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Author Topic: The crumbling of the US financial system (NC)  (Read 32848 times)

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kban1

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Re: The crumbling of US investment banks (NC)
« Reply #80 on: September 17, 2008, 05:23:51 PM »

The same McCain that supported repealing of the Glass-Steagel Act sponsored by his advisor Gramm?
http://en.wikipedia.org/wiki/Glass-Steagall_Act
"On November 12, 1999, President William J. Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933."


The Subprime Mess and Phil Gramm: An Experiment in Deregulation

Paul Kiesel

June 24, 2008 - 04:12 PM 


In 1933, a few years following the stock market crash, Congress passes the Glass-Steagall Act, in hopes that regulating banks will help prevent market instability, particularly amongst Wall Street banks. The purpose of the act is to separate commercial banks that focus on consumers from investment banks, which deal with speculative trading and mergers.

The Glass-Steagall Act provided the proper oversight and entity separation that would prohibit banks and other financial companies from merging into giant trusts (conflict of interests) -- giant trusts or corporations being more powerful, naturally, and having the seemingly limitless capital to lobby their corporate interests, however, with a very myopic scope (particularly when it comes to factoring in potential losses -- most banks, as seen in contemporary times, chose not to anticipate losses in the mortgage market; they presumed home prices would continue to appreciate).

In 1999, former Senator Phil Gramm (who is, incidentally, Senator John McCain's economic adviser and cochairs his presidential campaign) set out to completely gut the Glass-Steagall Act, and did so successfully, replacing most of its components with the new Gramm-Leach-Bliley Act: allowing commercial banks, investment banks, and insurers to merge (which would have violated antitrust laws under Glass-Steagall).

Sen. Gramm was the driving force behind the Gramm-Leach-Bliley Act, as he had received over $4.6 million from the FIRE sector (Finance, Insurance and Real Estate donations) over the previous decade, and once the Act passed, an influx of "megamergers" took place among banks and insurance and securities companies, as if they had been eagerly awaiting the passage of Gramm's Act. Everything in between Glass-Steagall and Gramm-Leach-Bliley (i.e. Savings and Loan crisis/bust) was, in large part, the incubation period for what would take place over the nine years that would follow the passage of Gramm's Act: an experiment in deregulation.

Shortly after George W. Bush was elected president, Congress and President Clinton were trying to pass a $384 billion omnibus spending bill, and while the debates swirled around the passage of this bill, Senator Phil Gramm clandestinely slipped a 262-page amendment into the omnibus appropriations bill titled: Commodity Futures Modernization Act.

It is likely that few senators read this bill, if any. The essence of the act was the deregulation of derivatives trading (financial instruments whose value changes in response to the changes in underlying variables; the main use of derivatives is to reduce risk for one party). The legislation contained a provision -- lobbied for by Enron, a major campaign contributor to Gramm -- that exempted energy trading from regulatory oversight. Basically, it gave way to the Enron debacle and ushered in the new era of unregulated securities. Interestingly enough, Gramm's wife, Wendy, had been part of the Enron board, and her salary and stock income brought in between $900,000 and $1.8 million to the Gramm household, prior to the passage of the Commodity Futures Modernization Act.

In 2003, Gramm left the Senate to join UBS, which had acquired investment house PaineWebber due to his deregulation bill. At UBS, Gramm lobbied Congress, the Fed and the Treasury Department. During Gramm's tenor at UBS and as a lobbyist, Congress passed the Responsible Lending Act, billed as an anti-predatory-lending measure, but was called the "Loan Shark Protection Act" by consumer advocates, as it was designed to preempt stronger state laws against anti-predatory lending.

The Fed largely ignored the underlying and growing problems within the subprime mortgage/housing markets, as Bernanke famously acknowledged the housing market in April, 2007 as, "[showing] signs of softening," but said that a "sharp slowdown," is unlikely. Then, according to Mother Jones magazine, Henry Paulson became the Treasury Secretary in July, 2007, when, "In 2005, [at] Goldman [he] securitized $68 billion in residential mortgages and $23 billion in 'other assets' primarily related to CDOs," (Mother Jones, August, 2008). With such self-interest, and a lack of the nation's interest, we can see how this subprime mess was allowed to escalate to such great proportions.

Some justice was served, however, this spring, as UBS became one of the subprime debacle's biggest losers, having to write down $37 billion -- the same amount as their previous four years of profits combined. UBS also made the public aware that two-thirds of its losses were due to reckless investing in collateralized debt obligations (CDOs).

Now, Gramm has a second chance of extending his out-of-touch and ill-performing policies, as Senator John McCain appointed Gramm to be his "economic expert" and cochair of his presidential campaign, last year. Also, it is likely that if Senator McCain were to win in November, Gramm would be our next Treasury Secretary, which means more of the same deregulatory mess and the continuation of failed and insidious economic policies.

http://losangeles.injuryboard.com/miscellaneous/the-subprime-mess-and-phil-gramm-an-experiment-in-deregulation.aspx?googleid=242468
« Last Edit: September 17, 2008, 05:26:21 PM by kban1 »
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prfsr

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Re: The crumbling of US investment banks (NC)
« Reply #81 on: September 17, 2008, 05:50:15 PM »

McCain agrees with me about free markets!!!  :icon_thumleft: :icon_thumleft:

http://www.cnbc.com/id/26736414

"And I'm proud to be a Teddy Roosevelt Republican, who said, 'unfettered capitalism leads to corruption,' and we've got to fix this."


And about huge CEO salaries!

"When you see these people who are the top executives, after really having failing enterprises, and not succeeding, leaving with these huge packages, that makes the American people cynical, and, frankly, it threatens the free enterprise system, and lends itself sometimes to over-regulation," he said.

That is why he hired Carly Fiorina as his advisor!  Well it was not her fault HP gave her tens of millions severance pay!
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ruchir

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Re: The crumbling of US investment banks (NC)
« Reply #82 on: September 17, 2008, 07:37:58 PM »

Actually, its your lack of knowledge which is astounding.

The Bill that you refer to was dated May 2006. Congress was controlled by the Republicans till January 2007 when Democrats took over - see below.

Apologies. I stand corrected on who ruled congress in 2006. Being limited in time at work place, I did not do full research.


Legislation reforming the regulatory oversight of the housing GSEs was considered by the 109th Congress , << Headed by republicans>> but ultimately died due to policy differences between the House and Senate reform packages, in many key areas, most notably: affordable housing requirements, portfolio limits, and program/product approval. NAHB supported the House-passed bill H.R. 1461, which was a balanced bill that included many of NAHB’s priorities in key areas and did not include several adverse provisions sought by those seeking to restrict GSE activities.

In contrast, the Senate bill, S. 190, contained many restrictive provisions that could harm the nation’s housing finance system, including: restrictions on asset holdings, discretion to raise minimum capital, burdensome program approval process, and a regulatory structure tilted away from housing. In addition, S. 190 did not require Fannie Mae and Freddie Mac to set aside monies to fund affordable housing initiatives, as provided in the House-passed bill.

You are quoting this from National Association of Home Builders web site. Do you think they will have anything good to say when their business may be affected if more controls are put on Fannie and Freddie and thereby home loans become difficult to get? McCain wanted an amendment to put more oversight by govt, minimum capital levels by these GSEs, penalties, reporting etc. so that these GSEs could be better managed. And what did Dems come up with for that? They want to add affordable housing to it, when the amendment is in no way related to that. This is a typical Dem filibuster measure. Add something that you know is stupid and will be rejected, then say that look we were for it but nothing happened. I am surprised that the NAHB article did not explain exactly how harmful restrictions would be put on assets, exactly where discretion is given to raise harmful minimum capital, exactly how the regulatory structure is tilted away from housing. They say the approval process will become burdensome. Excuse them, but isn't that how it is supposed to be? Isn't the loan approval process supposed to be fool-proof so that no undeserving person receives loan that results in bad debt for the bank later on?


Again, the ignorance here is astounding.

Usually, in the House and Senate, members are part of committess and subcommittees that deal with specific issues. Barack Obama, as US Senator was not involved in any committee which oversaw Finance or Financial institutions. before you ask why, let me educate you -- some committee and sub committee appointments are deemed worthy enough for only senior members of Congress --Finance, Intelligence & Security fall within that grasp. As the junior senator from IL, BHO would be pretty low down the order for appointment consideration in those committees.

Neither was Barrack Obama a member of the Energy Committees. Nor was S. 190, the Senate Bill introduced by McCain brought up for discussion in a Democratic controlled Congress (see earlier explanations).

Ok. BHO was not a member of any financial committee. I am surprised people still feel that he is qualified enough to take care of the economy. I asked specifically if BHO has co-sponsored any financial bill. I think your answer is NO. Digressing a bit, I think that is enough for me to think that he has no experience whatsoever, in taking this fragile US economy out of its current state.


here is BHO's Senate biography:
***************************************************************************************************************

Sworn into office January 4, 2005, Senator Obama serves on the Health, Education, Labor and Pensions Committee, which oversees our nation’s health care, schools, employment, and retirement programs. He is a member of the Foreign Relations Committee, which plays a vital role in shaping American policy around the world, including our policy in Iraq. And Senator Obama serves on the Veterans’ Affairs Committee, which is focused on providing our brave veterans with the care and services they deserve. In 2005 and 2006, he served on the Environment and Public Works Committee, which safeguards our environment and provides funding for our highways

http://obama.senate.gov/about/
***************************************************************************************************************

Oh, wow.... what a marvelous collection of memberships he has!!!

Digressing again...
member of the Foreign Relations Committee, which plays a vital role in shaping American policy around the world, including our policy in Iraq. ------ Ha ha ha... I think this is the reason why he had to be FORCED by McCain to make a trip to Iraq. This membership is actually the funniest of all. I would like to know what his achievements were as a member of this committee. How exactly and specifically he has altered our policy around the world and in Iraq. Last I know, he was against the surge, which now by his own admission is a success.


Again, absolutely erroneous and an assertion with little basis in knowledge.

The Housing market crisis was reasonably full blown by 2006 and exploded in late 2006, early 2007. The policies that set that in motion were set back in 2002 -2005.

Congress was controlled by Republicans during this time (till the end of 2006).

The House Financial Services Committee was headed by
SENATOR MICHAEL G. OXLEY (R – OHIO)

Senate Committee on Banking, Housing and Urban Affairs was headed by
SENATOR RICHARD SHELBY (R – ALABAMA)
Chair, Senate Committee on Banking, Housing, and Urban Affair

and before him by

PHIL GRAMM (R-TEXAS),
CHAIR-man of the Senate Committee on Banking, Housing and Urban Affairs

Yes sir... you are mentioning the correct names. But you did not get my point. When I mentioned the Dem controlled committees, I wanted to point out that problems related to Fannie and Freddie were brought to public notice in 2006 and nothing was done because of Dem blockage. Now that Dem did capture the control of both houses, why did they not act? What were they waiting for?


Quote
May we ask what these two fine specimen of gentlemen were doing since taking over in 2006?


2007, not 2006. get your facts right. The damage had already been done by then.

Sorry for the years. No, the damage had not been done by then.


Quote
Were they sleeping or were they simply ignoring all problems and issues while taking money from Fannie, Freddie, Lehman and whatnot?


Inaccurate rantings

One of the members, Barney Frank, who you have mentioned, was instrumental (even when he was not the chair in a Republican Congress) along with the republican Chair Oxley in helping House Bill 1461 pass (the bill that advocated stricter control of the GSE's - Fannie, Freddie, and FHLB's) in Congress. McCain's Bill S. 190 was the Senate counterparty to this. Read on

************************************************************************************************************
<< snip >>

Chairman Oxley said, "I appreciate Mr. Blumenthal's comments, particularly his recognition that the House-passed bill would result in vastly improved regulation of Fannie Mae and Freddie Mac, which is our goal.  Those who recommend holding back on final congressional action because of a difference on this provision or that do so at the risk of deepening the problems at the enterprises.  In my view, we have seen the results of the regulatory status quo, and the status quo is not an acceptable option."

<< snip >>

In October, the House passed H.R. 1461 to strengthen the regulation of the GSEs.  The bill passed both the Financial Services Committee and the House with overwhelming bipartisan votes.
*************************************************************************************************************

Okay, so McCain's bill was blocked and this HR 1461 bill was passed to control Fannie and Freddie. Right? So by that logic are you saying that Dems are responsible for the current state of Fannie and Freddie? 'cause their bill, on how to control GSEs passed and McCain's didn't. So isn't it Dem's fault, whatever has happened in financial market? And we still believe that Dems will better take care of economy?


Quote
They are supposed to be the first reactors to all Housing and Financial problems, not president or Republicans. Why did they not hold any kind of investigations on any irregularities they found? It is their responsibility, not presidential or Republican responsibility. 
And what is their reaction and their leader's (BHO) reaction? Blame Bush, blame Republicans, blame McCain. Blame anyone and everyone except themselves, when they are the ones to be blamed. And we still think Democrats will do a better job in next 4 years, when in past 2 years they allowed the financial and housing market to go down the drain and did not bother lifting even a thumb to do anything.

Irrelevant. You have miles to go yet.

Go where?


Quote:
Quote
The Subprime Mess and Phil Gramm: An Experiment in Deregulation

Paul Kiesel

June 24, 2008 - 04:12 PM

http://losangeles.injuryboard.com/miscellaneous/the-subprime-mess-and-phil-gramm-an-experiment-in-deregulation.aspx?googleid=242468

Back to quoting hit-job blogs!? You are quoting a blog for Injury Attorneys to talk about economic issues.


http://theconservativepost.com/WordPress/?p=571


Freddie-ron and Fannie-ron: Where’s the Special Prosecutor?


- Scott Miller

Bear Stearns, gone. Leham Brothers, gone. Merrill Lynch, gone. Fannie Mae and Freddie Mac, gone as semi-private companies. Now AIG… bailed out.

If you listen to the mindless drivel from Obamarxist/Biden today, it’s all Bush’s fault. Exactly why how it’s Bush’s fault, they never quite say… other than that he’s the devil incarnate.

But to really get to the nut of who’s to blame for this crisis, we don’t have to look much further than the usual suspect when it comes to colossal mismanagement… our own government.

Follow me on this because I’m to break this down relatively quickly, but you’ll get a good basic understanding how we got into the mess we find in the financial markets today.

It is widely accepted that the current financial crisis… the credit crisis… was started by the practice of loaning money to people who couldn’t afford, and had no business buying, houses. They called these loans sub-prime loans, and for a decade a ton of these loans were written. Rates were low, and with more “buyers” coming into the house buyer pool, home prices went up, up, up. With home prices going up, many of these sub-prime home owners then took out second loans to tap the “equity” they suddenly had in their home… and so the loans to risky homeowners grew even larger. Making these sub-prime loans even more risky, many of the sub-prime buyers made the decision to take Adjustable Rate Mortgages where their payments could spike dramatically higher if interest rates moved against them.

So, how did the banking system go from enforcing relatively strict standards for income verification, and a strict debt to income ratios, before they gave a consumer a loan? Government.  This from IBDeditorials.com:

The Real Culprits In This Meltdown

Quote
    Obama in a statement yesterday blamed the shocking new round of subprime-related bankruptcies on the free-market system, and specifically the “trickle-down” economics of the Bush administration, which he tried to gig opponent John McCain for wanting to extend.

    But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street’s most revered institutions.

    Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.

    The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but “predatory.”

    Yes, the market was fueled by greed and overleveraging in the secondary market for subprimes, vis-a-vis mortgaged-backed securities traded on Wall Street. But the seed was planted in the ’90s by Clinton and his social engineers. They were the political catalyst behind this slow-motion financial train wreck.

    And it was the Clinton administration that mismanaged the quasi-governmental agencies that over the decades have come to manage the real estate market in America.

    As soon as Clinton crony Franklin Delano Raines took the helm in 1999 at Fannie Mae, for example, he used it as his personal piggy bank, looting it for a total of almost $100 million in compensation by the time he left in early 2005 under an ethical cloud.

    Other Clinton cronies, including Janet Reno aide Jamie Gorelick, padded their pockets to the tune of another $75 million.

    Raines was accused of overstating earnings and shifting losses so he and other senior executives could earn big bonuses.

    In the end, Fannie had to pay a record $400 million civil fine for SEC and other violations, while also agreeing as part of a settlement to make changes in its accounting procedures and ways of managing risk.

    But it was too little, too late. Raines had reportedly steered Fannie Mae business to subprime giant Countrywide Financial, which was saved from bankruptcy by Bank of America.

    At the same time, the Clinton administration was pushing Fannie and her brother Freddie Mac to buy more mortgages from low-income households.

    The Clinton-era corruption, combined with unprecedented catering to affordable-housing lobbyists, resulted in today’s nationalization of both Fannie and Freddie, a move that is expected to cost taxpayers tens of billions of dollars.

    Obama and Democrats on the Hill think even more regulation and more interference in the market will solve the problem their policies helped cause. For now, unarmed by the historic record, conventional wisdom is buying into their blame-business-first rhetoric and bigger-government solutions.

And then the Heritage Foundation explains how Freddie and Fannie’s cooking of the books was exposed way back in 2004, and Democrats blocked the all efforts to reform these two corrupt enterprises.

The Left’s Crony Capitalism Exposed

Quote
    In 2004, after a tip from a whistle blower who was later fired, the Office of Federal Housing Enterprise Oversight (Ofheo) issued a report finding that the government-sponsored entity Fannie Mae had engaged in Enron-like accounting machinations that allowed Fannie to overstate its earnings and underestimate the risk the company faced. The accounting wizardry Fannie engaged in was designed so that Fannie could meet profit targets to maximize bonus payments to company executives like Clinton administration deputy attorney general Jamie Gorelick and Carter administration assistant director for domestic policy Franklin Raines.

    For years, conservatives have been critical of how Fannie, and Freddie Mac, have leveraged their government-sponsored advantages (including exemptions from state and federal taxes, lower capital requirements, and the ability to borrow at rates well below those paid by private companies), to create a co-monopoly in the housing finance sector. When Fannie’s accounting scandal came to light in 2004, conservatives pushed hard for reforms to phase out Fannie and Freddie. Led by former Walter Mondale and Barack Obama campaign adviser James Johnson, Fannie and Freddie pushed back hard, raising millions of dollars for members of the relevant oversight committees and opening up “Partnership Offices” that funneled money into various housing projects in districts of key members of Congress.

    Fannie also bought off activist groups such as the corrupt Association of Community Organizations for Reform Now (ACORN), which has been indicted, multiple times across the country, for vote fraud (Obama worked closely with ACORN as a street organizer in Chicago). Fannie’s lobbying efforts paid off as liberal politicians such as Sen. Chuck Schumer (D-N.Y.) and Rep. William Clay (D-Mo.) worked to kill any real reform of Freddie and Fannie. The Washington Post reports: “In an internal memo in 2004, Fannie Mae executive Daniel H. Mudd affirmed what the company’s critics had long contended: In the political arena, ‘we always won’ and ‘we took no prisoners.’”

    Fannie was created during the New Deal to make homes more affordable for lower- and middle-income Americans. Freddie was added years later for the same purpose. Fannie and Freddie have long outlived their purpose as the market for repackaging loans as securities is now well developed. When the housing market is booming, they are not needed, and they have both gone well beyond their original mission and are now backing loans for wealthy (witness Speaker Nancy Pelosi’s continued efforts to raise the cap on the size of the loans that Fannie and Freddie can buy).

Now the American tax payers are on the hook for insuring TRILLIONS in mortgage debt because this experimentation in social engineering and socialism, the Democrat cronies running this corrupt government agency, were more worried about lining their pockets with hundreds of millions in unearned bonuses than they were about the financial health of the nation’s finance system.

So where in the hell is the Special Prosecutor? Where are all the hearings in Congress? These failures make the Enron failure look like a day in the park. Where are all the news stories demanding accountability from the heads of these two government agencies. I want some accountability DAMN IT, and I want it now!
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natty

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Re: The crumbling of US investment banks (NC)
« Reply #83 on: September 17, 2008, 08:25:15 PM »

What percentage of the bad sub-prime loans were made to minorities?  Even if small, is it just a case of the last straw on the camel's back (years of cheap credit in general, in other areas besides housing)
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natty

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Re: The crumbling of US investment banks (NC)
« Reply #84 on: September 17, 2008, 08:30:51 PM »

I am hardly an Obama supporter but I cant find much to like about McCain and his know-nothing, crazy VP pick.  The next president is going to have a really tough time and very unlikely to get re-elected in 2012.

SIROTA: [McCain is] an ideological conservative who is against regulation. So for him to now run out there and say that he's suddenly the guy who's going to regulate the economy and regulate Wall Street is beyond absurd. And I think we have to look at his history. Let's remember that McCain's formative economic experience was in the last crisis, the S&L crisis where he was one of the Keating Five. In that scandal he was somebody who used his Senate position to effectively intervene and press regulators to not get involved and regulate that scandal.

MADDOW: Well, is there a risk as this economic debacle that we are involved in right now starts to resemble the S&L scandal that the Keating Five issue is actually going to be on the table? Obama and Biden have stayed away from it thus far. Some outside groups have touched on it in a very minor way but I think 99 out of a 100 Americans would have no idea what the Keating Five was or what John McCain's role was in it.

SIROTA: ... I think older Americans might remember the S&L scandal. I think explaining that McCain was involved in that scandal, used his office in that scandal again to press regulators to get out of that scandal, to not essentially regulate the financial industry. It's completely relevant. It's completely important because it's the last example that we have, it's actually the only example that we have, of what John McCain would do with a public office with a crisis like this.
« Last Edit: September 17, 2008, 09:24:51 PM by natty »
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LosingNow

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Re: The crumbling of US investment banks (NC)
« Reply #85 on: September 17, 2008, 08:53:44 PM »

This is really funny...

Cavuto takes out Bill'O...  "why are you yelling at me?" ;D


http://www.youtube.com/watch?v=v1f7ICTAdVw
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natty

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Re: The crumbling of US investment banks (NC)
« Reply #86 on: September 17, 2008, 09:27:28 PM »

Former publisher of National Review, an arch-conservative magazine prefers Obama..

A Conservative for Obama
My party has slipped its moorings. It’s time for a true pragmatist to lead the country.
Leading Off   By Wick Allison, Editor In Chief

THE MORE I LISTEN TO AND READ ABOUT “the most liberal member of the U.S. Senate,” the more I like him. Barack Obama strikes a chord with me like no political figure since Ronald Reagan. To explain why, I need to explain why I am a conservative and what it means to me.

In 1964, at the age of 16, I organized the Dallas County Youth for Goldwater. My senior thesis at the University of Texas was on the conservative intellectual revival in America. Twenty years later, I was invited by William F. Buckley Jr. to join the board of National Review. I later became its publisher.

Conservatism to me is less a political philosophy than a stance, a recognition of the fallibility of man and of man’s institutions. Conservatives respect the past not for its antiquity but because it represents, as G.K. Chesterton said, the democracy of the dead; it gives the benefit of the doubt to customs and laws tried and tested in the crucible of time. Conservatives are skeptical of abstract theories and utopian schemes, doubtful that government is wiser than its citizens, and always ready to test any political program against actual results.

Liberalism always seemed to me to be a system of “oughts.” We ought to do this or that because it’s the right thing to do, regardless of whether it works or not. It is a doctrine based on intentions, not results, on feeling good rather than doing good.

But today it is so-called conservatives who are cemented to political programs when they clearly don’t work. The Bush tax cuts—a solution for which there was no real problem and which he refused to end even when the nation went to war—led to huge deficit spending and a $3 trillion growth in the federal debt. Facing this, John McCain pumps his “conservative” credentials by proposing even bigger tax cuts. Meanwhile, a movement that once fought for limited government has presided over the greatest growth of government in our history. That is not conservatism; it is profligacy using conservatism as a mask.

Today it is conservatives, not liberals, who talk with alarming bellicosity about making the world “safe for democracy.” It is John McCain who says America’s job is to “defeat evil,” a theological expansion of the nation’s mission that would make George Washington cough out his wooden teeth.

This kind of conservatism, which is not conservative at all, has produced financial mismanagement, the waste of human lives, the loss of moral authority, and the wreckage of our economy that McCain now threatens to make worse.

Barack Obama is not my ideal candidate for president. (In fact, I made the maximum donation to John McCain during the primaries, when there was still hope he might come to his senses.) But I now see that Obama is almost the ideal candidate for this moment in American history. I disagree with him on many issues. But those don’t matter as much as what Obama offers, which is a deeply conservative view of the world. Nobody can read Obama’s books (which, it is worth noting, he wrote himself) or listen to him speak without realizing that this is a thoughtful, pragmatic, and prudent man. It gives me comfort just to think that after eight years of George W. Bush we will have a president who has actually read the Federalist Papers.

Most important, Obama will be a realist. I doubt he will taunt Russia, as McCain has, at the very moment when our national interest requires it as an ally. The crucial distinction in my mind is that, unlike John McCain, I am convinced he will not impulsively take us into another war unless American national interests are directly threatened.

“Every great cause,” Eric Hoffer wrote, “begins as a movement, becomes a business, and eventually degenerates into a racket.” As a cause, conservatism may be dead. But as a stance, as a way of making judgments in a complex and difficult world, I believe it is very much alive in the instincts and predispositions of a liberal named Barack Obama.
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kban1

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Re: The crumbling of US investment banks (NC)
« Reply #87 on: September 17, 2008, 10:17:24 PM »

Quote
You are quoting this from National Association of Home Builders web site. Do you think they will have anything good to say when their business may be affected if more controls are put on Fannie and Freddie and thereby home loans become difficult to get? McCain wanted an amendment to put more oversight by govt, minimum capital levels by these GSEs, penalties, reporting etc. so that these GSEs could be better managed. And what did Dems come up with for that? They want to add affordable housing to it, when the amendment is in no way related to that. This is a typical Dem filibuster measure. Add something that you know is stupid and will be rejected, then say that look we were for it but nothing happened. I am surprised that the NAHB article did not explain exactly how harmful restrictions would be put on assets, exactly where discretion is given to raise harmful minimum capital, exactly how the regulatory structure is tilted away from housing. They say the approval process will become burdensome. Excuse them, but isn't that how it is supposed to be? Isn't the loan approval process supposed to be fool-proof so that no undeserving person receives loan that results in bad debt for the bank later on?

Ruchir, the NAHB is a very respected body -- admittedly they have interests too but they are not at cross purposes with the issue at hand --which is Fannie and Freddie regulation.

They acknowledge the need, they support that aspect of even McCain's bill.

Where they disagree with McCain's billis its lack of protection for affordable housing --one of the key points. Take it from someone who has spent some time in in the affordable housing segment, this is a huge, I mean huge issue socially and economically. NAHB's support for a bill that provides for affordable housing safeguards is well justified.

As is the NAHB's support for proceedures that are not burdensome is well made too. NAHB is not talking about burdensome approval process for consumer loans, the reference is for program loans --by program loans it refers to housing loans administered under the various HUD or HUD sponsored or even non HUD sponsored loans that provide for multi family housing (not single family housing).

Quote
Ok. BHO was not a member of any financial committee. I am surprised people still feel that he is qualified enough to take care of the economy. I asked specifically if BHO has co-sponsored any financial bill. I think your answer is NO. Digressing a bit, I think that is enough for me to think that he has no experience whatsoever, in taking this fragile US economy out of its current state.

This would then become an entirely different argument where some will claim --as you did earlier--that he would have the benefit of highly qualified advisors and others will point out McCain's past record the last time such a financial scandal happened (see natty's post). That is not directly relevant to this discussion.

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Oh, wow.... what a marvelous collection of memberships he has!!!

Digressing again...
member of the Foreign Relations Committee, which plays a vital role in shaping American policy around the world, including our policy in Iraq. ------ Ha ha ha... I think this is the reason why he had to be FORCED by McCain to make a trip to Iraq. This membership is actually the funniest of all. I would like to know what his achievements were as a member of this committee. How exactly and specifically he has altered our policy around the world and in Iraq. Last I know, he was against the surge, which now by his own admission is a success.

Again, we are digressing here.

Remember, positions, especially ranking positions are given on the base of seniority. He is a junior senator.

Quote
Yes sir... you are mentioning the correct names. But you did not get my point. When I mentioned the Dem controlled committees, I wanted to point out that problems related to Fannie and Freddie were brought to public notice in 2006 and nothing was done because of Dem blockage. Now that Dem did capture the control of both houses, why did they not act? What were they waiting for?

Sir, you missed something I mentioned earlier.

That the Dems after coming to power did revive the Bill from the previous congress, tweaked it and passed it as HR 1427. Read below (excerpt from my original post):

"Debate on GSE reform has resumed in the 110th Congress. However, with a change in party control in both the House and Senate, the dynamic for consensus has changed significantly. Indeed, the House Financial Services Committee considered and passed a bipartisan GSE reform bill in early 2007 based on the House-passed bill from the 109th Congress and negotiations with the Department of the Treasury during year-end negotiations in 2006. The bill, the Federal Housing Finance Reform Act of 2007 (H.R. 1427), creates a strong independent regulator with oversight for the three housing GSEs – Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. It also establishes an Affordable Housing Fund (AHF) that will, in its first year, disburse grants for the construction of affordable housing in areas affected by Hurricane Katrina. In the second through fifth years (after which the fund terminates), the fund will be used for affordable housing projects nationwide. Significantly, the bill ensures a level playing field for both for-profit and not-for-profit entities in the allocation of AHF funds. The bill also does not contain restrictive portfolio and capital provisions, such as those in the 109th Congress’ Senate bill.

Companion legislation has not been introduced in the Senate, but the Democrat-led Senate Banking Committee is expected to consider GSE reform legislation, similar to that moving in the House. Thus, any GSE legislation passed in the 110th Congress is more likely to be similar to the House bills and would not include strict portfolio caps, but would include an affordable housing fund component – a significant departure from previous Senate versions"


Quote
Sorry for the years. No, the damage had not been done by then

You are wrong. Please do not tell me when the damage was done. What you are seeing today is the effect of policies that were put in place years ago -- predatory lending, low interest rates, easy credit. Even the Fannie and Freddie earnings misstatements and smoothings happened prior to 2006 (2006 was when the urge for reform started in response to Freddie and fannie's disclosures about their duplicitous practices.)

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Okay, so McCain's bill was blocked and this HR 1461 bill was passed to control Fannie and Freddie. Right?
So by that logic are you saying that Dems are responsible for the current state of Fannie and Freddie? 'cause their bill, on how to control GSEs passed and McCain's didn't. So isn't it Dem's fault, whatever has happened in financial market? And we still believe that Dems will better take care of economy?

You are very much off base here sir. Thats because you dont understand how legislation works in the US Congress or at least thats what your post suggests.

On any legislative issue, usually (there are exceptions where one version of the bill clears both houses) two versions of the bill happen -- one in the House (HR 1461 in this case) and one in the Senate (S 160 in this case).

Before the legislation becomes law (the President has to sign the bill to make it law), the House and the Senate members get together to hash out the differences in their versions of the bill so that an uniform piece of legislation is presented to the president. In this case HR 1461 was passed in the House. At the same time S 160 had been drafted but not put to vote. The goal then is to get both versions to match (some compromise, some additions, some deletions) and the unified bill voted on and passed in both chambers so that the President can sign it into law.

In this case, there were significant differences between the Bills passed in the House and the Bill that McCain had drafted. The gap between the two versions could not be bridged, and hence the bill died. So, NO LAW WAS PASSED.

Also, both Bills were under a republican controlled Congress. So its not as if the Democratic version passed or otherwise. if you read the reference, you will see that the House Bill had broad bipartisan support,

As far as McCain's bill, aside from the difference in versions between the House and Senate which led to its demise, its worth noting that the Senate was controlled by the Republicans. And if that bill was not put to vote or not passed, then it means there was significant republican opposition to that version as well.

So your conclusions are all wrong

1) NO Bill got signed into law
2) It was not a Democratic Bill --it was passed in a Republican Congress with bipartisan support
3) If it was not passed into law, then it stands to reason that your assertion that it "failed" is untrue
4) As is your assertion that Democrats failed, and therefore cant be trusted with the economy.

Quote
Back to quoting hit-job blogs!? You are quoting a blog for Injury Attorneys to talk about economic issues.

What rubbish -- you have me mixed with someone else. I rarely quote blogs.

The reason I quoted this is because it summarizes a lot of my thoughts (independently reached, not spoon fed by the blog in question) with regards to the current mess and the role of dereugaltion in it. I have worked in the finance / banking industry long enough to have been aware of much of what the article states.
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kban1

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Re: The crumbling of US investment banks (NC)
« Reply #88 on: September 17, 2008, 10:29:43 PM »

Quote
What percentage of the bad sub-prime loans were made to minorities?  Even if small, is it just a case of the last straw on the camel's back (years of cheap credit in general, in other areas besides housing)

Valid point.

Trying to shift the blame onto the Clinton presidency which ended in 1999 is quite laughable (not saying they are blameless -there is enough blame to go around on both sides).

The low interest rates, the easy credit, and predatory lending practices did not happen during the Clinton presidency -- this fueled the problem.

yes legislation was passed to encourage homeownership amongst poorer classes but that pales into insignificance next to the Bush administration's goal of "universal homeownership" and how that was pushed.

And what this whole thing quietly sidesteps is that the subpriome crisis was feueled not by minority loans (the attempt to 100% blame the Clinton presidency's policy of lending in tough neighborhoods notwithstanding) but by loans made to the majority. The minority loans that have contributed to this crisis are, well, a minority.
« Last Edit: September 17, 2008, 10:39:38 PM by kban1 »
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prfsr

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Re: The crumbling of US investment banks (NC)
« Reply #89 on: September 17, 2008, 10:57:57 PM »

Ruchir
You asked: "Just asking, 'cause people seem to think that BHO will be a better person to take care of the economy."

Obama responds: http://www.msnbc.msn.com/id/21134540/vp/26740379#26739813

Listen around the 0:30 mark.

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Re: The crumbling of US investment banks (NC)
« Reply #90 on: September 17, 2008, 11:00:56 PM »

http://obama.senate.gov/news/070425-obama_reintrodu/

Obama Reintroduces Legislation on Mortgage Fraud
Wednesday, April 25, 2007

WASHINGTON - Illinois Senator Barack Obama introduced legislation Wednesday that would set a national standard for mortgage fraud and outline penalties for fraudsters.

In a statement, the Illinois Democrat and presidential hopeful said the legislation was needed as the housing market is shaken by failed mortgages among subprime borrowers with damaged credit.

"As the number of foreclosures skyrockets and the housing market becomes more vulnerable, we must establish stiff penalties to deter fraud and protect consumers against abusive lending practices," Obama said.

Obama introduced a version of the same bill in the last Congress in February 2006 but it made no headway in the Republican-controlled legislature.

The new legislation, co-sponsored by fellow Illinois Democrat Sen. Richard Durbin, would target anyone who uses false information to secure a property or sell a mortgage product.

It would require brokers, attorneys, lenders and other agents to report suspected fraud to the Secretary of the Treasury. Another feature would offer $25 million in mortgage fraud counseling to prospective and current homebuyers.
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Re: The crumbling of US investment banks (NC)
« Reply #91 on: September 17, 2008, 11:08:44 PM »

A useful blog entry from 2006. The writer claims not to be a Obama supporter (at least at that point in time).

Not pasting because the links do not get copied.

http://obsidianwings.blogs.com/obsidian_wings/2006/10/barack_obama.html
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LosingNow

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Re: The crumbling of US investment banks (NC)
« Reply #92 on: September 17, 2008, 11:38:19 PM »

Morgan Stanley is heading into the arms of Wachovia and WaMu is heading towards either Citi or Wells Fargo. Only Goldman Sachs would be left standing from the big I-banks

9/14/08 - 9/20/08 ... will be remembered as the week that turned the financial world upside down.
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Re: The crumbling of US investment banks (NC)
« Reply #93 on: September 18, 2008, 12:20:50 AM »

Chinese to the rescue?
--
Morgan Stanley in Talks with Chinese Bank Citic
By CNBC.com With Wires | 17 Sep 2008 | 08:13 PM ET

Morgan Stanley is in talks to possibly be acquired by Chinese bank Citic, sources in the U.S. and China have told CNBC.

No deal is certain at this time, however, and sources said that none was likely to be finalized Wednesday.

Word of the talks follows an earlier report in the New York Times that Morgan Stanley—one of the two last independent, U.S.-based investment banks—is considering a merger with Wachovia or another bank.

The Federal Reserve has been active in encouraging the Chinese to invest in U.S. financial institutions and has even made it clear that it would look favorably upon a Chinese acquisition of a U.S.-based financial institution, sources said.


Though Chinese financial institutions do not have a great deal of experience in running large investment banks, Citic does own the largest brokerage in China.

Morgan Stanley's senior management has been in talks with a number of potential buyers, and a deal becomes more likely as the investment bank's stock—which plunged [MS  21.75    -6.95  (-24.22%)   ] more than 24 percent Wednesday—declines further. London-bsaed HSBC has also been cited as a possible suitor for Morgan Stanley.

Morgan Stanley's chief executive, John J. Mack, received a telephone call on Wednesday from Wachovia [WB  9.12    -2.39  (-20.76%)   ] expressing interest in the Wall Street bank, the Times said.

The talks are preliminary and no deal may emerge.

Ongoing Turmoil for Big U.S. Banks

Meanwhile, Washington Mutual [WM  2.01    -0.31  (-13.36%)   ] has put itself up for auction, people briefed on the matter also told the Times.

Reports of both possible deals came after the market closed.

Earlier, anxious investors continued to hack away at Morgan Stanley and Goldman Sachs Group [GS  114.50    -18.51  (-13.92%)   ], sending the two largest investment banks' shares lower.

Morgan Stanley's shares sank 40 percent below the depths reached during the Asia debt crisis and collapse of Long Term Capital Management a decade ago. Goldman stock plummeted 22 percent to a three-year low. This year, Goldman shares have fallen 45 percent and Morgan's are down 57 percent.

Investors also bid up the price of protecting against a default in debt issued by the banks, indicating growing concern that Wall Street's biggest firms are in jeopardy.

"The credit crunch and credit contraction is intensifying," said Peter Boockvar, an equity strategist at Miller Tabak in New York. "The action in Morgan Stanley in light of what was better-than-expected numbers last night is disconcerting."

Morgan Stanley on Tuesday night rushed to release its quarterly results after investors pushed its shares down 11 percent and led to widening swap spreads. Morgan out-earned the larger Goldman, which posted a 70 percent decline in profit, yet exceeded expectations.

Yet the same panic that pushed Lehman Brothers Holdings [LEH  0.13    -0.17  (-56.67%)   ] into bankruptcy Monday and prompted Merrill Lynch [MER  19.36    -2.82  (-12.71%)   ] to seek a merger with Bank of America [BAC  27.20    -2.35  (-7.95%)   ] over the weekend continues to weigh on Goldman and Morgan Stanley.

A growing number of analysts say investment banks, which tap capital markets to fuel their business, need to combine with big commercial banks and their stable pools of deposits if they want to avoid a Lehman-like collapse.

Goldman Chief Financial Officer David Viniar and Morgan CFO Colm Kelleher both said their firms performed very well despite unprecedented turmoil.

They also contend they do not want or need to merge with a commercial bank.

"We think the markets will positively differentiate those financial institutions that have global, diversified business models and that outperformed through his crisis," Goldman spokesman Lucas van Praag said. "The issue that really matters is performance." Morgan Stanley spokeswoman Jeanmarie McFadden declined to comment.

Pressure Builds

Even so, many of the same market pressures that weighed on Bear Stearns in March and against Lehman last week have emerged again.

The cost of protecting $10 million of Morgan debt against default for five years rose to $825,000 a year, up $144,000, according to firms that track credit-default swaps, which serve as insurance policies on debt.

Morgan's swaps were trading as though its debts were rated deep into junk territory at "B2," or 10 steps below its actual rating of "A1," according to data from Moody's Investors Service's credit strategy group.

That is 10 steps below its actual rating of "A1" and the same level where Lehman Brothers was trading ahead of its bankruptcy filing early on Monday, Moody's data showed.

Goldman's default insurance costs rose to $500,000 a year, up $80,000 at Tuesday's close, according to data from Phoenix Partners and Markit Intraday. The swaps were trading as though Goldman were rated "Ba3," a junk level that is nine steps below its actual rating of "Aa3," Moody's data showed.

Goldman's swaps began trading at junk-like levels on Monday, the day of a bankruptcy filing by investment bank Lehman Brothers. Morgan Stanley's credit default swaps have been trading in junk territory since early June.

—CNBC Anchor and Reporter David Faber; On-Air Editor Charles Gasparino, and Reuters contributed to this report.
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LosingNow

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Re: The crumbling of US investment banks (NC)
« Reply #94 on: September 18, 2008, 02:51:33 AM »

From WSJ..
--
SEPTEMBER 18, 2008

Worst Crisis Since '30s, With No End Yet in Sight
By JON HILSENRATH, SERENA NG and DAMIAN PALETTAArticle

The financial crisis that began 13 months ago has entered a new, far more serious phase.

Lingering hopes that the damage could be contained to a handful of financial institutions that made bad bets on mortgages have evaporated. New fault lines are emerging beyond the original problem -- troubled subprime mortgages -- in areas like credit-default swaps, the credit insurance contracts sold by American International Group Inc. and others firms. There's also a growing sense of wariness about the health of trading partners.
 
The consequences for companies and chief executives who tarry -- hoping for better times in which to raise capital, sell assets or acknowledge losses -- are now clear and brutal, as falling share prices and fearful lenders send troubled companies into ever-deeper holes. This weekend, such a realization led John Thain to sell the century-old Merrill Lynch & Co. to Bank of America Corp. Each episode seems to bring intervention by the government that is more extensive and expensive than the previous one, and carries greater risk of unintended consequences.

Expectations for a quick end to the crisis are fading fast. "I think it's going to last a lot longer than perhaps we would have anticipated," Anne Mulcahy, chief executive of Xerox Corp., said Wednesday.

"This has been the worst financial crisis since the Great Depression. There is no question about it," said Mark Gertler, a New York University economist who worked with fellow academic Ben Bernanke, now the Federal Reserve chairman, to explain how financial turmoil can infect the overall economy. "But at the same time we have the policy mechanisms in place fighting it, which is something we didn't have during the Great Depression."


Spreading Disease
The U.S. financial system resembles a patient in intensive care. The body is trying to fight off a disease that is spreading, and as it does so, the body convulses, settles for a time and then convulses again. The illness seems to be overwhelming the self-healing tendencies of markets. The doctors in charge are resorting to ever-more invasive treatment, and are now experimenting with remedies that have never before been applied. Fed Chairman Bernanke and Treasury Secretary Henry Paulson, walking into a hastily arranged meeting with congressional leaders Tuesday night to brief them on the government's unprecedented rescue of AIG, looked like exhausted surgeons delivering grim news to the family.

In the wake of this past week's market meltdown, WSJ's economics editor David Wessel looks at the shakeup and sees one of two outcomes: the crisis as catharsis or a drawn-out mess.

Fed and Treasury officials have identified the disease. It's called deleveraging, or the unwinding of debt. During the credit boom, financial institutions and American households took on too much debt. Between 2002 and 2006, household borrowing grew at an average annual rate of 11%, far outpacing overall economic growth. Borrowing by financial institutions grew by a 10% annualized rate. Now many of those borrowers can't pay back the loans, a problem that is exacerbated by the collapse in housing prices. They need to reduce their dependence on borrowed money, a painful and drawn-out process that can choke off credit and economic growth.

At least three things need to happen to bring the deleveraging process to an end, and they're hard to do at once. Financial institutions and others need to fess up to their mistakes by selling or writing down the value of distressed assets they bought with borrowed money. They need to pay off debt. Finally, they need to rebuild their capital cushions, which have been eroded by losses on those distressed assets.

But many of the distressed assets are hard to value and there are few if any buyers. Deleveraging also feeds on itself in a way that can create a downward spiral: Trying to sell assets pushes down the assets' prices, which makes them harder to sell and leads firms to try to sell more assets. That, in turn, suppresses these firms' share prices and makes it harder for them to sell new shares to raise capital. Mr. Bernanke, as an academic, dubbed this self-feeding loop a "financial accelerator."

"Many of the CEO types weren't willing...to take these losses, and say, 'I accept the fact that I'm selling these way below fundamental value,'" says Anil Kashyap, a University of Chicago Business School economics professor. "The ones that had the biggest exposure, they've all died."


Borrowing Slowdown
Deleveraging started with securities tied to subprime mortgages, where defaults started rising rapidly in 2006. But the deleveraging process has now spread well beyond, to commercial real estate and auto loans to the short-term commitments on which investment banks rely to fund themselves. In the first quarter, financial-sector borrowing slowed to a 5.1% growth rate, about half of the average from 2002 to 2007. Household borrowing has slowed even more, to a 3.5% pace.

Goldman Sachs Group Inc. economist Jan Hatzius estimates that in the past year, financial institutions around the world have already written down $408 billion worth of assets and raised $367 billion worth of capital.

But that doesn't appear to be enough. Every time financial firms and investors suggest that they've written assets down enough and raised enough new capital, a new wave of selling triggers a reevaluation, propelling the crisis into new territory. Residential mortgage losses alone could hit $636 billion by 2012, Goldman estimates, triggering widespread retrenchment in bank lending. That could shave 1.8 percentage points a year off economic growth in 2008 and 2009 -- the equivalent of $250 billion in lost goods and services each year.

"This is a deleveraging like nothing we've ever seen before," said Robert Glauber, now a professor of Harvard's government and law schools who came to the Washington in 1989 to help organize the savings and loan cleanup of the early 1990s. "The S&L losses to the government were small compared to this."

Hedge funds could be among the next problem areas. Many rely on borrowed money to amplify their returns. With banks under pressure, many hedge funds are less able to borrow this money now, pressuring returns. Meanwhile, there are growing indications that fewer investors are shifting into hedge funds while others are pulling out. Fund investors are dealing with their own problems: Many have taken out loans to make their investments and are finding it more difficult now to borrow.

That all makes it likely that more hedge funds will shutter in the months ahead, forcing them to sell their investments, further weighing on the market.

History of Trauma

Debt-driven financial traumas have a long history, from the Great Depression to the S&L crisis to the Asian financial crisis of the late 1990s. Neither economists nor policymakers has easy solutions. Cutting interest rates and writing stimulus checks to families can help -- and may have prevented or delayed a deep recession. But, at least in this instance, they don't suffice.

In such circumstances, governments almost invariably experiment with solutions with varying degrees of success. Franklin Delano Roosevelt unleashed an alphabet soup of new agencies and a host of new regulations in the aftermath of the market crash of 1929. In the 1990s, Japan embarked on a decade of often-wasteful government spending to counter the aftereffects of a bursting bubble. President George H.W. Bush and Congress created the Resolution Trust Corp. to take and sell the assets of failed thrifts. Hong Kong's free-market government went on a massive stock-buying spree in 1998, buying up shares of every company listed in the benchmark Hang Seng index. It ended up packaging them into an exchange-traded fund and making money.

Today, Mr. Bernanke is taking out his playbook, said NYU economist Mr. Gertler, "and rewriting it as we go."
 
Merrill Lynch & Co.'s emergency sale to Bank of America Corp. last weekend was an example of the perniciousness and unpredictability of deleveraging. In the past year, Merrill has hired a new chief executive, written off $41.4 billion in assets and raised $21 billion in equity capital.

But Merrill couldn't keep up. The more it raised, the more it was forced to write off. When Merrill CEO John Thain attended a meeting with the New York Fed and other Wall Street executives last week, he saw that Merrill was the next most vulnerable brokerage firm. "We watched Bear and Lehman. We knew we could be next," said one Merrill executive. Fearful that its lenders would shut the firm off, he sold to Bank of America.

This crisis is complicated by innovative financial instruments that Wall Street created and distributed. They're making it harder for officials and Wall Street executives to know where the next set of risks is hiding and also contributing to the crisis's spreading impact.

Swaps Game

The latest trouble spot is an area called credit-default swaps, which are private contracts that let firms trade bets on whether a borrower is going to default. When a default occurs, one party pays off the other. The value of the swaps rise and fall as market reassesses the risk that a company won't be able to honor its obligations. Firms use these instruments both as insurance -- to hedge their exposures to risk -- and to wager on the health of other companies. There are now credit-default swaps on more than $62 trillion in debt, up from about $144 billion a decade ago.

One of the big new players in the swaps game was AIG, the world's largest insurer and a major seller of credit-default swaps to financial institutions and companies. When the credit markets were booming, many firms bought these instruments from AIG, believing the insurance giant's strong credit ratings and large balance sheet could provide a shield against bond and loan defaults. AIG believed the risk of default was low on many securities it insured.

As of June 30, an AIG unit had written credit-default swaps on more than $446 billion in credit assets, including mortgage securities, corporate loans and complex structured products. Last year, when rising subprime-mortgage delinquencies damaged the value of many securities AIG had insured, the firm was forced to book large write-downs on its derivative positions. That spooked investors, who reacted by dumping its shares, making it harder for AIG to raise the capital it increasingly needed.

Credit default swaps "didn't cause the problem, but they certainly exacerbated the financial crisis," says Leslie Rahl, president of Capital Market Risk Advisors, a consulting firm in New York. The sheer volumes of outstanding CDS contracts -- and the fact that they trade directly between institutions, without centralized clearing -- intertwined the fates of many large banks and brokerages.

Few financial crises have been sorted out in modern times without massive government intervention. Increasingly, officials are coming to the conclusion that even more might be needed. A big problem: The Fed can and has provided short-term money to sound, but struggling, institutions that are out of favor. It can, and has, reduced the interest rates it influences to attempt to reduce borrowing costs through the economy and encourage investment and spending.

But it is ill-equipped to provide the capital that financial institutions now desperately need to shore up their finances and expand lending.

Resolution Trust Scenario

In normal times, capital-starved companies usually can raise money on their own. In the current crisis, a number of big Wall Street firms, including Citigroup, have turned to sovereign wealth funds, the government-controlled pools of money.

But both on Wall Street and in Washington, there is increasing expectation that U.S. taxpayers will either take the bad assets off the hands of financial institutions so they can raise capital, or put taxpayer capital into the companies, as the Treasury has agreed to do with mortgage giants Fannie Mae and Freddie Mac.

One proposal was raised by Barney Frank, the Massachusetts Democrat who chairs the House Financial Services Committee. Rep. Frank is looking at whether to create an analog to the Resolution Trust Corp., which took assets from failed banks and thrifts and found buyers over several years.

"When you have a big loss in the marketplace, there are only three people that can take the loss -- the bondholders, the shareholders and the government," said William Seidman, who led the RTC from 1989 to 1991. "That's the dance we're seeing right now. Are we going to shove this loss into the hands of the taxpayers?"


The RTC seemed controversial and ambitious at the time. Any analog today would be even more complex. The RTC dispensed mostly of commercial real estate. Today's troubled assets are complex debt securities -- many of which include pieces of other instruments, which in turn include pieces of others, many steps removed from the actual mortgages or consumer loans on which they are based. Unraveling these strands will be tedious and getting at the underlying collateral, difficult.

In the early stages of this crisis, regulators saw that their rules didn't fit the rapidly changing financial system they were asked to oversee. Investment banks, at the core of the crisis, weren't as closely monitored by the Securities and Exchange Commission as commercial banks were by their regulators.

The government has a system to close failed banks, created after the Great Depression in part to avoid sudden runs by depositors. Now, runs happen in spheres regulators may not fully understand, such as the repurchase agreement, or repo, market, in which investment banks fund their day-to-day operations. And regulators have no process for handling the failure of an investment bank like Lehman Brothers Holdings Inc. Insurers like AIG aren't even federally regulated.

Regulators have all but promised that more banks will fail in the coming months. The Federal Deposit Insurance Corp. is drawing up a plan to raise the premiums it charges banks so that it can rebuild the fund it uses to back deposits. Examiners are tightening their leash on banks across the country.

Pleasant Mystery


One pleasant mystery is why the crisis hasn't hit the economy harder -- at least so far. "This financial crisis hasn't yet translated into fewer...companies starting up, less research and development, less marketing," Ivan Seidenberg, chief executive of Verizon Communications, said Wednesday. "We haven't seen that yet. I'm sure every company is keeping their eyes on it."

At 6.1%, the unemployment rate remains well below the peak of 7.8% in 1992, amid the S&L crisis.

In part, that's because government has reacted aggressively. The Fed's classic mistake that led to the Great Depression was that it tightened monetary policy when it should have eased. Mr. Bernanke didn't repeat that error. And Congress moved more swiftly to approve fiscal stimulus than most Washington veterans thought possible.

In part, the broader economy has held mostly steady because exports have been so strong at just the right moment, a reminder of the global economy's importance to the U.S. And in part, it's because the U.S. economy is demonstrating impressive resilience, as information technology allows executives to react more quickly to emerging problems and -- to the discomfort of workers -- companies are quicker to adjust wages, hiring and work hours when the economy softens.

But the risk remains that Wall Street's woes will spread to Main Street, as credit tightens for consumers and business. Already, U.S. auto makers have been forced to tighten the terms on their leasing programs, or abandon writing leases themselves altogether, because of problems in their finance units. Goldman Sachs economists' optimistic scenario is a couple years of mild recession or painfully slow economy growth.

—Aaron Lucchetti, Mark Whitehouse, Gregory Zuckerman and Sudeep Reddy contributed to this article.Write to Jon Hilsenrath at jon.hilsenrath@wsj.com, Serena Ng at serena.ng@wsj.com and Damian Paletta at damian.paletta@wsj.com
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pipsqueak

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Re: The crumbling of US investment banks (NC)
« Reply #95 on: September 18, 2008, 03:15:33 AM »

a colour change for the highlights please?

red reminds me of corrected answer sheets and strict treachers...




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keep-it-cool

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Re: The crumbling of US investment banks (NC)
« Reply #96 on: September 18, 2008, 04:07:16 AM »

Morgan Stanley is heading into the arms of Wachovia and WaMu is heading towards either Citi or Wells Fargo. Only Goldman Sachs would be left standing from the big I-banks

9/14/08 - 9/20/08 ... will be remembered as the week that turned the financial world upside down.

while the regulators slept ... frankly, India regulates NBFCs much better than the US does ... essentially, that's what Lehmann, Morgan, Goldman etc are .. i think we are seeing a move back to the universal banking model.
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LosingNow

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Re: The crumbling of US investment banks (NC)
« Reply #97 on: September 18, 2008, 04:13:05 AM »

Morgan Stanley is heading into the arms of Wachovia and WaMu is heading towards either Citi or Wells Fargo. Only Goldman Sachs would be left standing from the big I-banks

9/14/08 - 9/20/08 ... will be remembered as the week that turned the financial world upside down.

while the regulators slept ... frankly, India regulates NBFCs much better than the US does ... essentially, that's what Lehmann, Morgan, Goldman etc are .. i think we are seeing a move back to the universal banking model.
yep and yep and yep
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LosingNow

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Re: The crumbling of US investment banks (NC)
« Reply #98 on: September 18, 2008, 04:13:38 AM »

a colour change for the highlights please?

red reminds me of corrected answer sheets and strict treachers...


Green is difficult to read.
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Re: The crumbling of US investment banks (NC)
« Reply #99 on: September 18, 2008, 04:14:39 AM »

Chinese to the rescue?
--
Morgan Stanley in Talks with Chinese Bank Citic
By CNBC.com With Wires | 17 Sep 2008 | 08:13 PM ET


He he .. this post is inspired by Blwe ..:D

WN, remember these?

However, I do think the trend of developing countries owning capital in the West is bound to happen ...

http://www.cricketvoice.com/cricketforum2/index.php/topic,14043.msg175735.html#msg175735

And this ...

WN, do you remember that thread where we were talking about ownership of assets ... like I said there, non US citizens (corporate or others) will own a large proportion of US assets over time ... it has already started with ADIA & other Asian investors taking stake in Citi and other banks, Tatas buying out Jaguar ... and now this ... a trend is developing, boss ...

you should probably be based here and looking outward ... ;)

http://www.cricketvoice.com/cricketforum2/index.php/topic,16602.msg219389.html#msg219389
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LosingNow

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Re: The crumbling of US investment banks (NC)
« Reply #100 on: September 18, 2008, 04:23:28 AM »

Chinese to the rescue?
--
Morgan Stanley in Talks with Chinese Bank Citic
By CNBC.com With Wires | 17 Sep 2008 | 08:13 PM ET


He he .. this post is inspired by Blwe ..:D

WN, remember these?

However, I do think the trend of developing countries owning capital in the West is bound to happen ...

http://www.cricketvoice.com/cricketforum2/index.php/topic,14043.msg175735.html#msg175735

And this ...

WN, do you remember that thread where we were talking about ownership of assets ... like I said there, non US citizens (corporate or others) will own a large proportion of US assets over time ... it has already started with ADIA & other Asian investors taking stake in Citi and other banks, Tatas buying out Jaguar ... and now this ... a trend is developing, boss ...

you should probably be based here and looking outward ... ;)

http://www.cricketvoice.com/cricketforum2/index.php/topic,16602.msg219389.html#msg219389

Ha ha .. we should be in the forecasting business ;D
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Re: The crumbling of US investment banks (NC)
« Reply #101 on: September 18, 2008, 04:30:02 AM »

http://www.prospect.org/cs/articles?article=seven_deadly_sins_of_deregulation_and_three_necessary_reforms

Seven Deadly Sins of Deregulation -- and Three Necessary Reforms
   
Our current crisis is the result of the misguided notion that financial markets can regulate themselves. Here's a rundown of the mistakes we've made and the three reforms we need now.
   
   
Robert Kuttner | September 17, 2008 | web only

The current carnage on Wall Street, with dire spillover effects on Main Street, is the result of a failed ideology -- the idea that financial markets could regulate themselves. Serial deregulation fed on itself. Deliberate repeal of regulations became entangled with failure to carry out laws still on the books. Corruption mingled with simple incompetence. And though the ideology was largely Republican, it was abetted by Wall Street Democrats.

Why regulate? As we have seen ever since the sub-prime market blew up in the summer of 2007, government cannot stand by when a financial crash threatens to turn into a general depression -- even a government like the Bush administration that fervently believes in free markets. But if government must act to contain wider damage when large banks fail, then it is obliged to act to prevent damage from occurring in the first place. Otherwise, the result is what economists term "moral hazard"-- an invitation to take excessive risks.

Government, under Franklin Roosevelt, got serious about regulating financial markets after the first cycle of financial bubble and economic ruin in the 1920s. Then, as now, the abuses were complex in their detail but very simple in their essence. They included the sale of complex securities packaged in deceptive and misleading ways; far too much borrowing to finance speculative investments; and gross conflicts of interest on the part of insiders who stood to profit from flim-flams. When the speculative bubble burst in 1929, sellers overwhelmed buyers, many investors were wiped out, and the system of credit contracted, choking the rest of the economy.

In the 1930s, the Roosevelt administration acted to prevent a repetition of the ruinous 1920s. Commercial banks were separated from investment banks, so that bankers could not prosper by underwriting bogus securities and foisting them on retail customers. Leverage was limited in order to rein in speculation with borrowed money. Investment banks, stock exchanges, and companies that publicly traded stocks were required to disclose more information to investors. Pyramid schemes and conflicts of interest were limited. The system worked very nicely until the 1970s -- when financial innovators devised end-runs around the regulated system, and regulators stopped keeping up with them.

Seven Deadly Sins

Sin One: Allowing Mortgage Lending to Become a Casino. Until 1969, Fannie Mae was part of the government. Mortgage lenders were tightly regulated. Homeownership rates soared throughout the postwar era, from about 44 percent on the eve of World War II to 64 percent by the mid-1960s. Nobody in the mortgage business got filthy rich, and hardly anyone lost money. Fannie's job was to buy mortgages from banks and thrift institutions, to replenish their money to make mortgages, and along the way to set standards. Fannie financed its operations by selling bonds. In the late 1970s, private Wall Street firms started emulating Fannie. They packaged mortgages, and converted them into bonds. Over time, their standards deteriorated, because they could make more money creating riskier products. In order to avoid losing market share, Fannie emulated some of the same abuses. Government did not step in to regulate the affair -- which was a time bomb waiting for the creation of the sub-prime mortgage business.

Sin Two: Allowing Unregulated Bond Rating Agencies to Decide What was Safe. Sub-prime is only the best known of a widespread fad known as "securitization." The idea is to turn loans into bonds. Bonds are given ratings by private companies that have official government recognition, such as Moody's and Standard and Poors, but no government regulation. These rating agencies have become thoroughly corrupted by conflicts of interest. If you want to package and sell bonds backed by risky loans, you go to a bond-rating agency and pay it a hefty fee. In return, the agency helps you manipulate the bond so that it qualifies for a triple-A rating, even if the underlying loans include many that are high-risk. Without the collusion of the bond-rating agencies, sub-prime lending never would have gotten off the ground, because it would not have found a mass market. Had regulators looked inside this black box, they would have shut it down. They might have needed new legislation, but they never asked for it. And public-minded regulators might have done a lot under existing law, since banks (which are regulated) were heavily implicated in the financing of sub-prime.

Sin Three: Failing to Police Sub-prime. The core idea of bank regulation is that government inspectors periodically examine the quality of bank assets. If too large a portion of a bank's loan portfolio is behind in its interest payments, the bank is made to raise more capital as a cushion against losses. Problems are nipped in the bud. But complex securities require more sophisticated regulation than simple loans. Regulators basically waived the rule on adequate capital for the new wave of mortgage lenders who created sub-prime. Many mortgage companies were not banks. They made loans only to sell them off to the Wall Street sinners of Deadly Sin No. 1 (see above). So there was no loan portfolio to examine, and no real capital. The Democratic Congress anticipated this problem in 1994, when it passed the Homeownership Opportunity and Equity Protection Act. This prescient law required the Federal Reserve to regulate the loan-origination standards of mortgage companies that were not otherwise government-regulated. But Alan Greenspan, a free-market zealot, never implemented the law. And when Republicans took over Congress in 1995, they never called him on the carpet.

Sin Four: Failure to Stop Excess Leverage. The financial economy is crashing today because so much speculation was done with borrowed money. A typical leverage ratio of a hedge fund or private equity company is 30 to one. That means $30 of debt for $1 of actual capital. If you make one serious miscalculation, you are out of business. And in the case of sub-prime mortgage companies, the leverage ratio was infinite, because they had no capital. The game was entirely based on creating debt. As long as times were good, financial firms could keep borrowing to finance their deals. But once investors looked down, they panicked. Some parts of the system are unregulated, such as hedge funds and private-equity companies. But they all ultimately get a lot of their funding from banks. And regulators do retain the power to look closely at banks' books (see Sin No.3 above). Had they used that power to police the kind of highly risky stuff banks were underwriting, they could have shut it down.

Sin Five: Failure to Police Conflicts of Interest. Remember the accounting scandals of the 1990s? In those scandals, accounting firms were paid once to audit corporate books and then again to help clients cook the books and still pass muster with the audit. That was a sheer conflict of interest. Though accountants were (loosely) regulated, Congress did not crack down until cooked books caused the stock market to crash. A second conflict of interest was the corruption of stock analysts, who were telling customers to buy dubious stocks because their bosses were profiting from underwriting the same stocks. In the aftermath of the dot-com bust, Congress narrowly cracked down on these two abuses with the Sarbanes-Oxley Act but simply ignored others -- such as the role of bond-rating agencies and the habit of basing executive bonuses on stock prices that could easily be manipulated by the same executives.

Sin Six: Failing to Regulate Hedge Funds and Private Equity. When Roosevelt's New Deal acted to rein in the abuses in financial markets, it regulated the major players -- commercial banks, investment banks, stock brokers, holding companies, and stock exchanges. But two of the biggest purveyors of risk today -- hedge funds and private-equity firms -- simply did not exist. Today, private-equity firms and hedge funds do most of the things banks and investment banks do. They basically create credit by making markets in exotic securities. They buy and sell firms. They speculate in financial markets with borrowed money, taking much bigger risks than regulated banks. According to House Banking Committee Chair Barney Frank, more than half the credit created in recent years has been created by essentially unregulated institutions. The people in charge of the government -- conservative Republicans -- took the view that these new-wave financial players offered transactions between consenting adults who needed no special consumer protection. But they were oblivious to the risks to the larger system.

Sin Seven: Repeal of the Glass-Steagall Act. This action, in 1999, was one of two major cases when a cornerstone of New Deal regulation was explicitly repealed. (The other was the repeal of the Public Utility Holding Company Act, and if your utility rates are sky-high, you can thank Congress for that, too.) Glass-Steagall provided that if you wanted to speculate as an investment bank, good luck to you. But commercial banks were part of the banking system. They created credit. They were regulated, supervised, usually enjoyed FDIC insurance, and had access to advances from the Fed in emergencies. So commercial banks and investment banks were two different creatures that should stay out of each other's knitting.

But beginning in the 1980s, regulators who didn't believe in regulation either allowed explicit waivers of some aspects of Glass-Steagall or looked the other way as commercial banks and investment banks became more alike. By 1999, when Citigroup had jumped the gun and assembled a supermarket that included a commercial bank, investment bank, stock brokerage, and insurance company, Glass Steagall was so hollowed out that it was effectively dead. The coup de grace was its official repeal, in the Gramm-Leach-Bliley Act. That's Gramm as in former Sen. Phil Gramm, a deregulation zealot and top adviser to John McCain.

Three Basic Reforms

What all of these sins had in common was that they led financial markets to misprice assets. In plain English, that means buyers were purchasing securities based on bad information, often with borrowed money. When firms started losing money on sub-prime in mid-2007 and other owners decided it was time to get their money out, the whole miracle of leverage went into reverse. And it spilled over into other securities that had been mispriced thanks to all the conflicts of interest tolerated by regulators.

That's why, no matter how much taxpayer money the Federal Reserve and the Treasury keep pumping in, they can't turn dross back into gold. The next administration and the Congress need to return the financial economy to its historic task of supplying capital to the real economy -- of connecting investors to entrepreneurs -- and shut down the purely casino aspects of the system that have only enriched middlemen and passed along huge risks to everyone else.

Reform One: If it Quacks Like a Bank, Regulate it Like a Bank. Barack Obama said it well in his historic speech on the financial emergency last March 27 in New York. "We need to regulate financial institutions for what they do, not what they are." Increasingly, different kinds of financial firms do the same kinds of things, and they are all capable of infusing toxic products into the nation's financial bloodstream. That's why Treasury Secretary Hank Paulson has had to extend the government's financial safety net to all kinds of large financial firms like A.I.G. that have no technical right to the aid and no regulation to keep them from taking outlandish risks. Going forward, all financial firms that buy and sell products in money markets need the same regulation and examination. That will be the essence of the 2009 version of the Glass-Steagall Act.

Reform Two: Limit Leverage. At the very heart of the financial meltdown was extreme speculation with esoteric financial securities, using astronomical rates of leverage. Commercial banks are limited to something like 10 to one, or less, depending on their conditions. These leverage limits need to be extended to all financial players, as part of the same 2009 banking reform.

Reform Three: Police Conflicts of Interest. The conflicts of interest at the core of bond-raising agencies are only one of the conflicts that have been permitted to pervade financial markets. Bond-rating agencies should probably become public institutions. Other conflicts of interest should be made explicitly illegal. Yes, financial markets keep "innovating." But some innovations are good, and some are abusive subterfuges. And if regulators who actually believe in regulation are empowered to examine all financial institutions, they can issue cease-and-desist orders when they encounter dangerous conflicts.

We're talking about a Roosevelt-scale counterrevolution here. But nothing less will prevent the financial collapse from cascading into Great Depression II. And the public should never again forget that this needless collapse was brought to us by free-market extremists.
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keep-it-cool

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Re: The crumbling of US investment banks (NC)
« Reply #102 on: September 18, 2008, 04:44:34 AM »

Chinese to the rescue?
--
Morgan Stanley in Talks with Chinese Bank Citic
By CNBC.com With Wires | 17 Sep 2008 | 08:13 PM ET


He he .. this post is inspired by Blwe ..:D

WN, remember these?

However, I do think the trend of developing countries owning capital in the West is bound to happen ...

http://www.cricketvoice.com/cricketforum2/index.php/topic,14043.msg175735.html#msg175735

And this ...

WN, do you remember that thread where we were talking about ownership of assets ... like I said there, non US citizens (corporate or others) will own a large proportion of US assets over time ... it has already started with ADIA & other Asian investors taking stake in Citi and other banks, Tatas buying out Jaguar ... and now this ... a trend is developing, boss ...

you should probably be based here and looking outward ... ;)

http://www.cricketvoice.com/cricketforum2/index.php/topic,16602.msg219389.html#msg219389

Ha ha .. we should be in the forecasting business ;D

well, in a way, i already am :D
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pipsqueak

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Re: The crumbling of US investment banks (NC)
« Reply #103 on: September 18, 2008, 07:05:03 AM »

how much hit is ICICI india/UK going to take coz of Lehman bankruptcy? any idea? KIC/ravi?

edit: found the following article

ICICI to set aside $28 mn on Lehman bond losses

Bs Reporter / Mumbai September 17, 2008, 0:46 IST
 

ICICI Bank today said it might need to make an additional provision of $28 million (Rs 188 crore) on its exposure to bonds issued by investment bank Lehman Brothers, which has filed for bankruptcy in the United States.

 The country’s second largest bank, which stands to lose the most among Indian lenders, is yet to decide if the investment would be marked to market for the second quarter.

Following an analyst report this morning, ICICI Bank issued a statement saying its UK subsidiary had an exposure of around $80 million to Lehman’s senior bonds. It had already made provisions of $12 million on these bonds and a further $28 million worth of provisioning might be required if 50 per cent recovery is assumed, the bank said.

“There is panic and turmoil in the overseas markets. We will see at the end of this quarter whether to include this component of provisioning in our balance sheet,” ICICI Bank Joint Managing Director & CFO Chanda Kochhar said.

A report issued by brokerage firm Edelweiss said ICICI Bank’s UK subsidiary might have to book mark-to-market (MTM) losses of up to $200 million for its exposure to firms hit by the global financial turmoil. Kochhar refused to comment on exposure to other firms, but Edelweiss said the bank’s profits may not see a significant impact.

   BANK EXPOSURE TO LEHMAN
Bank Exposure
($mn) MTM
provisions
($mn)
ICICI Bank
UK Plc 80 12
SBI 5 5
BoB 10 None
BoI 11 None
PNB 4-5 None


For other Indian banks, which have much smaller exposure to Lehman, the impact will be much lower.

Public sector players such as State Bank of India and Punjab National Bank have exposures in the range of $5 million each, Bank of Baroda (BoB) and SBI both said they had no direct exposure. SBI said it has made the required provision for $5 million and had no exposure to AIG, which is facing a cash crunch.

BoB has subscribed to credit-linked notes issued by a special purpose vehicle (SPV) floated by Lehman. The public sector bank’s exposure is less than $10 million and with the SPV outside the ambit of bankruptcy proceedings, BoB may have to make a small MTM provision.

Bank of India sources said it had a direct exposure of Euro 8 million ($11.33 million) and may have to provide for possible losses.

Axis Bank said it had carried out an inter-bank transaction of $1.5 million with Lehman Brothers in Singapore. “So far, we do not have a clarity on Lehman’s bankruptcy. Once we have clarity on the settlements, we will talk to our lawyers to work out the details. The process may take about a year,” a senior bank executive said.

The ICICI Bank shares fell 5.82 per cent to Rs 591.35 on the Bombay Stock Exchange, while SBI was the among biggest gainer with its share price rising 6.49 per cent to close at Rs 1,585.50. Bank of Baroda and PNB shares rose 4.8 per cent and 3.4 per cent, respectively. Axis Bank shares closed 6 per cent higher at Rs 696.55.

http://www.business-standard.com/india/storypage.php?autono=334647
« Last Edit: September 18, 2008, 07:09:54 AM by pipsqueak »
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pieterSAN

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Re: The crumbling of US investment banks (NC)
« Reply #104 on: September 18, 2008, 07:16:54 AM »

The argument between deregulation and regulation is moot. I think regulating financial markets is a costly, cumbersome and complicated affair. To ensure that regulation work, regulations will need to be constantly revised to keep with the lates "trends". Take Sarbanes-Oxley....it already appears to have been a waste of money.

To me it seems that risk-taking like this is very difficult to minimize - regulation or no regulation, especially in the long run.
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Re: The crumbling of US investment banks (NC)
« Reply #105 on: September 18, 2008, 07:22:13 AM »

how much hit is ICICI india/UK going to take coz of Lehman bankruptcy? any idea? KIC/ravi?

I think the US$80m figure is accurate ...they have made a public statement to that effect

But their problems go a bit beyond that ...they have a *ty intl business

If i am not mistaken they have an exposure of cUS$3bn to all these overseas banks and other assets ... part of which is likely to be marked down .. no one has a fix on how much that could be - that's why the stock has lost more than 6bn in market cap recently
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Re: The crumbling of US investment banks (NC)
« Reply #106 on: September 18, 2008, 02:06:35 PM »

Here are some slight imperfections of the free market model:

Carly Fiorina was fired by HP -
Quote
Shares of HP (Research) jumped 6.9 percent in heavy trading on the New York Stock Exchange Wednesday on the news. But at one point, the stock was up as much as 10.5 percent.

"The stock is up a bit on the fact that nobody liked Carly's leadership all that much," said Robert Cihra, an analyst with Fulcrum Global Partners. "The Street had lost all faith in her and the market's hope is that anyone will be better."


(From  http://money.cnn.com/2005/02/09/technology/hp_fiorina/)

So she was doing a "heck of a job" as per the market. What happened?
Quote
Carly Fiorina walked away with $45 million, including a $21.4 million severance package when she was dismissed by Hewlett Packard in 2005.

http://blogs.abcnews.com/politicalradar/2008/09/mccain-economic.html

I am sure the real problem was with the retirement funds that "were stupid enough" to invest in HP.

Quote
Two pension funds with large ownership stakes in Hewlett-Packard Co. filed a lawsuit yesterday against the tech giant over former CEO Carly Fiorina’s severance package.

http://blogs.wsj.com/law/2006/03/07/pension-funds-seek-to-puncture-carly-fiorinas-golden-parachute/

I am sure she will actually refund this "thoroughly deserved" sum and then some more as she cleans up Wall St with McCain.


Well, looks like she's been dumped again

http://specials.rediff.com/money/2008/sep/18slid1.htm
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prfsr

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Re: The crumbling of US investment banks (NC)
« Reply #107 on: September 18, 2008, 06:31:02 PM »

Has this been posted? Note the date.

http://www.prospect.org/cs/articles?article=the_bubble_economy

The Bubble Economy
 
The sub-prime mess, the huge risks taken by hedge funds, and the conflicts of interest that led to Enron are all the consequences of serial bouts of financial deregulation. Will we reverse field in time to prevent another 1929? 
 
Robert Kuttner | September 24, 2007

The federal reserve is still struggling to contain what is already the most severe credit contraction since the Great Depression. Yet in all of the press coverage, commentators have scarcely acknowledged that this old-fashioned panic is a child of deregulation. During the past decade, the financial economy has repeated the excesses of the 1920s -- too much borrowing to underwrite too many speculative bets with other people's money, too far beyond the reach of regulators, setting up the entire economy for a crash.

The sub-prime mess, the huge risks taken by hedge funds, and the conflicts of interest that led to Enron and kindred scandals, are all the consequences of serial bouts of financial deregulation. Since the 1970s, in the name of free-market efficiency, Congress and presidents of both parties repealed key protections put in place by the New Deal. But the main effect has been to engineer windfall profits for financial insiders, replace real productive innovation with financial engineering, shift wealth from families to corporations, and put the entire American economy at ever greater risk.



[Read the full article at the URL above]

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Re: The crumbling of US investment banks (NC)
« Reply #108 on: September 18, 2008, 07:14:32 PM »

A rare "double Nobel Laureate" speaks.

http://www.cnn.com/2008/POLITICS/09/17/stiglitz.crisis/index.html

Editor's note: Joseph E. Stiglitz, professor at Columbia University, was awarded the Nobel Prize in Economics in 2001 for his work on the economics of information and was on the climate change panel that shared the Nobel Peace Prize in 2008. Stiglitz, a supporter of Barack Obama, was a member and later chairman of the Council of Economic Advisers during the Clinton administration before joining the World Bank as chief economist and senior vice president. He is the co-author with Linda Bilmes of the "Three Trillion Dollar War: The True Costs of the Iraq Conflict."

 NEW YORK (CNN) -- Many seem taken aback by the depth and severity of the current financial turmoil. I was among several economists who saw it coming and warned about the risks.

There is ample blame to be shared; but the purpose of parsing out blame is to figure out how to make a recurrence less likely.

President Bush famously said, a little while ago, that the problem is simple: Too many houses were built. Yes, but the answer is too simplistic: Why did that happen?

One can say the Fed failed twice, both as a regulator and in the conduct of monetary policy. Its flood of liquidity (money made available to borrow at low interest rates) and lax regulations led to a housing bubble. When the bubble broke, the excessively leveraged loans made on the basis of overvalued assets went sour.

For all the new-fangled financial instruments, this was just another one of those financial crises based on excess leverage, or borrowing, and a pyramid scheme.

The new "innovations" simply hid the extent of systemic leverage and made the risks less transparent; it is these innovations that have made this collapse so much more dramatic than earlier financial crises. But one needs to push further: Why did the Fed fail?

First, key regulators like Alan Greenspan didn't really believe in regulation; when the excesses of the financial system were noted, they called for self-regulation -- an oxymoron.

Second, the macro-economy was in bad shape with the collapse of the tech bubble. The tax cut of 2001 was not designed to stimulate the economy but to give a largesse to the wealthy -- the group that had been doing so well over the last quarter-century.
 
The coup d'grace was the Iraq War, which contributed to soaring oil prices. Money that used to be spent on American goods now got diverted abroad. The Fed took seriously its responsibility to keep the economy going.

It did this by replacing the tech bubble with a new bubble, a housing bubble. Household savings plummeted to zero, to the lowest level since the Great Depression. It managed to sustain the economy, but the way it did it was shortsighted: America was living on borrowed money and borrowed time.

Finally, at the center of blame must be the financial institutions themselves. They -- and even more their executives -- had incentives that were not well aligned with the needs of our economy and our society.

They were amply rewarded, presumably for managing risk and allocating capital, which was supposed to improve the efficiency of the economy so much that it justified their generous compensation. But they misallocated capital; they mismanaged risk -- they created risk.

They did what their incentive structures were designed to do: focusing on short-term profits and encouraging excessive risk-taking.

This is not the first crisis in our financial system, not the first time that those who believe in free and unregulated markets have come running to the government for bail-outs. There is a pattern here, one that suggests deep systemic problems -- and a variety of solutions:

1. We need first to correct incentives for executives, reducing the scope for conflicts of interest and improving shareholder information about dilution in share value as a result of stock options. We should mitigate the incentives for excessive risk-taking and the short-term focus that has so long prevailed, for instance, by requiring bonuses to be paid on the basis of, say, five-year returns, rather than annual returns.

2. Secondly, we need to create a financial product safety commission, to make sure that products bought and sold by banks, pension funds, etc. are safe for "human consumption." Consenting adults should be given great freedom to do whatever they want, but that does not mean they should gamble with other people's money. Some may worry that this may stifle innovation. But that may be a good thing considering the kind of innovation we had -- attempting to subvert accounting and regulations. What we need is more innovation addressing the needs of ordinary Americans, so they can stay in their homes when economic conditions change.

3. We need to create a financial systems stability commission to take an overview of the entire financial system, recognizing the interrelations among the various parts, and to prevent the excessive systemic leveraging that we have just experienced.

4. We need to impose other regulations to improve the safety and soundness of our financial system, such as "speed bumps" to limit borrowing. Historically, rapid expansion of lending has been responsible for a large fraction of crises and this crisis is no exception.

5. We need better consumer protection laws, including laws that prevent predatory lending.

6. We need better competition laws. The financial institutions have been able to prey on consumers through credit cards partly because of the absence of competition. But even more importantly, we should not be in situations where a firm is "too big to fail." If it is that big, it should be broken up.

These reforms will not guarantee that we will not have another crisis. The ingenuity of those in the financial markets is impressive. Eventually, they will figure out how to circumvent whatever regulations are imposed. But these reforms will make another crisis of this kind less likely, and, should it occur, make it less severe than it otherwise would be.

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Re: The crumbling of US investment banks (NC)
« Reply #109 on: September 19, 2008, 01:50:18 AM »

McCain says he would fire SEC chairman    :blob7:

By GLEN JOHNSON, Associated Press Writer

Thu Sep 18, 5:39 PM ET
 


CEDAR RAPIDS, Iowa - Republican John McCain, buffeted by criticism about his response to Wall Street's financial problems, said Thursday he would fire the SEC chairman and create a special trust to help strengthen weak institutions.

In all but calling for the firing of Securities and Exchange Commission Chairman Christopher Cox, McCain turned on a fellow Republican and former 17-year House member who served on committees overseeing investor protection and U.S. capital markets. President Bush appointed Cox in 2005.

McCain also tried to counter Democratic rival Barack Obama as the two White House contenders jockeyed to explain how, as president, they would prevent the sort of financial tremors that have shaken the financial industry and consumer confidence this week.

Economic issues traditionally favor Democrats and were expected to be especially potent for Obama in an election cycle after eight years of a Republican White House and a Congress controlled mostly by the GOP. McCain has a long history of opposing government regulation and receives economic advice from former Texas Sen. Phil Gramm, an advocate of free-market principles. In addition, McCain has served on and has been chairman of the Senate Commerce Committee, which has regulated — and deregulated — vast parts of the economy.

"The chairman of the SEC serves at the appointment of the president and, in my view, has betrayed the public's trust," McCain told a rally in this battleground state. "If I were president today, I would fire him."

In a statement, Cox chalked up McCain's comments to the heat of the campaign. Cox said the financial crisis was "presenting new challenges on an hourly basis" and that "steadiness and reduction of uncertainty" is what the U.S. and the world needed.

"History will judge the quality of our response to this economic crisis, but now is not the time for those of us in the trenches to be distracted by the ebb and flow of the current election campaign," Cox said. "And it is precisely the wrong moment for a change in leadership."

Cox said he's always been clear about his intent to leave the SEC when the Bush administration ends in January 2009. Cox's term officially ends in June 2009, but he could stay on until a successor is named.

Campaigning in New Mexico, Obama mocked McCain's call to fire the SEC chairman, basically saying why stop at Cox.

"In the next 47 days you can fire the whole trickle-down, on-your-own, look-the-other-way crowd in Washington who has led us down this disastrous path," he told a campaign rally in Espanola. "Don't just get rid of one guy. Get rid of this administration. Get rid of this philosophy. Get rid of the do-nothing approach to our economic problem and put somebody in there who's going to fight for you."   :wav:

McCain also proposed creating a trust to review mortgage and financial institutions, identify weaker ones and strengthen them before insolvency.

"Today we need a plan that doesn't wait until the system fails," the senator said. "For troubled institutions, this will provide an orderly process through which to identify bad loans and eventually sell them."

McCain's running mate, Alaska Gov. Sarah Palin, joined him in Cedar Rapids and drew some of the biggest cheers with her stump remarks. She fumbled a bit at the start when she said it was good to be in "Grand Rapids" — the Michigan city they'd just flown in from.

Their speeches were repeatedly interrupted by protesters who were dragged away screaming while the audience broke into chants of "USA, USA," and "We Will Win, We Will Win."

Palin also talked about business tax cuts that would be a priority in "a Palin and McCain administration." Afterward, the pair visited a flood-damaged area of Cedar Rapids; their schedule initially called for just the rally.

Stocks on Wall Street have tumbled this week amid the worst financial meltdown in the U.S. since the Great Depression. The Lehman Brothers investment bank filed for bankruptcy, retail broker Merrill Lynch agreed to be sold for half its recent value and the government agreed to an $85 billion loan to prop up mega-insurer AIG.

Earlier in the week, Obama criticized McCain for suggesting creating a high-level commission to study its causes, similar to the panel that investigated the Sept. 11, 2001, terrorist attacks.

McCain, meanwhile, has shifted from initially saying the country's economic fundamentals were strong. Since being ridiculed for that, he now says the economy is in "crisis" but that the fundamental productivity of the American worker endures.

On Thursday, he accused Obama and Democratic congressional leaders of exploiting economic problems for political gain.

"My friends, that is the kind of me-first, country-second politics that are broken in Washington," said McCain, a 26-year member of Congress. "My opponent sees an economic crisis as a political opportunity instead of a time to lead. Sen. Obama isn't change; he's part of the problem with Washington."

http://news.yahoo.com/s/ap/20080918/ap_on_el_pr/mccain
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RicePlateReddy

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Re: The crumbling of the US financial system (NC)
« Reply #110 on: September 19, 2008, 04:57:39 AM »

Ron Paul (remember him?) = Economic genius  ;D

(Seriously, at least this guy is honest and likes to keep it simple).

Ron Paul saw this financial mess coming

It's not like there wasn't anybody who saw the economic woes of the week on the horizon.

On Sept. 10, 2003, U.S. Rep. Ron Paul, R-Texas, testified before House Financial Services Committee, which was holding hearings regarding special privileges extended to government sponsored enterprises (GSEs). Think Fannie Mae and Freddie Mac. In his testimony. Paul criticized such privileges in general and warned of the potential for disaster posed by government involvement with Fannie and Freddie specifically.

Paul noted that according to the Congressional Budget Office, housing related GSEs received $13.6 billion in indirect federal subsidies in fiscal 2000 and had a line of credit with the United States Treasury exceeding $2 billion. That line of credit Paul said was an explicit promise by the Treasury to bail out GSE's in times of economic difficulty. (Sound familiar?)

"[The line of credit] helps the GSEs attract investors who are willing to settle for lower yields than they would demand in the absence of the subsidy," Paul testified. "Thus, the line of credit distorts the allocation of capital. More importantly, the line of credit is a promise on behalf of the government to engage in a huge unconstitutional and immoral income transfer from working Americans to holders of GSE debt."

As Paul saw the situation some five years ago, the government backing isolated GSE management from market discipline. If Fannie and Freddie were not underwritten by the federal government, he told the committee, investors would demand the institutions held to higher management and accounting practices.

"Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market," Paul predicted. "This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

"Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital to other uses creates a short-term boom in housing," Paul went on. "Like all artificially created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.

"I hope today's hearing sheds light on how special privileges granted to GSEs distort the housing market and endanger American taxpayers," Paul concluded. "Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market."

On the same day, Paul introduced the "Free Housing Market Enhancement Act." The legislation would have removed government subsidies from the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the National Home Loan Bank Board. The bill had no cosponsors; it stalled in the committee process.

A plan at ready
The past few days, major party presidential candidates have scrambled to come up with a solution to the financial crisis on Wall Street and members of Congress and the media have been searching through the thesaurus to find synonyms for "greed." Writing in "Forbes" back in March in an op-ed entitled "the Rapidly Approaching Economic Meltdown," Paul proposed a four-part plan calling for lower taxes, less spending, a sound monetary policy and regulatory reform. His plan would:

• Make the Bush tax cuts permanent, repeal the estate tax, end taxes on Social Security benefits, end taxes on income from tips, end taxes on forgiven mortgage debt, and end the income tax and abolish the IRS;

• Reform spending by first cutting back on "our trillion-dollar overseas budget" and shore up the "programs Washington has forced so many citizens to depend on," while enabling young people to opt out of these programs and save for their own retirements and health care needs." Veto any unbalanced budget.

Paul argued that lower taxes and less government spending put more money in working people's pocket — pretty standard Republican line. But he also opined for bolder out-of-the-box actions calling for a sound monetary policy to increase the value of money and drive down the cost of living and a regulatory approach that is the inverse of what we're hearing from presidential candidates John McCain and Barack Obama. Paul proposed:

• Requiring more transparency at the Federal Reserve Board and legalizing competing currencies. He cited the historical evidence of the inevitable failure of paper money systems. However, "I believe that for our economy to be secure in the long term," he wrote, "Congress must reassert its authority and end the unconstitutional Federal Reserve."

• Undertake regulatory reform and revisit the myriad federal regulations that "have stymied the innovative spirit of the American people." At the top of the list Paul put Sarbanes-Oxley (SOX) — regulation imposed after the spate of corporate scandals earlier in the decade.

In his Forbes article, Paul noted three studies. A survey by Financial Executives International put the average cost of compliance with SOX at $4.4 million. The American Economics Association estimated SOX could cost American Companies as much as $35 billion in aggregate. Wharton Business School found that the number of American companies delisting from public stock exchanges nearly tripled the year after SOX became law (198 firms "went dark" compared to 67 the year before).

"One of the best things Congress could do for the American economy is to repeal this damaging legislation," Paul wrote.

Economic lifeblood
In short, Paul's message is that money is the lifeblood of any economy, and control over a nation's currency means control over its economic well-being. Fed bankers quite literally determine the value of our money by controlling the supply of dollars and establishing interest rates. Their actions can make us richer or poorer overnight, in terms of the value of our savings and the buying power of our paychecks. How's that been working out for you lately?

Paul concludes his piece with a call to return to principle that is, perhaps, even more fitting today than earlier in the year.

"Unless we embrace fundamental reforms, we will be caught in a financial storm that will humble this great country as no foreign enemy ever could," he wrote. "We can find safe harbor in our ideals. Reclaiming our historic legacy of principled commitment to liberty will, once again, unleash the innovative spirit that propelled our nation to the heights of prosperity."

Or, we could keep putting lipstick on a pig.

http://www.minnpost.com/craigwestover/2008/09/18/3559/ron_paul_saw_this_financial_mess_coming
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keep-it-cool

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Re: The crumbling of the US financial system (NC)
« Reply #111 on: September 19, 2008, 05:31:35 AM »

It was not just him ...several people had warned about this ...the Fed and the SEC have to take a big part of the blame ...this was happening under their noses, they were "watching" the situation but somehow seemed to think that if they did nothing it would just go away.

There was a thread sometime back where I had posted several articles warning of the same - let me see whether I can get the search right this time.
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keep-it-cool

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Re: The crumbling of the US financial system (NC)
« Reply #113 on: September 19, 2008, 05:47:33 AM »

Pardon me for this patting myself on the back ... but, am I proud of this post below or what!! :D  ::cheers::

Protect your money against inflation. Invest in india... I would if I had any...
Good idea.. higher interest rates in India and also appreciating against dollar. sounds like a win-win

there are some forecasts which have predicted a recession in India this year.

Where? When? India is not just the IT sector ;)

Seriously, if the US goes into a recession, very few stock markets will be spared ... India is a safe haven, in that it will not fall as much; however, the momentum will definitely snap. So, invest in India but in terms of overall asset allocation, slowly reduce exposure to equities.

Within india, it is much better to bet on domestic plays that do not depend on the US or most other export markets ... I am very bullish on agri-plays across most markets, but definitely in india. You will not go too wrong on infrastructure related plays either, especially if you get them at the right price.

So, where do you put the money you take out of equities? GOLD. Just Buy.

PS - I am not yet convinced that we are headed the R way ... a slowdown, yes, but too early to be worried about a recession.
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kban1

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Re: The crumbling of the US financial system (NC)
« Reply #114 on: September 19, 2008, 04:47:42 PM »

Gov't rushing to finish huge financial rescue plan

Friday September 19, 12:24 pm ET

By Jeannine Aversa and Julie Hirschfeld Davis, Associated Press Writers 


Bush administration wants hundreds of billions, new powers ASAP to attack financial crisis


WASHINGTON (AP) -- The Bush administration sketched out a multi-faceted effort on Friday to confront the worst U.S. financial crisis in decades, outlining a program that could cost taxpayers hundreds of billions of dollars to buy up bad mortgages and other toxic debt that has unhinged Wall Street.

President Bush, flanked by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, acknowledged that the program will put a "significant amount of taxpayers' money on the line."

The administration is asking Congress to give it sweeping new powers to execute the plan. Paulson said it "needs to be big enough to make a real difference and get to the heart of the problem."

Paulson gave few details but said he would work through the weekend with leaders of Congress from both parties to flesh out the program, the biggest proposed government intervention in financial markets since the Great Depression. Members of the Senate Banking Committee said they had yet to receive details of the proposal, but were ready to move quickly when they do.

The government's steps were welcomed by financial markets. As Paulson spoke, the Dow Jones industrials were up over 300 points and at one point had soared by 450 points. Global stock markets rose, too.

Before the markets opened, the government announced plans to temporarily insure money-market deposits and to block short-selling in financial securities. Short selling is a trading method that bets the stocks will go down.

Speaking to reporters at the Treasury Department, Paulson said that the new troubled-asset relief program that he wants Congress to enact must be large enough to have the necessary impact while protecting taxpayers as much as possible.

"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 in a prepared statement.

"The financial security of all Americans ... depends on our ability to restore our financial institutions to a sound footing," he said.

Paulson said mortgage giants Fannie Mae and Freddie Mac will step up their purchases of mortgage-backed securities to help provide support to the crippled housing market.

He also said the Treasury Department will expand a program, announced earlier this month, to buy mortgage-backed securities, which have been badly hurt by the housing and credit crises.

"As we all know, lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing. This simply put too many families into mortgages they could not afford," Paulson said.

At a news conference in which he only took three questions, Paulson was asked the approximate dollar size of the government intervention. "We're talking hundreds of billions," he said.

Paulson did not address specifics about the plan to buy back bad debt or whether the government would take a direct stake in troubled banks in exchange for its help.

"These illiquid assets are clogging up our financial system, and undermining the strength of our otherwise sound financial institutions. As a result, Americans' personal savings are threatened, and the ability of consumers and businesses to borrow and finance spending, investment, and job creation has been disrupted," Paulson said.

He said that the administration would present Congress with a proposed legislative package and then work with lawmakers "to flesh out the details through the weekend. And we're going to be asking them to take action on legislation next week."

"This is what we need to do. Because for some time we've been saying that the root cause of the problems in our economy and our financial system is housing, and until we get stability in the housing market we are not going to get stability in our financial markets," he said.

Earlier, Bush authorized Treasury to tap up to $50 billion from a Depression-era fund to insure the holdings of eligible money market mutual funds. And the Federal Reserve announced it will expand its emergency lending program to help support the $2 trillion in assets of the funds.

Both moves are designed to bolster the huge money market mutual fund industry, which has come under stress in recent days.

The Fed said it is expanding its emergency lending efforts to allow commercial banks to finance purchases of asset-backed paper from money market funds, which should help the funds meet demands for redemptions.

The Securities and Exchange Commission early Friday imposed a temporary emergency ban on short-selling, which had been contributing to the collapse of stock values of investment and commercial banks.

Congressional leaders said they expected to get the rescue plan Friday and act on it before Congress recesses for the election.

The government's actions could help alleviate the uncertainty that has been sending the markets into tumult over the past week. Lending has come to a virtual standstill in the wake of the bankruptcy of Lehman Brothers Holdings Inc.

European Central Bank, Swiss National Bank and Bank of England also offered up more cash Friday. The three banks put a combined $90 billion into money markets in a lockstep move.

The chairman of the Senate Banking Committee, Chris Dodd, D-Conn., warned on ABC's "Good Morning America" Friday that the United States could be "days away from a complete meltdown of our financial system" and said Congress would work quickly to prevent that.

Later Dodd told reporters that the government's rescue plan will be costly, and demanded more details. "We're anxious to hear the specifics. None of us have any idea what the details are. We understand the gravity of the moment," he said. predicted the new bailout plan would cost at least half a trillion dollars.

Paulson said he wanted action next week by Congress.

"Time is of the essence," House Speaker Nancy Pelosi, D-Calif., said Thursday night after being briefed by Paulson and Bernanke.

Rep. Roy Blunt, the No. 2 GOP leader in the House, suggested the rescue can be handled without a tax increase.

"It doesn't necessarily have to be something that impacts taxpayers in a negative way," said Blunt, R-Mo. "It all depends on how you put that structure together."

GOP presidential candidate John McCain said any action should "be designed to keep people in their homes and safeguard the life savings of all Americans."

Democratic rival Barack Obama said it is critical that leaders in both parties work in concert. "Truly we are all in this together," he said.

The federal government already has pledged more than $600 billion in the past year to bail out, or help bail out, some of the biggest names in American finance.

Associated Press writers Martin Crutsinger, Andrew Taylor, Marcy Gordon and Jim Abrams in Washington and Joe Bel Bruno in New York contributed to this report.

http://biz.yahoo.com/ap/080919/financial_meltdown.html
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keep-it-cool

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Re: The crumbling of the US financial system (NC)
« Reply #115 on: September 22, 2008, 11:27:50 AM »

So now the US government will use tax payers money to buy back bad assets (mortgage securities) from private banks!

This is beyond stupid, in my view. It is almost like saying - you create all the bad assets you want and we'll buy it off you .... raddiwala ban gaya hai government??

Why cant they just loan the same money (at junk bond yields - coz that's what some of these banks are now) to these banks and let them find a solution for the bad assets they created?
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Re: The crumbling of the US financial system (NC)
« Reply #116 on: September 22, 2008, 11:38:58 AM »

Can anyone explain why the following is not a better solution (not mine): Make the banks extend the fixed rate periods of the ARMs they took and pay the lost interest to the banks so that people can keep their houses? 
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Re: The crumbling of the US financial system (NC)
« Reply #117 on: September 22, 2008, 11:49:29 AM »

Can anyone explain why the following is not a better solution (not mine): Make the banks extend the fixed rate periods of the ARMs they took and pay the lost interest to the banks so that people can keep their houses? 

what does ARM stand for?
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Cover Point

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Re: The crumbling of the US financial system (NC)
« Reply #118 on: September 22, 2008, 12:25:39 PM »

Can anyone explain why the following is not a better solution (not mine): Make the banks extend the fixed rate periods of the ARMs they took and pay the lost interest to the banks so that people can keep their houses? 

what does ARM stand for?

adjustable rate mortgage
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Re: The crumbling of the US financial system (NC)
« Reply #119 on: September 22, 2008, 12:28:13 PM »

Can anyone explain why the following is not a better solution (not mine): Make the banks extend the fixed rate periods of the ARMs they took and pay the lost interest to the banks so that people can keep their houses? 

what i understand its a bit more complex.

banks gave out low interest rates (and lost money on it). They borrowed money from other banks/institutions with the expectation that when the higher interest rate kicks in they would pay them that. Someone has to take a loss.


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