U.S. economy and bailout measures

Related posts e.g. The world and the financial crisis ; Transition and on Wednesday-Night.com

Dear American:
I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.
I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.
I am working with Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transaction is 100% safe.
This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.
Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to wallstreetbailout@treasury.gov so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.
Yours Faithfully
Minister of Treasury Paulson

Detroit has been given a brief reprieve, but the threat of bankruptcy still looms
(Economist) THE sense of relief in Detroit that greeted the $17.4 billion federal lifeline thrown by President Bush to General Motors (GM) and Chrysler just before Christmas is unlikely to last long. The terms of the bridging loans amount to a gun at the heads of the two carmakers and their stakeholders. Unless they use the next three months to negotiate a viable way forward, the loans will be called in at the end of March—and bankruptcy will follow.
19 December
Bush Approves $17.4 Billion Auto Bailout
The loans, as G.M. and Chrysler teeter on the brink of insolvency, essentially throw the companies a lifeline from the taxpayers that will keep them afloat until March 31. At that point, the Obama administration will determine if the automakers are meeting the conditions of the loans and will continue to receive government aid or must repay the loans and face bankruptcy.
The loan deal requires the companies to quickly reduce their debt by two-thirds, mostly through debt-for-equity swaps, and to reach an agreement with the United Automobile Workers union to cut wages and benefits so they are competitive with those of employees of foreign-based automakers in the United States.
To gain access to the loans, G.M. and Chrysler must agree to a range of concessions, including limits on executive pay and the elimination of private corporate jets.
We can always count on our favorite Nobel (Economics) Laureate to ask the right question (below).
The Madoff Economy, Paul Krugman
The revelation that Bernard Madoff — brilliant investor (or so almost everyone thought), philanthropist, pillar of the community — was a phony has shocked the world, and understandably so. The scale of his alleged $50 billion Ponzi scheme is hard to comprehend. Yet surely I’m not the only person to ask the obvious question: How different, really, is Mr. Madoff’s tale from the story of the investment industry as a whole?
The new head of the SEC will have to repair its battered reputation in the wake of the Madoff affair
A shake-up of the SEC is sure to be one of its[ Obama’s “very detailed” plan for a new-look regulatory architecture] main planks. Having failed during the credit boom to rein in the rating agencies and investment banks that fell under its supervision, it has now been found wanting in the Bernard Madoff affair.
8 December
Major Issue in Big 3 Aid Is Final Cost
The ultimate price tag for a new and improved American auto industry may be as unfathomable as questions about the potential harm to the economy if any of the companies were allowed to collapse. But estimates of the final bill are rising rapidly, particularly as the economy weakens and car sales keep falling.
7 December
Energy efficiency high on Obama stimulus plan
President-elect Barack Obama on Saturday said that building energy efficiency is central to his administration’s economic recovery plan and outlined the conditions he intends to impose on ailing U.S. automakers.
4 December
Auto Executives Still Find Skeptics
After being sent home to Detroit empty-handed two weeks ago, the chief executives of General Motors, Ford and Chrysler made a show of contrition: driving to the Capitol in some of their most fuel-efficient vehicles to deliver the detailed reorganization plans that Congressional leaders had said were lacking last time. But within moments of the opening gavel it was clear that even a flawless presentation might not be enough.
2 December
The United States economy officially sank into a recession last December, which means that the downturn is already longer than the average for all recessions since World War II, according to the committee of economists responsible for dating the nation’s business cycles. More
GM, Ford, Chrysler CEO Jobs May Hinge on Bailout Plan
Dec. 1 (Bloomberg) — General Motors Corp. Chief Executive Officer Rick Wagoner and his counterparts at Ford Motor Co. and Chrysler LLC will put their jobs on the line this week [and so they should!] when they try to convince Congress they can save their companies.
25 November
Obama and Bush Working to Calm Volatile Market
CHICAGO — President-elect Barack Obama sought to seize the reins of the economic crisis Monday as he and his new economic team worked closely with President Bush to inject confidence into the trembling financial markets, which rallied and erased most of last week’s losses.
The Worst Is Yet To Come: Anonymous Banker Weighs In On The Coming Credit Card Debacle
Today, we are bailing out the banks because of their greedy and deceptive lending practices in the mortgage industry. But this is just the tip of the iceberg. More is coming, I’m sorry to say. Layoffs are being announced nationwide in the tens of thousands. As people begin to lose their jobs, they will not be able to pay their credit card bills either. And the banks will be back for more handouts.
24 November
(FP Morning Brief) This weekend, U.S. government officials raced to create a rescue package for Citigroup, one of the world’s largest financial services firms with some $2 trillion in assets and branches in 107 countries. The company’s stock had suddenly plunged to $3.77 in trading last week.
23 November
Obama Vows Swift Action on Vast Economic Stimulus Plan
WASHINGTON — President-elect Barack Obama signaled on Saturday that he would pursue a far more ambitious plan of spending and tax cuts than anything he outlined on the campaign trail, setting the tone for a recovery effort that could absorb and define much of his term.
23 November
Why we are not hearing about Robert Rubin in the news about the Obama economic team: “… since joining Citigroup in 1999 as a trusted adviser to the bank’s senior executives, Mr. Rubin, who is an economic adviser on the transition team of President-elect Barack Obama, has sat atop a bank that has been roiled by one financial miscue after another.” [Citigroup Saw No Red Flags Even as It Made Bolder Bets]
22 November
Shares Falling, Citigroup Talks to Government
David M. Walker, the president of the Peter G. Peterson Foundation and a former United States comptroller general said that the government should be concerned about Citigroup only if there were a run on the bank that threatened the financial system. The government should not, he said, be concerned about shareholders.
Some executives, however, argued that it was important to protect Citigroup’s shareholders because if they lose their investment, that will send other bank stocks diving.
(NYT) Talk of Mr. Geithner’s appointment provided a rare bit of heartening news for financial markets, which have been troubled by the uncertainty of the presidential transition. [He] has been a central decision maker in most of the rescue efforts over the last year and promises a measure of continuity. Because he already holds a crucial policy-making post, Mr. Geithner could bridge the transition between the Bush administration and the incoming Obama administration.
21 November
NBC News has confirmed that President-elect Barack Obama will announce his economic team on Monday, tagging New York Federal Reserve President Tim Geithner for treasury secretary.
Will We Let Detroit Go and the Recession Deepen Out of Disgust Over the Financial Bailout?
Once again the fundamental question is whether the companies and their stakeholders will suffer for their own bad judgments, and whether their competitors who have demonstrated strategic wisdom will be allowed to take market share from those who made bad choices. The way it is supposed to be.
20 November
Sooner or Later, They’ll Bail Out Detroit
Richard Wagoner of General Motors, Robert Nardelli of Chrysler and Alan Mulally of Ford should begin the inevitable cost-cutting by firing their public relations consultants. They left Capitol Hill empty-handed, but they’re bound to get some kind of federal help, however grudging. In the end, I don’t think either George W. Bush or Barack Obama wants to be remembered as the president who lost the auto industry. Strings will be attached, solemn promises extracted, oaths signed in blood. At some point—I’m an eternal optimist—the wizards of Detroit might even come up with a car or two that Americans actually want to buy.
18 November
Paulson, Democrats Clash on Bailout for Homeowners
(Bloomberg) “The rescue package was not intended to be an economic stimulus or an economic recovery package,” Paulson said in testimony to the House Financial Services Committee in Washington. The Troubled Asset Relief Program was designed to stabilize financial markets and the flow of credit and “is not a panacea for all our economic difficulties.”
1 November
Specter of Deflation Lurks as Global Demand Drops
(NYT) As dozens of countries slip deeper into financial distress, a new threat may be gathering force within the American economy — the prospect that goods will pile up waiting for buyers and prices will fall, suffocating fresh investment and worsening joblessness for months or even years.
With economies around the globe weakening, demand for oil, copper, grains and other commodities has diminished, bringing down prices of these raw materials. But prices have yet to decline noticeably for most goods and services, with one conspicuous exception — houses. Still, reduced demand is beginning to soften prices for a few products, like furniture and bedding, which are down slightly since the beginning of 2007, according to government data. Prices are also falling for some appliances, tools and hardware.
24 October
Greenspan Concedes Error on Regulation
… on Thursday, almost three years after stepping down as chairman of the Federal Reserve, a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.
21 October
Bernanke warms to second stimulus plan
WASHINGTON (Reuters) – Federal Reserve Chairman Ben Bernanke told Congress on Monday that another wave of government spending may be needed as the economy limps through what could be an extended period of subpar growth.
“With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate,” Bernanke told a congressional panel.
Wall Street overhaul
Sharply criticizing Wall Street’s mania for leverage and risk, lawmakers begin what will be a major push to overhaul how the government oversees high finance
U.S. Said to Invest in Citigroup, Goldman, Bank of America
Oct. 13 (Bloomberg) — The Bush administration will announce a plan to rescue frozen credit markets that includes spending about half of a total of $250 billion for stakes in nine major banks, according to people briefed on the matter.
Paulson Summons US Banking Heads To Meeting Over Equity Stakes Plan
As part of its new plan, the government is set to buy preferred equity stakes in nine top financial institutions, according to people familiar with the situation. It’s unclear how much would be invested in each institution. The move is designed to remove any stigma that might come with a government investment.
“The US and advanced economies’ financial system is now headed towards a near-term systemic financial meltdown,” warns Nouriel Roubini.
For the first time, the Wall Street Journal‘s panel of economists is predicting a downturn in economic activity for the next two quarters.
Somehow, Warren Buffett became $8 billion richer from AUG 29 to OCT 1
US under pressure to rush out cash injection
(FT) The US was under pressure to rush out a bank recapitalisation plan to reassure the markets after yesterday’s dramatic late plunge in stock prices. US officials were hoping to have some time to finish the plan but analysts said they could be forced to act immediately.
Greenspan calls a turning point
(Emerging Markets) Former Federal Reserve chairman Alan Greenspan today hails the prospect of a turning point in the turmoil that has swept through the world’s financial markets, saying the troubled US housing market that triggered the crisis will begin to recover in the first half of 2009.
In a strikingly upbeat assessment of the state of the financial markets, Greenspan sees an “eventual thawing” of the world’s frozen credit markets and praises the actions of governments in buying up toxic assets and recapitalizing banks. (Full article Registration required)
9 October
U.S. Considers Cash Injections Into Banks
(NYT) Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, the White House said on Thursday.
8 Oct. (Bloomberg) Fed, ECB, BOE Cut Rates in Unprecedented Response to Combat Credit Freeze
7 October
Bush urges joint crisis response
The International Monetary Fund has also called for joint action estimating financial losses at $1.4 trillion. Mr Bush said finance ministers from G7 nations would meet in Washington at the weekend to discuss the crisis.
Bankrupt Economics
A Crisis Resists The Usual Remedies
Robert J. Samuelson, Washington Post
Unfortunately, we lack experience with stabilizing financial markets, and the issue has been at the fringes of economics.
6 October
Quote of the Week: The Financial Crash
“Confident men took leave of common sense and bet on the idea of perpetual profit in the real estate market and crashed. But it wasn’t their money. It was your money they were messing with. And that’s why we need government regulators. Gimlet-eyed men with steel-rim glasses and crepe-soled shoes who check the numbers and have the power to say, ‘This is a scam and a hustle and either you cease and desist or you spend a few years in a minimum-security federal facility playing backgammon.’ “Garrison Keillor, Alternet, October 6, 2008
U.S. bailout does not allay fear of global recession
Though the bailout package recently approved by the U.S. Congress and signed by President George W. Bush offers assistance to foreign banks, the plan has not reassured European investors.
We face extreme danger. Unless there is immediate intervention on every front by all the major powers acting in concert, we risk a disintegration of global finance within days. Nobody will be spared, unless they own gold bars.
By Ambrose Evans-Pritchard, The Telegraph
Investors will learn today whether the Paulson bail-out – fattened to $850bn (£480bn) by Congress – can begin to halt the death spiral in the credit system. So far, the response looks terrible. More
4 October
For Treasury Dept., Now Comes Hard Part of Bailout
WASHINGTON — It will be one of the world’s largest asset management firms with an impressive $700 billion war chest. Nothing short of the global economy depends on its success. And the Treasury Department has barely a month to get it up and running.
(Bloomberg) The Oct. 3 bailout vote culminated two weeks of backroom negotiations, arm-twisting and begging in Washington as the Bush administration tried to convince reluctant members of Congress that they should use taxpayer money to buy toxic assets. The 450- page bill, laden with tax breaks and other measures unrelated to the crisis, grew out of a two-and-a-half page proposal that Paulson sent to Capitol Hill early on Saturday, Sept. 20.
Bush Signs Bank Rescue to End `Threat to Economy‘
Oct. 4 (Bloomberg) — U.S. President George W. Bush signed a $700 billion financial-market rescue plan into law, calling it a “decisive action to ease the credit crunch that is now threatening our economy.”
3 October
House approves $700bn rescue plan
The Bill, which was passed by 263 votes to 171, will now go through an “enrolling” process in the US Congress … HR 1424, the Emergency Economic Stabilisation Act of 2008, will be signed into law, possibly as early as later today.
Paul Krugman I hope that it passes, simply because we’re in the middle of a financial panic, and another no vote would make the panic even worse. But that’s just another way of saying that the economy is now hostage to the Treasury Department’s blunders.
For the fact is that the plan on offer is a stinker — and inexcusably so. The financial system has been under severe stress for more than a year, and there should have been carefully thought-out contingency plans ready to roll out in case the markets melted down. Obviously, there weren’t: the Paulson plan was clearly drawn up in haste and confusion. And Treasury officials have yet to offer any clear explanation of how the plan is supposed to work, probably because they themselves have no idea what they’re doing.
US Senate passes new bail-out plan
(Independent) President George Bush told Congress’ lower house today that America’s troubled economy “demands” that it followed the Senate’s lead and passed a £385 billion rescue package.
The Senate stepped in and added more than 100 billion dollars (£56.2bn) of sweeteners to the proposals after the Bill’s surprise rejection by members of the House of Representatives shocked the world earlier this week
Some House lawmakers rethink bailout, some don’t
(Reuters) WASHINGTON (Reuters) – A move in the U.S. Senate to add a few tax sweeteners and other changes to a $700-billion Wall Street bailout bill was prompting a rethink on Wednesday in some corners of the House of Representatives, but not all.
Will the public buy a new bail-out plan?
(BBC) The public is deeply divided about the wisdom of bailing out Wall Street. It may take more than tactical manoeuvring to pass a bill that gains popular support.
How Do You Make a DC Intellectual Look Less Articulate Than Sarah Palin Being Interviewed by Katie Couric?
That’s easy. You ask them how failure to pass the bailout will give us a Great Depression.
By Dean Baker, co-director of the Center for Economic and Policy Research