Bernanke Says Fed Would Welcome ‘Full Review’ of AIG Aid by GAO

January 19, 2010 by · Leave a Comment
Filed under: Policy News 

I applaud this choice but I want to make sure we are clear that there are major questions about giving “back-door bailouts” to Goldman Sachs and a few foreign banks by giving 100 cents on the dollar for credit-default swaps AIG held.  Other counter-parties did take a discount or “haircut” on those debt insurance contracts so there is some explaining to do on those decisions.

To this point both Treasury and the Federal Reserve do not see any problem with their choices on this matter and the amount of U.S. tax payer money they used to bailout this insurance company.  Honestly, the financial products division did not need to be bailout out, their normal insurance operations where is separate subsidiaries so even if that company failed they would still be able to make good on their other obligations.  The reality is that major investment banks and foreign banks did not do proper due diligence on the ability of AIG to make good on this insurance in the event of a economic downturn and they should of been made to pay in a true free market system.

Bloomberg, New York – Federal Reserve Chairman Ben S. Bernanke said the central bank would welcome a “full review” of its aid to American International Group Inc. by congressional auditors and make all necessary records and personnel available to them.

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GMAC to receive another bailout of $3.8 billion from U.S. government

December 30, 2009 by · Leave a Comment
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You have to pay for these 0% APR car financing deals and GMAC found the perfect way, the U.S. taxpayer.  It wasn’t enough to bailout GM to save American jobs but now we have to make sure their is financing for these cars even if there is not the demand for them compared to other automakers.  How long until we finally let the market forces take their course and let the weak players fail or be taken over?

That means GMAC, like AIG, will get more aid from taxpayers, even though the prospect of repayment is on the wrong side of uncertain. Unlike AIG, GMAC was a disaster before the financial crisis’ darkest days. It finished 2006 losing money. In the third quarter of 2007 GMAC lost $1.6 billion, mostly on bad loans made by its residential mortgage arm. It lost $767 million in the third quarter of this year, $3.9 billion in the second quarter and $675 million in the first.

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U.S. to extend TARP program until Oct. 2010 for banks

December 9, 2009 by · Leave a Comment
Filed under: Policy News 

This is good news as long as we see the programs fade.  It is very hard for investors to gauge the real health of the economy with all of the intervention on the behalf of the government.  It is smart that they are retracting the program but keeping it in place just in cause we do see another decline in economic health.  If it does go well and we don’t need the assistance, we should use it to pay down the deficit being that we are generating debt at record levels.

Treasury Secretary Tim Geithner notified Congress Wednesday that he is extending the Troubled Asset Relief Program through Oct. 3, 2010.

“This extension is necessary to assist American families and stabilize financial markets because it will, among other things, enable us to continue to implement programs that address housing markets and the needs of small businesses, and to maintain the capacity to respond to unforeseen threats,” Geithner wrote in a letter to House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid.

The Treasury Department will continue to use TARP funds to mitigate home foreclosures, provide capital to community banks and take additional steps to boost lending to small businesses, Geithner wrote. The department also may increase its commitment to efforts to improve the secondary markets for consumer loans, small business loans and commercial mortgages.

Beyond these programs, the department will not use any remaining TARP funds “unless necessary to respond to an immediate and substantial threat to the economy stemming from financial instability,” Geithner wrote. “As a nation we must maintain capacity to respond to such a threat. Banks are still experiencing significant new credit losses, and the pace of bank failures, which tend to lag economic cycles, remains elevated.”

Source: Ohio Business Journal

FDIC’s Shelia Bair is cautious on authority to break up “too big to fail” banks

November 24, 2009 by · Leave a Comment
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Looks like Chairman Bair is getting in line with the Administration’s thinking that breaking up the “too big to fail” banks.  They think it is better to regulate them or create “glass ceilings” for firms that are systemically important to the U.S. economy.   Jamie Dimon from JPMogranChase did an op-ed piece stating he would rather not get bailouts and fail then have artificial ceilings in place.  I wish this statement would of come out about 12 months earlier and then it would of garnered more creditability.

It uses interesting that Ms. Bair says she wants to deal with these large financial institution but does not seem to support downsizing or limiting what financial activities commercial banks can engage in oppose to investment banking institutions.  In my opinion to have a real market economy and functioning democracy, we can never have any organization that is “too big to fail” other than a handful of defence-contractors that are in our national security interest and even those companies should not be allowed to engage in business practices that make them a systemic risk to our economic livelihood.

Reuters, Washington D.C. – A top U.S. bank regulator on Tuesday said lawmakers need to be careful about moving forward with a proposal that could break up the largest financial institutions, while also voicing support for its objective.

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Fed’s Donald Kohn wants to use low interest rates to encourge people into riskier assets

November 18, 2009 by · Leave a Comment
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I love the opening line of this press release:  The Federal Reserve’s low interest rate policy is meant to encourage investors to move into riskier assets in order to promote economic recovery. Let me translate this, we have chosen to punish savers by making interest rates at close to zero so instead of investing in U.S. treasuries which are considered the “safest” form of investment we want you to speculate on risky investments in the middle of a “jobless recovery” that sounds suspiciously like a recession.  I don’t see how getting people to invest in other assets is somehow connected to making credit easier to access.  Interest rates clearly don’t reflect the real risk in the economy at present.

Reuters, Chicago – The Federal Reserve’s low interest rate policy is meant to encourage investors to move into riskier assets in order to promote economic recovery, and there are no signs currently the policy is resulting in the build-up of a U.S. asset bubble, the central bank’s number-two official said on Monday.

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