With what is likely to be a historic bailout of the financial markets on the horizon, we’re going to admit that we’ve been sort of disappointed. Not because of the bailout provisions, mind you, which we’ve written plenty about. No, we’re referring to the nickname for this mess. The 1930s had the Great Depression, the late 1980s the Oil Patch crisis, and the late 80s even had Black Monday for a single bad day.
This crisis makes the eighties look like a walk in the park. But yet, no name has surfaced and stuck. No nickname for the plan being devised by Congressional leaders in a harried attempt to prevent our very destruction seems to have really struck a chord.
Is it the Mother of All Bailouts, perhaps, as Calculated Risk has been using? Or TARP, as in Troubled Asset... more»
Via the Wall Street Journal, Blackstone chairman Stephen Schwarzman put out perhaps the single most-succint description of a complex mess we’ve seen yet:
It’s a perfect storm. It started with Congress encouraging lending to lower-income people. You went from subprime loans being 2% of total loans in 2002 to 30% of total loans in 2006. That kind of enormous increase swept into the net people who shouldn’t have been borrowing.
Those loans were packaged into CDOs rated AAA, which led the investment-banking firms [buying them] to do little to no due diligence, and the securities were distributed throughout the world, where they started defaulting.
When they started defaulting, out of bad luck or bad judgment, we implemented fair value accounting….You had wildly different... more»
Forget everything else about how the current financial mess could hurt everyday Americans, which it could. My jaw fell to the floor when I heard the President, attempting to explain the current mortgage/financial debacle to everyday Americans on Wednesday night, throw both Fannie Mae and Freddie Mac under the proverbial bus.
“Fannie Mac and Freddie Mac … fueled the market for questionable investments,” Bush said.
Read that again. And then remember that this mess started with a private-party securitization party that left the GSEs gasping for air, and market share. Either we’re witnessing political agenda-setting at its worst, or simple ignorance by an administration that has seemingly consistently failed to understand the nature and reach of this crisis. Neither is... more»
This had most of us here at HW giggling.
From the site:
Use the form below to submit bad assets you’d like the government to take off your hands. And remember, when estimating the value of your 1997 limited edition Hanson single CD “MMMbop”, it’s not what you can sell these items for that matters, it’s what you think they are worth. The fact that you think they are worth more than anyone will buy them for is what makes them bad assets.
Heard during recent testimony by Treasury Secretary Henry Paulson to the House Financial Services Committee, regarding community banks’ role in the proposed bailout:
Paulson: “This is something we haven’t communicated so clearly about the program.”
Frank: “There’s a lot of that going around.”
Below is Fed chairman Ben Bernanke’s prepared remarks to the Senate Banking Committee regarding a historic bailout plan being proposed by Bush adminstration officials*:
(*Bernanke actually never said much of the below in his testimony, ditching his prepared remarks to speak off-script regarding the issue of pricing bad assets for purchase)
Chairman Dodd, Senator Shelby, and members of the Committee, I appreciate this opportunity to discuss recent developments in financial markets and the economy. As you know, the U.S. economy continues to confront substantial challenges, including a weakening labor market and elevated inflation. Notably, stresses in financial markets have been high and have recently intensified significantly. If financial conditions fail to improve for a protracted... more»
Below is Treasury Secretary Henry Paulson’s prepared testimony to the Senate Banking Committee on a proposed historic bailout of the U.S. financial markets:
Chairman Dodd, Senator Shelby, members of the committee, thank you for the opportunity to appear before you today. I appreciate that this is a difficult period for the American people. I also appreciate that Congressional leaders and the Administration are working closely together so that we can help the American people by quickly enacting a program to stabilize our financial system.
We must do so in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten American families’ financial well-being, the viability of businesses both small and large, and the very health of our economy.
The... more»
Below is the full statement from the Federal Reserve on a historic change to the status of Goldman Sachs and Morgan Stanley:
The Federal Reserve Board on Sunday approved, pending a statutory five-day antitrust waiting period, the applications of Goldman Sachs and Morgan Stanley to become bank holding companies.
To provide increased liquidity support to these firms as they transition to managing their funding within a bank holding company structure, the Federal Reserve Board authorized the Federal Reserve Bank of New York to extend credit to the U.S. broker-dealer subsidiaries of Goldman Sachs and Morgan Stanley against all types of collateral that may be pledged at the Federal Reserve’s primary credit facility for depository institutions or at the existing Primary Dealer Credit Facility (PDCF);... more»
This bears watching around mortgage markets as well — crude oil futures soared on Monday. Per MarketWatch:
Crude futures leaped more than $16 per barrel Monday to score their biggest daily gain in dollar terms since 1984 — when crude began trading on the New York Mercantile Exchange. Crude futures rallied to a high of $130 a barrel to reach their strongest intraday level in two months, buoyed by a steep drop in the U.S. dollar and speculation that the Bush administration’s proposal to stabilize the financial sector may help revive economic growth.
Below is the full text of the original proposal sent by Treasury to Congress for consideration:
LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY
TO PURCHASE MORTGAGE-RELATED ASSETS
Section 1. Short Title.
This Act may be cited as ____________________.
Sec. 2. Purchases of Mortgage-Related Assets.
(a) Authority to Purchase.–The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.
(b) Necessary Actions.–The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:
(1) appointing such employees as may... more»
