tagged w/ Government Bailout
-
The $500 billion that the U.S. government estimates that it will cost to buy the risky investments of financial institutions in coming months approaches what it costs to run the Pentagon for a yearThe $500 billion that the U.S. government estimates that it will cost to buy the risky... more
-
-
Experts are cautiously optimistic that the massive federal bailout of the nation's financial sector will solve the credit crisis that hit Wall Street this week.
But questions remain about whether it will prevent more failures of banks and Wall Street firms and many doubt this will lead to a quick turnaround for the battered housing market.
The broad outlines of the plan call for the federal government to buy hundreds of billions of dollars' worth of mortgage assets held by banks, Wall Street firms and other financial institutions.
Those securities were backed by home loans, many made to buyers with bad credit or without proof of income. As housing values fell and foreclosures shot to record levels in the past two years, the value of those securities plunged. That in turn caused massive losses in the financial sector.
This week it reached a crisis situation. Banks and investment firms stopped making the loans to each other as they hoarded cash to protect against any sudden liquidity crunch as well from unknown problems on their partners' balance sheets.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke won support for the bailout plan from Congressional leaders in a meeting Thursday night.
Friday morning, Paulson said he'll be working through the weekend with those on Capitol Hill to hammer out legislation that could go for a vote as soon as next week.
"I am convinced that this bold approach will cost American families far less than the alternative -- a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion," Paulson said Friday. "I believe many members of Congress share my conviction."
Word of the plan first leaked Thursday afternoon, causing a massive rally in stocks at the end of the day that carried over into Friday. Several economists also praised the move.
"I'm confident this will work," said Mark Zandi, chief economist with Moody's Economy.com. "The federal government is committed to backstopping the nation's financial system and will do whatever is necessary to make sure the system does not unravel. The details are important but secondary."
The plan also won support from presidential candidates John McCain and Barack Obama. Zandi is an informal economic advisor to the McCain campaign.
Experts are cautiously optimistic that the massive federal bailout of the... more
-
-
NEW YORK (CNNMoney.com) -- Somber. Sobering. Warnings of an economic "meltdown."
That's how participants described an emergency meeting held Thursday night between leaders of Congress and Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.
The meeting was followed by an announcement from Paulson that he was preparing a far-reaching program - on a scale seen rarely in American history - to intervene in the shaky financial markets.
NEW YORK (CNNMoney.com) -- Somber. Sobering. Warnings of an economic... more
-
-
NEW YORK (Fortune) -- No shortage of villains stand accused of igniting the brushfire raging across Wall Street: greedy lenders, gullible home buyers, negligent regulators, numbskull credit ratings agencies, and vicious short-sellers, for starters. Maybe they share the blame. But what if the underlying problem goes deeper? What if the reality is that the US economy has been a lot worse than was thought for a long time, and now the chickens are finally coming home to roost?
That's the dark thinking beyond what is known as "Pollyanna creep," a phrase coined by an economist named John Williams and supported by a cadre of other macroeconomic dissidents.
NEW YORK (Fortune) -- No shortage of villains stand accused of igniting the brushfire... more
-
-
NEW YORK (CNNMoney.com) -- The federal government is on the verge of instituting the most sweeping intervention in the financial markets since the Great Depression.
Details remain scarce as the Bush administration and Congress work to hammer out the final plan, which is aimed at stemming the credit crisis that's roiling Wall Street and threatening the global markets.
It was reported late Friday that the Bush administration had sent those details to members of Congress.
Here's what we know so far:
The plan: The federal government would buy up "hundreds of billions of dollars" of illiquid mortgage assets at a deep discount from banks. The Treasury Department is likely to run the program directly, unlike the savings and loan crisis of the 1990s that led to the creation of the Resolution Trust Company.
"The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy," said Paulson.
What remains to be seen is how the Treasury Department will structure the purchases and what price they'll pay.
The cost: While the proposal calls for the purchase of "hundreds of billions of dollars" of bad loans, it's unknown what taxpayers will ultimately pay for the bailout.
The government will likely buy the assets at below-market rates and hold onto them until the market recovers. Ideally, the loans could then be sold at a gain.
"The government could make a profit, a substantial profit," said Jaret Seiberg, a financial services analyst at the Stanford Group, a policy research firm. "The pricing mechanism is going to be central."
Will it work: The jury is still out, although experts are cautiously optimistic the plan will help the housing crisis.
The plan will help banks shore up their balance sheets by removing hard-to-value assets. This would address the seemingly endless rounds of writedowns and capital raising that have been rocking the financial sector.
Without these bad loans weighing on their books, banks may be more willing to lend. Or at least that's the goal.
The problem is that the bailout will not automatically make banks profitable, nor will it stop the slide in home values that is wreaking havoc on the economy.
Will it help homeowners: It's unclear at this point. If the government buys an entire securitized loan, it could opt to help struggling homeowners by modifying the terms. This could include reducing a loan's interest rate or principal balance.
But it could prove difficult to snap up all the securities sold on a mortgage, experts said. And as long as investors still hold a piece, they could block any changes to the loan.
If the plan doesn't stem the tide of foreclosures, home prices will not stabilize and the economy will not recover, experts said.
Next steps: Lawmakers have said they'll review the plan over the weekend and plan to hold hearings on the matter next week. A deal could be hammered out as soon as next week
NEW YORK (CNNMoney.com) -- The federal government is on the verge of instituting the... more
-
