Even though my core stance is that we should not of bailed out any financial institutions, I am glad to see that we are focusing on local banks and credit unions. They have been hit the hardest because of the smaller capital cushions. Local financial institutions are very important in smaller communities because they know the area and their borrowers better than national banks that might underwrite loans in regional centers other than right in town.
They would lean towards businesses that are known quantities like franchises where there might be local successful business that needs capital and might be turned down because of the lack of familiarity on the part of a large institution.
We shall see if this is enough to backstop the losses that are bringing down many local and regional banks around the country.
WSJ - Two years after the peak of the financial crisis, the federal government swooped in to stabilize a crucial part of the credit-union sector battered by losses on subprime mortgages.
Well here is the first shot back after the New York District judge ruled against the Fed in the FOIA lawsuit brought against them from Bloomberg LP. I am just going to take a little time to address some of the quotes in this article to show how the English language can be distorted to get emotional responses that are incorrect based on the facts.
The Fed’s “ability to effectively manage the current, and any future, financial crisis” would be impaired, according to the motion. It said “significant harms” could befall the U.S. economy as well.
Response: It would be of more harm to the economy if we have banks and financial institutions that the public believes are in good financial health but in fact are insolvent. Bad banks drive aways good banks through their bad and reckless policies.
Fed lawyer Kit Wheatley told Preska in a conference call today that she did not know how long it would take for the Fed board to search the New York Fed for records. “We really don’t know what’s in New York,” Wheatley said. “We don’t control the system of record-keeping in New York.”
Response: This is rich, so your saying we actually gave out $2 trillion in emergency loans but it was such an emergency that we didn’t keep records that would be easily accessible? See how this game is played, even if The Fed is ruled against, they will play games about where the information is located. This just ruins the Central Bank’s credibility.
“Experience in the banking industry has shown that when customers and market participants hear negative rumors about a bank, negative consequences inevitably flow,” Norman Nelson, vice president and general counsel for the group, said in the document.
Response: Time to cut the “crap” here, they used the word “rumors“. This is a the quintessential case and point to what I am trying to convey. In this case, if you released this to the public, it would be showing “facts” not “rumors” and people would react to the reality that the facts presented. What this leads me to think when I read it without critically thinking about it is that even these facts would somehow create negative rumors that somehow would not be true. Here the catch though, if your a bank and you need a huge loan from the government via the Fed, GUESS WHAT, you are in trouble and I would pull my deposits from you because you were not prudent enough to keep my money safe. As long as we let this happen, bad banks will prosper and good banks will be acquired. I love good banks because they actually provide benefit to our society as a whole.
Well we will see how these “stress test” results look on Thursday. I have heard anywhere from 10 to 16 of the 19 biggest banks we need to raise additional capital to maintain an adequate reserve ratio. The problem I have with these tests are the fact that if you look at the criteria of the tests, they really painted a recovery this year and an additional 7 to 15% decline in housing prices.
Maybe we can keep good economic numbers while we have all of these government backed programs to prop up our failed financial system but once those need to be reigned in and all that cash that has been pushed into the system, starts to flow around. I believe we will be in the same position as last October or even worse. I guess we can keep our fingers crossed and our guns loaded?
News (NY Times):
The government has told Bank of America it needs $33.9 billion in capital to withstand any worsening of the economic downturn, according to an executive at the bank.
He is correct on this point, the bailout has been targeted to Wall Street on the assumption that if we give them good money and purchase their bad assets off their balance-sheet, it will get them to start lending in the middle of a soft-depression. Not likely, in reality they are holding on to the cash until this passes then they will lend and make acquisitions are bargain basement prices which in the end will give them more wealth and power. My question is how long it will take for people to wake-up and see this situation for what it is and start holding our elected representatives accountable to the biggest corporate subsidy in the history of modern civilization??????? Get on the phone and let your opinion be heard and vote accordingly. That is the only way they will know that we are serious and paying attention.
The Obama administration’s bank- rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.
“All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview yesterday. The people who designed the plans are “either in the pocket of the banks or they’re incompetent.”
The depth of this situation is now coming into focus. What has basically happened, is the life insurance companies who normally are very risk adverse in their investing got caught up in investing in dodgy “other assets” that carried a “AAA” credit rating. Now because we have realized that these were not “AAA” but in fact junk debt, the insurance companies are in a hole to provide adequate coverage to their policyholders (according to the insurers).
Commercial real estate has to be the next bailout target, I know personally that many of these insurance companies and pensions invested heavily during the boom times in commercial real estate and sercurities based on commercial real estate. To be continued…..
Shares of U.S. life insurance companies rose broadly on Wednesday on a report that the government may widen a funding program for troubled financial companies to include insurers.
The U.S. Treasury is expected to announce within the next several days the inclusion of life insurers that are bank holding companies or own a thrift in its capital injection program, The Wall Street Journal reported, citing people familiar with the matter.
Shares of Hartford Financial Services Group Inc climbed more than 30 percent to as much as $11.35 in early morning trading, from $8.45 on Tuesday.