Overview of 2009 U.S. bank rescue plan (Bank Bailout)

February 10, 2009 by · Leave a Comment
Filed under: Economic News 

First off, the market is tanking pretty bad.  Not a vote of confidence at any stretch.  At the time of this writing the market is down 4.6%, ouch.  Basically the plan is used to buy toxic assets and use money to help private investors purchase these assets.  

Outside of the mortgage-backed securities, I am not sure what investors are going to buy?  I don’t think I would purchase debt insurance contracts (CDS) in this market, who would want that risk when so many other indicators are pointing towards a global depression.   Plus I still stand by my prediction that the white elephant in the room is the fact that many of these banks are carrying insurance contracts on their balance-sheet (somewhere) that have already gone bust so they are not a real asset, but a liability.  Here is the full overview:

2009 Bank Bailout Overview:

The Plan will do four things:


1. To stabilize the system and restore confidence in our markets, for the first time ever federal bank regulators will come together to institute uniform standards to help clean up and strengthen banks, and conduct “stress tests” to ensure the nation’s largest banks can withstand a worsening economy. Those banks that need it will be given a capital buffer to ensure they can keep lending to families and businesses until they can attract additional private capital and weather economic downturns.


2. To revitalize lending and increase much-needed credit flowing to consumers and businesses, Treasury and the Fed are creating a new consumer business lending initiative to leverage up to $1 trillion to kick-start the secondary lending markets, which will bring down borrowing costs for responsible borrowers and help get credit flowing again.


3. To get financial markets working again, we will create a new Public-Private Investment Fund which provide government capital and financing to leverage private capital to buy up the “toxic assets” that are dragging down lending. This would allow financial institutions to cleanse their balance sheets while letting private sector buyers determine the price for previously illiquid assets.


4. To keep people in their homes and curb the housing crisis, Treasury will work with the Federal Reserve to commit $50 billion to reduce monthly payments and establish loan modification guidelines for government and private programs. The Financial Stability plan will also require all firms receiving federal funds participate in foreclosure mitigation plans to stem the housing crisis.


Access to government resources is a privilege not a right and comes with tough new conditions and responsibilities. We need to earn the public’s trust that those who were not responsible for this crisis aren’t bearing a bigger burden than those who were.


To increase transparency and accountability to protect taxpayers, Treasury will:


— Launch a new Website, FinancialStability.gov, to detail where federal funds are going and whether they are succeeding in stabilizing the financial system and promoting new lending, including posting all contracts on the Internet.


— Require banks to show how government assistance will expand lending and how they intend to use taxpayer dollars.


— Restrict dividends, stock repurchases and acquisitions to provide assurance that all taxpayer money will go to promote lending until that money is paid back.

— Limit executive compensation, restrict golden parachutes and require disclosure of luxury spending provisions so the public can hold them accountable.

Source: Reuters


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