have a committee of independent people vetting all of the potential conflicts, responding to questions whether someone ought to be involved with a particular aspect or project or not because of relationships with a former firm — but those things do take time and can’t be imposed in an emergency situation.” In fact, Goldman’s admirers say, the firm’s ranks should be praised, not criticized, for taking a leadership role in the crisis. “There are people at Goldman Sachs making no money, living at hotels, trying to save the financial world,” said Jes Staley, the head of JPMorgan Chase’s asset management division. “To indict Goldman Sachs for the people helping out Washington is wrong.” Goldman concurs. “We’re proud of our alumni, but frankly, when they work in the public sector, their presence is more of a negative than a positive for us in terms of winning business,” said Lucas Van Praag, a spokesman for Goldman. “There is no mileage for them in giving Goldman Sachs the corporate equivalent of most-favored-nation status.” MR. PAULSON himself landed atop Treasury because of a Goldman tie. Joshua B. Bolten, a former Goldman executive and President Bush’s chief of staff, helped recruit him to the post in 2006. Some analysts say that given the pressures Mr. Paulson faced creating a SWAT team to address the financial crisis, it was only natural for him to turn to his former firm for a capable battery. And if there is one thing Goldman has, it is an imposing army of top-of-their-class, up-before-dawn über-achievers. The most prominent former Goldman banker now working for Mr. Paulson at Treasury is also perhaps the most unlikely. Neel T. Kashkari arrived in Washington in 2006 after spending two years as a low-level technology investment banker for Goldman in San Francisco, where he advised start-up computer security companies. Before joining Goldman, Mr. Kashkari, who has two engineering degrees in addition to an M.B.A. from the Wharton School of the University of Pennsylvania, worked on satellite projects for TRW, the space company that now belongs to Northrop Grumman. He was originally appointed to oversee a $700 billion fund that Mr. Paulson orchestrated to buy toxic and complex bank assets, but the role evolved as his boss decided to invest taxpayer money directly in troubled financial institutions. Mr. Kashkari, who met Mr. Paulson only briefly before going to the Treasury Department, is also in charge of selecting the staff to run the bailout program. One of his early picks was Reuben Jeffrey, a former Goldman executive, to serve as interim chief investment officer. Mr. Kashkari is considered highly intelligent and talented. He has also been Mr. Paulson’s right-hand man — and constant public shadow — during the financial crisis. He played a main role in the emergency sale of Bear Stearns to JPMorgan Chase in March, sitting in a Park Avenue conference room as details of the acquisition were hammered out. He often exited the room to funnel information to Mr. Paulson about the progress. Despite Mr. Kashkari’s talents in deal-making, there are widespread questions about whether he has the experience or expertise to manage such a project. “Mr. Kashkari may be the most brilliant, talented person in the United States, but the optics of putting a 35-year-old Paulson protégé in charge of what, at least at one point, was supposed to be the most important part of the recovery effort are just very damaging,” said Michael Greenberger, a University of Maryland law professor and a former senior official with the Commodity Futures Trading Commission. “The American people are fed up with Wall Street, and there are plenty of people around who could have been brought in here to offer broader judgment on these problems,” Mr. Greenberger added. “All wisdom about financial matters does not reside on Wall Street.” Mr. Kashkari won’t directly manage the bailout fund. More than 200 firms submitted bids to oversee pieces of the program, and Treasury has winnowed the list to fewer than 10 and could announce the results as early as this week. Goldman submitted a bid but offered to provide its services gratis. While Mr. Kashkari is playing a prominent public role, other Goldman alumni dominate Mr. Paulson’s inner sanctum. The A-team includes Dan Jester, a former strategic officer for Goldman who has been involved in most of Treasury’s recent initiatives, especially the government takeover of the mortgage giants Fannie Mae and Freddie Mac. Mr. Jester has also been central to the effort to inject capital into banks, a list that includes Goldman. Another central player is Steve Shafran, who grew close to Mr. Paulson in the 1990s while working in Goldman’s private equity business in Asia. Initially focused on student loan problems, Mr. Shafran quickly became involved in Treasury’s initiative to guarantee money market funds, among other things. Mr. Shafran, who retired from Goldman in 2000, had settled with his family in Ketchum, Idaho, where he joined the city council. Baird Gourlay, the council president, said he had spoken a couple of times with Mr. Shafran since he returned to Washington last year. “He was initially working on the student loan part of the problem,” Mr. Gourlay said. “But as things started falling apart, he said Paulson was relying on him more and more.” The Treasury Department said Mr. Shafran and the other former Goldman executives were unavailable for comment. Other prominent former Goldman executives now at Treasury include Kendrick R. Wilson III, a seasoned adviser to chief executives of the nation’s biggest banks. Mr. Wilson, an unpaid adviser, mainly spends his time working his ample contact list of bank chiefs to apprise them of possible Treasury plans and gauge reaction. Another Goldman veteran, Edward C. Forst, served briefly as an adviser to Mr. Paulson on setting up the bailout fund but has since left to return to his post as executive vice president of Harvard. Robert K. Steel, a former vice chairman at Goldman, was tapped to look at ways to shore up Fannie Mae and Freddie Mac. Mr. Steel left Treasury to become chief executive of Wachovia this summer before the government took over the entities. Treasury officials acknowledge that former Goldman executives have played an enormous role in responding to the current crisis. But they also note that many other top Treasury Department officials with no ties to Goldman are doing significant work, often without notice. This group includes David G. Nason, a senior adviser to Mr. Paulson and a former Securities and Exchange Commission official. Robert F. Hoyt, general counsel at Treasury, has also worked around the clock in recent weeks to make sure the department’s unprecedented moves pass legal muster. Michele Davis is a Capitol Hill veteran and Treasury policy director. None of them are Goldmanites. “Secretary Paulson has a deep bench of seasoned financial policy experts with varied experience,” said Jennifer Zuccarelli, a spokeswoman for the Treasury. “Bringing additional expertise to bear at times like these is clearly in the taxpayers’ and the U.S. economy’s best interests.” While many Wall Streeters have made the trek to Washington, there is no question that the axis of power at the Treasury Department tilts toward Goldman. That has led some to assume that the interests of the bank, and Wall Street more broadly, are the first priority. There is also the question of whether the department’s actions benefit the personal finances of the former Goldman executives and their friends. “To the extent that they have a portfolio or blind trust that holds Goldman Sachs stock, they have conflicts,” said James K. Galbraith, a professor of government and business relations at the University of Texas. “To the extent that they have ties and alumni loyalty or friendships with people that are still there, they have potential conflicts.” Mr. Paulson, Mr. Kashkari and Mr. Shafran no longer own any Goldman shares. It is unclear whether Mr. Jester or Mr. Wilson does because, according to the Treasury Department, they were hired as contractors and are not required to disclose their financial holdings. For every naysayer, meanwhile, there is also a Goldman defender who says the bank’s alumni are doing what they have done since the days when Sidney Weinberg ran the bank in the 1930s and urged his bankers to give generously to charities and volunteer for public service. “I give Hank credit for attracting so many talented people. None of these guys need to do this,” said Barry Volpert, a managing director at Crestview Partners and a former co-chief operating officer of Goldman’s private equity business. “They’re not getting paid. They’re killing themselves. They haven’t seen their families for months. The idea that there’s some sort of cabal or conflict here is nonsense.” In fact, say some Goldman executives, the perception of a conflict of interest has actually cost them opportunities in the crisis. For instance, Goldman wasn’t allowed to examine the books of Bear Stearns when regulators were orchestrating an emergency sale of the faltering investment bank. THIS summer, as he fought for the survival of Lehman Brothers, Richard S. Fuld Jr., its chief executive, made a final plea to regulators to turn his investment bank into a bank holding company, which would allow it to receive constant access to federal funding. Timothy F. Geithner, the president of the Federal Reserve Bank of New York, told him no, according to a former Lehman executive who requested anonymity because of continuing investigations of the firm’s demise. Its options exhausted, Lehman filed for bankruptcy in mid-September. One week later, Goldman and Morgan Stanley were designated bank holding companies. “That was our idea three months ago, and they wouldn’t let us do it,” said a former senior Lehman executive who requested anonymity because he was not authorized to comment publicly. “But when Goldman got in trouble, they did it right away. No one could believe it.” The New York Fed, which declined to comment, has become, after Treasury, the favorite target for Goldman conspiracy theorists. As the most powerful regional member of the Federal Reserve system, and based in the nation’s financial capital, it has been a driving force in efforts to shore up the flailing financial system. Mr. Geithner, 47, played a pivotal role in the decision to let Lehman die and to bail out A.I.G. A 20-year public servant, he has never worked in the financial sector. Some analysts say that has left him reliant on Wall Street chiefs to guide his thinking and that Goldman alumni have figured prominently in his ascent. After working at the New York consulting firm Kissinger Associates, Mr. Geithner landed at the Treasury Department in 1988, eventually catching the eye of Robert E. Rubin, Goldman’s former co-chairman. Mr. Rubin, who became Treasury secretary in 1995, kept Mr. Geithner at his side through several international meltdowns, including the Russian credit crisis in the late 1990s. Mr. Rubin, now senior counselor at Citigroup, declined to comment. A few years later, in 2003, Mr. Geithner was named president of the New York Fed. Leading the search committee was Pete G. Peterson, the former head of Lehman Brothers and the senior chairman of the private equity firm Blackstone. Among those on an outside advisory committee were the former Fed chairman Paul A. Volcker; the former A.I.G. chief executive Maurice R. Greenberg; and John C. Whitehead, a former co-chairman of Goldman. The board of the New York Fed is led by Stephen Friedman, a former chairman of Goldman. He is a “Class C” director, meaning that he was appointed by the board to represent the public. Mr. Friedman, who wears many hats, including that of chairman of the President’s Foreign Intelligence Advisory Board, did not return calls for comment. During his tenure, Mr. Geithner has turned to Goldman in filling important positions or to handle special projects. He hired a former Goldman economist, William C. Dudley, to oversee the New York Fed unit that buys and sells government securities. He also tapped E. Gerald Corrigan, a well-regarded Goldman managing director and former New York Fed president, to reconvene a group to analyze risk on Wall Street. Some people say that all of these Goldman ties to the New York Fed are simply too close for comfort. “It’s grotesque,” said Christopher Whalen, a managing partner at Institutional Risk Analytics and a critic of the Fed. “And it’s done without apology.” A person familiar with Mr. Geithner’s thinking who was not authorized to speak publicly said that there was “no secret handshake” between the New York Fed and Goldman, describing such speculation as a conspiracy theory. Furthermore, others say, it makes sense that Goldman would have a presence in organizations like the New York Fed. “This is a very small, close-knit world. The fact that all of the major financial services firms, investment banking firms are in New York City means that when work is to be done, you’re going to be dealing with one of these guys,” said Mr. Langevoort at Georgetown. “The work of selecting the head of the New York Fed or a blue-ribbon commission — any of that sort of work — is going to involve a standard cast of characters.” Being inside may not curry special favor anyway, some people note. Even though Mr. Fuld served on the board of the New York Fed, his proximity to federal power didn’t spare Lehman from bankruptcy. But when bankruptcy loomed for A.I.G. — a collapse regulators feared would take down the entire financial system — federal officials found themselves once again turning to someone who had a Goldman connection. Once the government decided to grant A.I.G., the largest insurance company, an $85 billion lifeline (which has since grown to about $122 billion) to prevent a collapse, regulators, including Mr. Paulson and Mr. Geithner, wanted new executive blood at the top. They picked Edward M. Liddy, the former C.E.O. of the insurer Allstate. Mr. Liddy had been a Goldman director since 2003 — he resigned after taking the A.I.G. job — and was chairman of the audit committee. (Another former Goldman executive, Suzanne Nora Johnson, was named to the A.I.G. board this summer.) Like many Wall Street firms, Goldman also had financial ties to A.I.G. It was the insurer’s largest trading partner, with exposure to $20 billion in credit derivatives, and could have faced losses had A.I.G. collapsed. Goldman has said repeatedly that its exposure to A.I.G. was “immaterial” and that the $20 billion was hedged so completely that it would have insulated the firm from significant losses. As the financial crisis has taken on a more global cast in recent weeks, Mr. Paulson has sat across the table from former Goldman colleagues, including Robert B. Zoellick, now president of the World Bank; Mario Draghi, president of the international group of regulators called the Financial Stability Forum; and Mark J. Carney, the governor of the Bank of Canada. BUT Mr. Paulson’s home team is still what draws the most scrutiny. “Paulson put Goldman people into these positions at Treasury because these are the people he knows and there are no constraints on him not to do so,” Mr. Whalen says. “The appearance of conflict of interest is everywhere, and that used to be enough. However, we’ve decided to dispense with the basic principles of checks and balances and our ethical standards in times of crisis.” Ultimately, analysts say, the actions of Mr. Paulson and his alumni club may come under more study. “I suspect the conduct of Goldman Sachs and other bankers in the rescue will be a background theme, if not a highlighted theme, as Congress decides how much regulation, how much control and frankly, how punitive to be with respect to the financial services industry,” said Mr. Langevoort at Georgetown. “The settling up is going to come in Congress next spring.” http://www.nytimes.com/2008/10/19/business/19gold.html?_r=1&partner=rssnyt&emc=rss&pagewanted=all&oref=slogin www.stock-market-lessons.com
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zigzagman		Posted: Friday, October 24, 2008 5:04:10 PM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		Upping the Stimulus Dosage By Peter Schiff, Euro Pacific Capital, Inc. Friday, 24 October 2008 Insanity is often defined as repeating the same action while expecting a different result. Recent Congressional activity to push through this year’s second economic “stimulus” package certainly indicates that many of our political leaders may have special needs. Responding to the $150 billion stimulus that was passed at the beginning of the year, I made the following observation in my February 15th commentary Upping the Inflation Dosage : “The failure of the stimulus plan to cure the economy will cause the Government, and the Wall Street brain trust, to conclude that it was simply too small. Their next solution will be to administer an even stronger dose.” It’s interesting to recall that at the time, just 9 months ago, the $150 billion package caused much hand wringing, especially from Republicans still clinging to notions of Federal restraint. This was before an avalanche of more than $2 trillion in new spending initiatives -- before Bear Stearns, wide open discount windows, AIG, Fannie/Freddie, Federal Mortgage Auctions, Detroit loan guarantees, and preferred shares in the banks. In retrospect, the $150 billion stimulus seems quaint. It is not surprising that the latest package is expected to be twice as large. When this one fizzles, look for “Stimulus III” to be even larger. The problem with our Government’s version of economic stimuli is that it encourages the very activity that brought our economy to the brink of financial ruin in the first place. Quite plainly, the goal of all these plans is to give consumers more money to spend. However, excess consumer spending is part of the problem, not part of the solution. After a decade long spending orgy, market forces are finally trying to restrict consumer spending and dampen credit. But the stimulus looks to provide a new source of funds after savings, income, and credit have been exhausted. Our imbalanced economy is in desperate need of retrenchment, but stimulus plans will effectively hold the firemen at bay while throwing gasoline on the flames. Politicians may say that the plan is not all about consumer spending, but is designed to fund investment. But investments conceived and executed by governments, and guided by political considerations rather than profit, often yield poor returns. The clumsy hand of the state is no substitute for the invisible hand of the free market. In addition, public sector “investment” often soaks up much of the capital which otherwise would have been available for more efficient private sector uses. If the government were sitting on a pile of foreign reserves, then at least a stimulus plan could make some economic sense. But of course, that’s not where the money comes from. To finance their largesse, the government either borrows more money from abroad, or gets it from the Fed, which simply creates it out of thin air. Either way, we undermine our economy with additional debt or inflation. Unfortunately, the one stimulus we do need will not be supplied. To fix our current economic mess we need to diminish the activity that undermined our economy and encourage the behavior that will restore balance. Instead of encouraging Americans to go deeper into debt to buy more foreign products that we cannot afford, Americans should be encouraged to save their money, and produce more goods for export. Fortunately, no government policy is needed to achieve this. Market forces would produce such incentives on their own. Higher interest rates and tighter credit world force people to borrow less, while simultaneously rewarding those who saved. A falling dollar that would eventually result from a recession would diminish our capacity to import while helping to restore our global competitiveness (provided it was accompanied by lower regulations and taxes) in manufacturing. Of course a lower dollar is not a good thing, but unfortunately it is the necessary consequence of our past profligacy. Market based solutions would not be painless, which is precisely why our leaders resist them. However, as the saying goes, “no pain no gain”. If we ever expect to make any legitimate progress, a higher pain threshold must be accepted. If our elected officials really were concerned about easing the burden on consumers, they would be looking for way to reduce government spending. If government was less expensive, taxes could be lowered across the board. The only way for American citizens to spend more is for their government to spend less. Unfortunately, our government and the leading private economists believe that everyone can spend more without any serious consequences on the downside. It’s a comforting idea, but it’s a lie. The truth may not be pretty, but it’s the only path towards a sustainable recovery. http://news.goldseek.com/EuroCapital/1224872246.php www.stock-market-lessons.com
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zigzagman		Posted: Saturday, October 25, 2008 11:57:26 AM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		Our Bailout(s)--The Good, The Bad, and Hopefully, Not The Ugly Thursday, October 16, 2008 at 12:23PM By: Don Hess Let’s cover the “good” first--I don’t know about you but I could use a little lift--our numerous bailouts seem to be working. By working, I mean we have purchased some time, some breathing room. Our economy has been brought back from the precipice. While many people have been badly hurt, financially, it doesn’t appear that the U.S. will slide into a depression. That is all the bailouts are supposed to do initially—save our economy from a collapse reminiscent of 1930. Our bankers should soon start lending in greater volume, at least to those with better credit ratings. When the credit lines that fuel our economy unclog, our great engine of wealth should start to clank and sputter back to life. But, it is that knocking and misfiring of the once proud machinery of free market capitalism that brings us to the “bad” portion of this column. No self-respecting motor runs efficiently on bubbles of air, such as the vast quantities of printing-press money which will soon inflate our economy. We are about to print somewhere between two and four trillion dollars to fund our numerous bailouts. (Thank goodness for the Asians who buy our paper.) If we add up Bear Stearns at 30 billion, AIG at 85 billion, the Frannies at 200 billion, the main bailout at 900 billion, the auto industry at 50 billion, bank re-capitalization at 250 billion, another stimulus or two at 100s of billions, along with the usual massive cost overruns for all of the above, and earmarks, we may wind up at the 4 trillion mark. At that point our national debt would about equal our Gross Domestic product (GDP). That suggests that these bailouts may not only be our best, but our last hope of remaining the economic leader of planet Earth. If we don’t structure these bailouts properly, it’s possible the Asians will cease financing any more of our goofy, economic mistakes. And that brings us directly to our “hopefully, not so ugly” section. We are about to loan our auto-makers 50 billion dollars. That’s actually good. But what may become ugly are the stipulations written into the loan concerning how the automakers can use the money. Back in 1980, when we gave Chrysler a 675 million bailout (isn’t that a quaint little sum), our government wrote in a stipulation concerning our energy problems. Our leaders told Chrysler that they must come up with a plan that would be, get this, “an energy savings plan focusing on the national need to lessen U.S. dependence on petroleum.” Of course, Chrysler and the rest of our automakers, in cahoots with Big Oil, came up with a plan all right. They tripled our dependence on oil during the next 25 years. Well, ok, sometimes we have to live and learn. But what have we learned? Legislation tied to the current automaker bailout stipulates only that the money be used to “retool old assembly lines and develop advanced, fuel-efficient technology.” In other words, we are going right back to the business as usual of 30 years ago. We are about to let a handful of CEOs make some of the most important decisions that have ever faced the United States. Here we are, arguably, in the worst financial mess in history: We are slaves to our Middle East oil dependency; we are the largest energy gluttons on earth; we are the most destructive polluters on earth; we are in two wars and considering a couple more, to some degree to satisfy our oil needs; we have just proven we have absolutely no control over our national spending habits; we have just found out that many CEOs of our major corporations can’t be trusted any further than we can throw them; and our international image is about as low as it can go. So what is our leader’s answer to our lack of any energy policy for the last 30 years? They are throwing 50 thousand million tax dollars in the laps of a half dozen CEOs in the car business and telling them to solve the problem--again. Is Congress with us, or out to lunch? Do they not understand we are in terrible trouble? Did they skip the U.S. history class that covered the last 30 years? Is it possible they don’t understand they are supposed to be working on the issue of what we want our cars to burn for fuel, and it might not be gas, or even a hybrid of gas? Do they not understand that this problem is going to require massive amounts of man-hours, just in the decision and planning stages? Now, thankfully, we have a few months’ time on this. Nothing much will happen until after the elections. That gives us time to reach our leaders and ask them why they are failing to lead. At the risk of sounding sarcastic, we might ask them if they are aware that we are in an energy crisis. We might even suggest that this time they need to be creative and find some real answers—just chucking trillions around, like they were billions, is not going to cut it. We need to tell our Congress that for 30 years they have allowed much of Corporate America to act like a bunch of spoiled bullies who want everybody’s candy. We need to tell Congress that America’s wild-west version of free-market capitalism has brought much of the world’s economy to its knees. We need to tell Congress that, sometimes, governments must actually do some governing. Article originally appeared on thinkwecan.com See website for complete article licensing information. www.stock-market-lessons.com
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zigzagman		Posted: Saturday, October 25, 2008 10:34:45 PM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		Companies Start Competing For Bailout Money: Saturday October 25, 8:23 pm ET By Martin Crutsinger, AP Economics Writer Insurance firms, auto companies and foreign banks petition for part of $700 billion bailout. WASHINGTON (AP) -- The bailout is now the hottest lobbying game in town. Insurers, automakers and American subsidiaries of foreign banks all want the Treasury Department to cut them a piece of the largest government rescue in U.S. history. The betting is that many with their hands out will be successful, especially with financial markets in a stomach-churning dive and predictions the economy is about to tumble into a deep recession. These groups argue that the credit squeeze is so severe and the risks to the economy so dire that their industries need financial support as well. The Treasury is considering requests from a variety of industries, but has not decided whether to expand the program, officials said Saturday. Lobbying efforts are intensifying. The Financial Services Roundtable wrote Treasury officials on Friday requesting that the initiative to buy $250 billion in bank stock grow to cover insurers, auto companies, securities dealers and U.S. subsidiaries of foreign companies, including banks. The Treasury's plan is intended to bolster banks' tattered balance sheets and get them to resume making loans. As the Treasury now interprets it, these additional groups would not participate in the bank stock program. They could receive help from a separate part of the $700 billion rescue that will buy bad assets from financial institutions. Steve Bartlett, the president of the Roundtable, urged the Treasury to broaden the definition of those eligible for the stock purchase program. "The institutions that are excluded play a vital role in the U.S. economy by providing liquidity to the market," Bartlett wrote Neel Kashkari, the Treasury Department official running the bailout program. Referring to U.S. subsidiaries of foreign companies, Bartlett said, "This is a global crisis and to not recognize the U.S. firms controlled by foreign banks or companies would create further impediment to the market's recovery." A financial industry official said Treasury Secretary Henry Paulson met over the past week with various groups, including hedge fund managers, that were petitioning for assistance. The official spoke on condition of anonymity because the Treasury has not made a decision. This official said the discussions with insurance industry executives were being held in advance of what are expected to be disappointing earnings reports by some insurance companies in the coming week. The official said the insurance industry would like to get government purchases of their stock on a mandatory basis, duplicating the agreement Paulson struck two weeks ago with nine major banks. Paulson pressured the big banks to go along with the program as a way of removing the stigma that might be attached to the payments if only a few major banks had received them. Some insurers technically would be eligible for stock purchases now if they own subsidiaries that are savings and loan institutions regulated by the Office of Thrift Supervision. Last month, American International Group, the country's largest insurance company, received an $85 billion loan from the Federal Reserve. Since then, it has gotten further support in an effort to withstand the biggest upheavals on Wall Street since the Great Depression. Complicating the government's decision-making is that the Bush administration will not be in charge after Jan. 20. Paulson, who has said he has no intention of staying on the job, has pledged to consult with both campaigns on his bailout actions. Democrat Barack Obama's presidential campaign said Friday it supported the effort by the auto industry to get money from the $250 billion made available for stock purchases. That would be in addition to $25 billion recently approved by Congress for low-interest loans to help the struggling industry retool and build fuel efficient vehicles. The debate over expanding the bailout comes as the Treasury is rushing to get money out the door to the primary recipients: banks that sharply curtailed lending after suffering billions of dollars of losses on mortgage-related assets as home foreclosures soared in the housing slump. Lawmakers are pressuring the Treasury to do more in the foreclosure area, as well. Sheila Bair, head of the Federal Deposit Insurance Corp., told Congress about efforts to provide government-backed loan guarantees for mortgages that are reworked to help homeowners in danger of default. That would give banks an incentive to speed up refinancing efforts because the government would back part of the reworked loan. The Treasury also is moving ahead to get bank stock purchases approved. It announced on Oct. 14 that it was spending $125 billion to buy stock in nine of the largest financial institutions. An announcement was expected Friday about a second round involving 20 to 22 other banks. But it was decided each bank would announce its own agreements with the Treasury, out of concern that excluded banks could suffer a stock sell-off from disappointed investors. PNC Financial Services Group Inc. announced Friday it was acquiring National City Corp. for $5.58 billion, in what was the first instance of a bank using fresh investments from the bailout program to make an acquisition. PNC said it had received $7.7 billion in cash through selling stock to the government under the program. www.stock-market-lessons.com
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