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Free-ma rket thinking takes hit from US economic crisis
...deepening economic crisis has led to unprecedented actions by US policymakers that raise questions about how far government regulation should go in a free-market economy...
The Federal Reserve, in addition to dramatically cutting interest rates, has opened up its massive reserves to Wall Street securities firms for the first time since the Great Depression...
"This action transferred potential losses from the market to the taxpayers," he said. "I do not believe the present system can remain if the bankers make the profits and the taxpayers share the losses."
Fed chairman Ben Bernanke "made monetary history" by opening the discount window and "crossed even further over to the dark side of financial socialism" by allowing the firms to pledge illiquid mortgage debt as collateral.
"Comrade Ben is determined that there will be no financial meltdown and no depression while he is in command," Yardeni said. "Given the initial positive reaction in stock prices last week, I suppose this means that on Wall Street, we are all financial socialists now."
More bailouts to follow Bear Stearns?
Even President George W. Bush ... On March 14, he inveighed against government bailouts. "The temptation of Washington is to say that anything short of a massive government intervention in the housing market amounts to inaction. I strongly disagree with that sentiment," ...
But, a week later, Bush applauded the series of dramatic government interventions undertaken by Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson, claiming they had "acted swiftly to promote stability in our financial markets at a crucial time." He even thanked Bernanke for "working over the weekend."
Fannie and Freddie cleared to buy more
Fannie Mae and Freddie Mac, the US government-chartered mortgage financiers, could each raise up to $10bn of new capital as part of an agreement that allows them to buy and guarantee more mortgages, their regulator said on Friday.
OFHEO last week reduced surplus regulatory capital requirements for the mortgage companies from 30 per cent to 20 per cent, freeing up $2.3bn and $2.6bn of capital at Fannie Mae and Freddie Mac respectively.
Sources familiar with the agreement were surprised at the $5bn-$10bn range that Mr Lockhart proposed on Friday, however.
The companies did not say last week how or when they would seek to raise the new capital.
Shares in Fannie Mae fell 4.9 per cent in early afternoon trade on Friday, while Freddie Mac was 3.84 per cent lower.
The Road to Perdition
The G7 financial, central bank and banking regulators are in full battle mode trying to prevent the bankruptcy of the financial system. Since last Monday, almost 1 trillion Dollars of financial band aids have been applied. Investment banks have been included as participants at the discount window. And the investment banks, such as GOLDMAN SACHS, Merrill lynch and Morgan Stanley, quickly took advantage of the liquidity by shoving over $50 billion Dollars in CRAPPY paper into the window. The Term Auction Facility is now regularly OVERSUBSCRIBED and the Term Securities Auction Facility opens today. Fannie and Freddie were allowed to expand their balance sheets by over $200 billion Dollars. The ECB is shoving funds out the door. The bank of England did so and is preparing to accelerate doing so to rescue the mortgage market in the UK. The federal home loan banks were given expanded lending authority.
Under rhetorical disguise the Federal Reserve has begun to BUY mortgage securities. Even though the Treasury and Federal Reserve claim the Bear Stearns bailout and buyout by JP Morgan Chase, which included a $30 billion cash injection, was just a loan for impaired liquidity of the mortgage securities; the fine print of the deal signals something MORE.
The actions taken last week were only the beginning of the bailouts; we now know that the Monolines, Money Center, Investment and Super Regional Banks will not be allowed to fail as they are as entwined in the financial system, as was Bear Stearns if not more.
In conclusion, the socialization of the risks and the bailout in the banking and financial system has just begun. They need to move faster and many in the government support this. They support it not because it’s the right thing to do or they have knowledge of history/economics but because it is an election year and nothing will be allowed to get between them and their thirst for more power over others.
Goldman: Total Leveraged Credit Losses = $1.2 trillion
We hate to add to what we consider a pretty gloomy prospect, but Tilton takes care to note that the $460 billion that Goldman expects to go down the drain is "only part of total credit losses," which it anticipates will reach a tidy $1.2 trillion. However, he explains, the leveraged losses are especially critical, as they cause a significant tightening of credit as institutions curb their lending to conserve shrinking capital. Which, for us, anyway, makes the tunnel a lot longer and the light a lot dimmer."
A trillion here, a trillion there, pretty soon, you're talking real money . . .
Since the bank runs of the 1930s, federal protection of retail depositor institutions has been a hallmark of American capitalism. The Federal Reserve, in a sweeping extension, has now extended the privilege to gilt-edged investment firms.
Its flurry of interventions has prompted a double dose of unease. The central bank offered a lifeline to Wall Street investors who, seemingly, deserved a worse fate.
Government interventions always bring disruptions, but when Washington meddles in financial markets, the potential for the sort of distortion that obscures proper incentives is especially large, due to our markets’ complexities.
Capitalism isn’t supposed to work like this, and before the advent of modern finance, it usually didn’t. Market values fluctuate, but — in the absence of fraud — billion-dollar companies do not evaporate. ...
Once, investors could get a read on financial firms’ assets and risks from their balance sheets; those days are history.
Firms now do much of their business off the balance sheet. The swashbuckling Bear Stearns was a party to $2.5 trillion — no typo — of a derivative instrument known as a credit default swap. Such swaps are off-the-books agreements with third parties to exchange sums of cash according to a motley assortment of other credit indicators.
To question intervention is not to dispute that markets need rules. But for nearly two decades, Washington has trimmed its regulatory sails. The repeal of Glass-Steagall, which once separated banks from securities firms, and the evolution of new instruments that circumvent disclosure rules have loosened the market’s moorings.
Fed eyes Nordic-style nationalisation of US banks
The US Federal Reserve is examining the Nordic bank nationalisations of the 1990s as a possible interim solution to the US financial crisis.
A senior official at one of the Scandinavian central banks told The Daily Telegraph that Fed strategists had stepped up contacts to learn how Norway, Sweden and Finland managed their traumatic crisis from 1991 to 1993, which brought the region's economy to its knees.
Scandinavia's bank rescue proved successful and is now a model for central bankers...
Norway ensured that shareholders of insolvent lenders received nothing and the senior management was entirely purged. Two of the country's top four banks - Christiania Bank and Fokus - were seized by force majeure.
"The law was amended so that we could take 100pc control of any bank where its equity had fallen below zero. Shareholders were left with nothing. It was very controversial," he said.
...Sweden's Riksbank, ... passed an act so it could seize banks where the capital adequacy ratio had fallen below 2pc. Efforts were also made to protect against "blackmail" by shareholders.
Mervyn King ready to rock Bank of England's foundations
The severity of the financial crisis has at last shaken the Bank of England out of its complacency to prepare the biggest reappraisal of its role and purpose in living memory.
Appearing before the Treasury Select Committee during the week, King appeared to admit as much, saying the Bank was seeking out a "longer-term solution". This is putting it lightly. The Bank is now gearing up for the biggest overhaul of its financial market controls in decades. After conferring last week with the heads of the five big banks - Barclays, HSBC, Royal Bank of Scotland, Lloyds TSB and HBOS - it has undertaken to find new, potentially radical ways to kickstart the frozen asset-backed security markets at the heart of the crisis.
Bush and Brown in push to deal with crisis
George W. Bush, US president, and Gordon Brown, UK prime minister, have agreed to step up co-operation over the crisis in financial markets. They are setting up a joint working group which will develop plans to monitor and regulate the banking system.
At the heart of the proposals, agreed on Wednesday by Hank Paulson, US Treasury secretary, and Alistair Darling, UK chancellor, is the creation of a body made up of senior Treasury and regulatory figures from London and Washington.
Mr Brown and Mr Bush will discuss greater UK-US co-operation in tackling the financial crisis when they meet at a Nato summit in Bucharest this week and a Washington summit next month.
Whitehall officials say the new UK-US working group, whose membership and terms of reference are being finalised, will seek to establish a common approach on how to respond to the crisis before next month’s meetings of the Group of Seven, the International Monetary Fund and the World Bank.
However, officials say that, given the huge role that London and New York play in financial markets, the significance of the new body will go beyond that.
Investors pull almost $100bn out of equity funds
Investors worldwide pulled close to $100bn (€63.3bn) out of equity funds in the first three months of this year – a record shift that accelerates a longer-term trend away from US and western European stock markets.
Equity funds suffered outflows of $98bn in the quarter ending March 28, according to Emerging Portfolio Fund Research, which tracks retail and institutional flows. The funds had inflows of $19bn during the same period last year and inflows of $49bn in the same period for 2006.
If You Can’t Sell, Good Luck
WHERE’S my bailout?
That’s what thousands of individual investors, stuck with auction-rate securities that brokers had told them were “as good as cash,” might have wondered as they watched the Federal Reserve take on $29 billion of malodorous assets from the balance sheet of Bear Stearns.
Everybody knows, though, that only big guys get bailouts. Long-suffering small investors, unable to sell these supposedly liquid securities, have to look elsewhere for satisfaction.
Unfortunately, satisfaction is elusive for these investors. They have two choices: They can hope that the issuer of the auction-rate security will buy it back. Or they can sue the brokers who sold the securities, in many cases making verbal promises that they could be cashed in weekly. Such suits cost money that many investors do not have.
And so they sit and wait with no access to their money.
Treasury unveils plans for regulatory shake-up
A second feature of the plan, which Hank Paulson, Treasury secretary, will outline in a speech on Monday before he travels to China...
Treasury unveils plans for regulatory shake-up
The Treasury Department on Monday plans to unveil a series of recommendations that would radically reshape the regulation of the US financial services industry, giving broad new powers to the Federal Reserve...
The US Treasury had been working on its “blueprint” for regulatory reform since March 2007, in an effort to bolster US capital markets amid growing competition from overseas.
The Fed on Saturday said: “The Treasury’s report presents a timely and thoughtful analysis and is an important first step in the complex task of modernizing our financial and regulatory architecture.”
Chaos on Wall Street
(Fortune Magazine) -- What in the world is going on here? Why is Washington spending billions to bail out Wall Street titans while leaving struggling homeowners to fend for themselves? Why are the Federal Reserve and the Treasury acting as if they're afraid the world may come to an end, ...
...I'm more nervous about the world financial system now than I've ever been in my 40 years of covering business and markets.
... I fear that the Wall Street enablers of the biggest financial mess of my lifetime will escape with relatively light damage, leaving the rest of us - and our children and grandchildren - to pay for their misdeeds.
And before you ask: It's irrelevant whether or not we're in a recession, ... What matters is that we're in a dangerous and messy situation that has produced an economic slowdown unlike those we're used to seeing.
How is this slowdown different from other slowdowns? Normally the economy goes bad first, creating financial problems. In this slowdown the markets are dragging down the economy - a crucial distinction, because markets are harder to fix than the economy.
A leading political economist, Allan Meltzer of Carnegie Mellon, calls it "an unusual situation, but not unprecedented." When was the last time it happened in the U.S.? "In 1929," he says. And it touched off the Great Depression.
... the Fed has tried to reassure the markets by inventing three new ways to inundate the financial system with staggering amounts of short-term money. This is in addition to the Fed's existing mechanisms, which are vast.
The three newbies - the term auction lending facility, the primary-dealer credit facility, and the term securities lending facility - total more than half-a-trillion dollars, with more if needed [NOTE: this is US only]. Much of this money is available not only to commercial banks but also to investment banks, which normally aren't allowed to borrow from the Fed.
How can the Fed afford this largesse? Easy... in effect creating banking reserves out of thin air and lending them out at interest.
Then there's the Treasury. ... unleashed Fannie Mae .. and Freddie Mac .. and the Federal Home Loan Banks to buy hundreds of billions of dollars of mortgage-backed securities.
Is there good news here? Indeed, there is. Sooner or later, all this money being thrown at the debt markets will stabilize things.
Originally posted by ChrisJr03
And while I agree with what you've said about the banks, I'd also go one step further and blame people as well. I'm pretty adament about this, but people spending more than they have has not helped the situation out at all. I can look around my neighborhood and I know why those people where foreclosed on. If you live extravagantly you won't be able to pay your bills, and because it was easier to get a house over an appartment, you had a lot of really "unqualified" people moving in. Two doors down from me we had a family live in the house for a year and never paid a dime towards the mortgage. They let the house fall down, didn't take care of anything, yet they drove a Lincoln Navigator. It use to be easy to get into a house, hopefully that has changed now. Country Wide would give a loan out to just about anyone knowing they where taking a huge gamble on some of these people. And a lot of the people that Country Wide gave loans to had no intentions of ever paying that loan back which is why the problem is what it is.
Originally posted by Gools
The same year where we have been repeatedly assured that everything was fine and that we had nothing to worry about. In fact we are still being told that things are not as bad as those in the know are trying to alert us about.
Like lambs to the slaughter we are being led down a garden path.
Originally posted by Riposte
...it's pretty ridiculous for you to try and push your political agenda ...
Originally posted by rizla
Could it be boiled down to a summary?
Originally posted by Arcane Demesne
reply to post by traderonwallst
When you're selling at $0.001 cents per share, comeback and tell me all is well. America hasn't been pure capitalist in almost all of it's history, and certainly not since 1913 (Wilsonian BS). Get a grip, open your eyes, and brace yourself.
Originally posted by Gools
... I hope you are taking a good long look in the mirror today and realising just how well you have been punked by the Powers That Be (PTB) for the last 60 years - comrade.