Fed’s Strategy Reduces U.S. Bailout to $11.6 Trillion (Update2)
By Mark Pittman and Bob Ivry
Sept. 25 (Bloomberg) -- The Federal Reserve decided to keep pumping $1.25 trillion of new money into the mortgage market to focus on rescuing the U.S. economy as the financial system revives and banks ask for less help.
The Fed is allowing some of the 10 support programs it created or expanded after the credit crisis began in August 2007 to expire or shrink. That caused the first decline in the amount of money the U.S. has committed on behalf of taxpayers to end the recession, according to data compiled by Bloomberg.
The central bank has purchased $694 billion of mortgage- backed securities since January and plans to spend $556 billion more by April 2010 to keep interest rates down. The debt-buying is the biggest program in the Fed’s arsenal.
“The first thing the Fed had to do was stop the bleeding in the banking system,” said Richard Yamarone, director of economic research at Argus Research Corp. in New York. “Now that that seems to have been accomplished, they’re focusing on the economy by buying mortgage-backed securities.”
The purchases were scheduled to stop at the end of December. The Federal Open Market Committee decided on Sept. 23 to continue the program through the first quarter of next year and slow the pace of buying to “promote a smooth transition in markets,” the committee said in a statement. It also said the economy has “picked up.”
9.4 Percent Decline
The debt-buying pushed the average 30-year mortgage interest rate this week to 5.04 percent, its lowest since May, according to McLean, Virginia-based Freddie Mac. The debt is guaranteed by Freddie Mac and the other government-sponsored home-loan financiers, Fannie Mae and Ginnie Mae, both based in Washington.
The U.S. has lent, spent or guaranteed $11.6 trillion to bolster banks and fight the longest recession in 70 years, according to data compiled by Bloomberg.
That’s a 9.4 percent decline since March 31, when Bloomberg last calculated the total at $12.8 trillion.
The tally “ignores the fact that virtually all commitments are backed by assets,” Andrew S. Williams, a Treasury Department spokesman who had the same role at the Federal Reserve Bank of New York until earlier this year, said in an e- mail. “The Federal Reserve’s current ‘outlays’ are largely in the form of secured loans. The aggregate value of the collateral backing those loans exceeds the loan value. These are not ‘outlays.’”
Refused to Identify
Spokesmen Calvin A. Mitchell of the New York Fed and David Skidmore of the Fed in Washington declined to comment.
The Fed has refused to identify the collateral backing its loans. Bloomberg News parent Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, sued the central bank in November to force it to provide the information. U.S. District Judge Loretta A. Preska gave the Fed until Sept. 30 to appeal her decision requiring more disclosure about the financial institutions that have benefited.
The Standard & Poor’s 500 Financials Index has risen 140 percent since its low on March 6, including a 174 percent increase in share price for JPMorgan Chase & Co. to $43.65 and a 137 percent jump for Goldman Sachs Group Inc. to $179.50.
Among the U.S. programs that have expired is the Treasury guarantee of money market mutual fund deposits, instituted a year ago to stem an investor run the week after Lehman Brothers Holdings Inc.’s collapse. The department said it collected $1.2 billion in fees from funds before the effort concluded on Sept. 18 and never paid out a claim.
Gas Guzzlers
The $3 billion “cash for clunkers,” which gave people rebates for trading in gas-guzzling vehicles, ended in August after 700,000 vehicles were sold, according to the U.S. Department of Transportation.
The Fed’s Money Market Investor Funding Facility, or MMIFF, is slated to be closed on Oct. 30, and four other Fed programs with a total limit of $2.5 trillion are scheduled to expire in February. Others have been cut back.
The central bank said Sept. 24 it will reduce the Term Securities Lending Facility to $50 billion from $75 billion and the Term Auction Facility, once $900 billion, will shrink to $50 billion. Support for commercial paper, short-term loans that corporations and banks use to pay everyday expenses, has fallen to $1.2 trillion as the market fell from a one-year peak of $1.8 trillion in January.
64 Percent Higher
Banks have repaid about $70.6 billion of the $204.6 billion in direct aid extended through the Capital Purchase Program of the Troubled Asset Relief Program, or TARP. Congress created the $700 billion fund last October.
The $70.6 billion includes $25 billion from New York-based JPMorgan Chase, one of the biggest recipients, and $28 million from Novato, California-based Bank of Marin Bancorp, one of the smallest, according to the Treasury and regulatory filings.
“Because financial conditions have started to improve, Treasury has already begun the process of exiting from some emergency programs,” the TARP administrator, Herb Allison, told the Senate Banking Committee Sept. 24. “It will, however, be some time before all CPP participants have fully extinguished their obligations to the taxpayers.”
The Federal Deposit Insurance Corp. said its Temporary Liquidity Guarantee Program has generated more than $9 billion in fees.
The combined commitments of the Fed and government agencies are 57 percent higher than on Nov. 24, when Bloomberg’s first tally was $7.4 trillion.
“We’re not self-sustaining yet,” William O’Donnell, head of Treasury strategy for RBS Securities Inc. in Stamford, Connecticut, said in an interview.
===========================================================
--- Amounts (Billions)--- Limit Current
===========================================================
Total $11,563.65 $3,025.27
-----------------------------------------------------------
Federal ReserveTotal $5,870.65 $1,590.11
Primary Credit Discount $110.74 $28.51
Secondary Credit $1.00 $0.58
Primary dealer and others $147.00 $0.00
ABCP Liquidity $145.89 $0.08
AIG Credit $60.00 $38.81
Commercial Paper program $1,200.00 $42.44
Maiden Lane (Bear Stearns assets) $29.50 $26.19
Maiden Lane II (AIG assets) $22.50 $14.66
Maiden Lane III (AIG assets) $30.00 $20.55
Term Securities Lending $75.00 $0.00
Term Auction Facility $375.00 $196.02
Securities lending overnight $10.42 $9.25
Term Asset-Backed Loans (TALF) $1,000.00 $41.88
Currency Swaps/Other Assets $606.00 $59.12
GSE Debt Purchases $200.00 $129.21
GSE Mortgage-Backed Securities $1,250.00 $693.60
Citigroup Bailout Fed Portion $220.40 $0.00
Bank of America Bailout $87.20 $0.00
Commitment to Buy Treasuries $300.00 $289.22
---------------------------------------------------------------
Treasury Total $2,909.50 $1,075.91
TARP $700.00 $372.43
Tax Break for Banks $29.00 $29.00
Stimulus Package (Bush) $168.00 $168.00
Stimulus II (Obama) $787.00 $303.60
Treasury Exchange Stabilization $50.00 $0.00
Student Loan Purchases $60.00 $0.00
Citigroup Bailout Treasury $5.00 $0.00
Bank of America Bailout Treasury $7.50 $0.00
Support for Fannie/Freddie $400.00 $200.00
Line of Credit for FDIC $500.00 $0.00
Treasury Commitment to TALF $100.00 $0.00
Treasury Commitment to PPIP $100.00 $0.00
Cash for Clunkers $3.00 $2.88
------------------------------------------------------------
FDIC Total $2,477.50 $356.00
Public-Private Investment (PPIP) $1,000.00 $0.00
Temporary Liquidity Guarantees* $1,400.00 $301.00
Guaranteeing GE Debt $65.00 $55.00
Citigroup Bailout, FDIC Share $10.00 $0.00
Bank of America Bailout, FDIC Share $2.50 $0.00
------------------------------------------------------------
HUD Total $306.00 $3.25
Hope for Homeowners (FHA) $300.00 $3.20
Neighborhood Stabilization (FHA) $6.00 $0.05
------------------------------------------------------------
* The program has generated $9.3 billion in income, according to the agency.
Glossary:
ABCP -- Asset-backed commercial paper AIG -- American International Group Inc.
FDIC -- Federal Deposit Insurance Corp.
FHA -- Federal Housing Administration, a division of HUD
GE -- General Electric Co.
GSE -- Government-sponsored enterprises (Fannie Mae, Freddie Mac and Ginnie Mae)
HUD -- U.S. Department of Housing and Urban Development
TARP -- Troubled Asset Relief Program
Breakout of TARP funds:
==========================================================
--- Amounts (Billions)---
Outlay Returned
==========================================================
Total $447.76 $75.33
----------------------------------------------------------
Capital Purchase Program $204.55 $70.56
General Motors, Chrysler $79.97 $2.14
American International Group $69.84 $0.00
Making Home Affordable Program $23.40 $1.13
Targeted Investment Bank of America $20.00 $0.00
Targeted Investment Citigroup $20.00 $0.00
Term Asset-Backed Loan (TALF) $20.00 $0.00
Citigroup Bailout $5.00 $0.00
Auto Suppliers $5.00 $1.50
To contact the reporters on this story: Mark Pittman in New York at mpittman@bloomberg.net; Bob Ivry in New York at bivry@bloomberg.net.
Last Updated: September 25, 2009 16:39 EDT
Sunday, September 27, 2009
FDIC Is Broke, Taxpayers at Risk, Bair Muses
FDIC Is Broke, Taxpayers at Risk, Bair Muses: Jonathan Weil
Sept. 24 (Bloomberg) -- The FDIC’s insurance fund is going broke, and Sheila Bair is wondering aloud about how to replenish it. This means one thing for taxpayers: Watch your wallets.
Bair, the Federal Deposit Insurance Corp.’s chairman since 2006, says the agency has many options. One way to boost its coffers, now running low after a surge in bank failures, would be to charge banks higher premiums. It could make them pay future assessments in advance. Alternatively, the FDIC could borrow money from the banks it regulates. Or it could borrow from the Treasury, where it has a $500 billion line of credit.
“There’s a philosophical question about the Treasury credit line, whether that is there for losses that we know we will have, or whether it’s there for unexpected emergencies,” Bair said Sept. 18 at a Georgetown University conference in Washington. “This is really a debate for Washington and for banks,” she added.
Far be it from me to intrude on this closed-circuit conversation. The question Bair posed should be a no-brainer. Borrowing taxpayer money to bail out the FDIC should be an option of last resort reserved for unforeseen emergencies. That the agency would consider this now underscores how dire its financial condition has become.
Whatever path it chooses, we shouldn’t lose sight of this: The FDIC has been mismanaged, and its credibility as a regulator is in tatters. Its insurance fund wouldn’t be in this position today if the agency had been run well.
Flipping Out
Bair’s comments last week reminded me of a year-old article by Bloomberg News reporter David Evans, who wrote that the FDIC soon could run out of money and might need a taxpayer bailout by the Treasury Department. Most revealing was the FDIC’s reaction. It flipped out.
The day the story ran, the agency released an open letter to Bloomberg from a spokesman, Andrew Gray. He said the piece “does a serious disservice to your organization and your readers by painting a skewed picture of the FDIC insurance fund.”
Gray said “the insurance fund is in a strong financial position to weather a significant upsurge in bank failures” and that he did not foresee “that taxpayers may have to foot the bill for a ‘bailout.’” He said the fund “is 100 percent industry backed,” and “our ability to raise premiums essentially means that the capital of the entire banking industry -- that’s $1.3 trillion -- is available for support.”
Tapping Capital
If needed, he said, the FDIC could borrow from the Treasury, noting that the funds by law would have to “be paid back from industry assessments.” He stressed the FDIC had done this only once. It happened in the early 1990s, and the money was repaid with interest in less than two years.
Gray told me this week that he stands by his earlier remarks. His notion that the FDIC could tap the capital of the entire banking industry still baffles me. While hypothetically this might be true, I doubt all $1.3 trillion would be available in any practical sense.
The FDIC said its insurance fund’s assets exceeded liabilities by $10.4 billion, a mere 0.22 percent of insured deposits, as of June 30. The liabilities included $32 billion of reserves the FDIC had set aside to cover bank failures that it believed were likely to occur during the next 12 months.
As recently as March 31, 2008, the FDIC had earmarked just $583 million of reserves for future failures. This was after the rest of the financial world already knew we were in a crisis. By the end of 2008, it had boosted these reserves to $24 billion.
Projected Losses
The balance-sheet reserves don’t capture all the insurance fund’s anticipated losses. In May, the FDIC said it was projecting $70 billion of losses during the next five years due to bank failures. The agency said it expects most of those collapses to occur in 2009 and 2010.
The FDIC’s problem is that it didn’t collect enough revenue over the years to cover today’s losses. The blame lies partly with Congress. Until the law was changed in 2006, the FDIC was barred from charging premiums to banks that it classified as well-capitalized and well-managed. Consequently, the vast majority of banks weren’t paying anything for deposit insurance.
Of course, we now know it means nothing when the FDIC or any other regulator labels a bank “well-capitalized.” Most banks that failed during this crisis were considered well- capitalized just before their failure. After the law changed, the FDIC still didn’t charge enough premiums.
So far this year, 94 banks have been shut, the fastest pace in almost two decades. Hundreds of others are in trouble. The FDIC said 416 banks were on its “problem” list, a 15-year high, as of June 30. That was up from 305 three months earlier.
Regardless of the law’s requirements, if the FDIC starts tapping its credit line at the Treasury, there can be no assurance it would be able to pay back all the money through future assessments on banks. That’s why it should be reluctant to borrow from taxpayers now, even though the banking industry whines that it can’t afford any short-term cost increases.
At the rate it’s going, though, the FDIC may not have a choice much longer. Perhaps Bair and the FDIC someday might see fit to deliver a full account of how the agency managed to mess itself up this badly. The country deserves an explanation.
(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: Jonathan Weil in New York at jweil6@bloomberg.net
Last Updated: September 23, 2009 21:00 EDT
Sept. 24 (Bloomberg) -- The FDIC’s insurance fund is going broke, and Sheila Bair is wondering aloud about how to replenish it. This means one thing for taxpayers: Watch your wallets.
Bair, the Federal Deposit Insurance Corp.’s chairman since 2006, says the agency has many options. One way to boost its coffers, now running low after a surge in bank failures, would be to charge banks higher premiums. It could make them pay future assessments in advance. Alternatively, the FDIC could borrow money from the banks it regulates. Or it could borrow from the Treasury, where it has a $500 billion line of credit.
“There’s a philosophical question about the Treasury credit line, whether that is there for losses that we know we will have, or whether it’s there for unexpected emergencies,” Bair said Sept. 18 at a Georgetown University conference in Washington. “This is really a debate for Washington and for banks,” she added.
Far be it from me to intrude on this closed-circuit conversation. The question Bair posed should be a no-brainer. Borrowing taxpayer money to bail out the FDIC should be an option of last resort reserved for unforeseen emergencies. That the agency would consider this now underscores how dire its financial condition has become.
Whatever path it chooses, we shouldn’t lose sight of this: The FDIC has been mismanaged, and its credibility as a regulator is in tatters. Its insurance fund wouldn’t be in this position today if the agency had been run well.
Flipping Out
Bair’s comments last week reminded me of a year-old article by Bloomberg News reporter David Evans, who wrote that the FDIC soon could run out of money and might need a taxpayer bailout by the Treasury Department. Most revealing was the FDIC’s reaction. It flipped out.
The day the story ran, the agency released an open letter to Bloomberg from a spokesman, Andrew Gray. He said the piece “does a serious disservice to your organization and your readers by painting a skewed picture of the FDIC insurance fund.”
Gray said “the insurance fund is in a strong financial position to weather a significant upsurge in bank failures” and that he did not foresee “that taxpayers may have to foot the bill for a ‘bailout.’” He said the fund “is 100 percent industry backed,” and “our ability to raise premiums essentially means that the capital of the entire banking industry -- that’s $1.3 trillion -- is available for support.”
Tapping Capital
If needed, he said, the FDIC could borrow from the Treasury, noting that the funds by law would have to “be paid back from industry assessments.” He stressed the FDIC had done this only once. It happened in the early 1990s, and the money was repaid with interest in less than two years.
Gray told me this week that he stands by his earlier remarks. His notion that the FDIC could tap the capital of the entire banking industry still baffles me. While hypothetically this might be true, I doubt all $1.3 trillion would be available in any practical sense.
The FDIC said its insurance fund’s assets exceeded liabilities by $10.4 billion, a mere 0.22 percent of insured deposits, as of June 30. The liabilities included $32 billion of reserves the FDIC had set aside to cover bank failures that it believed were likely to occur during the next 12 months.
As recently as March 31, 2008, the FDIC had earmarked just $583 million of reserves for future failures. This was after the rest of the financial world already knew we were in a crisis. By the end of 2008, it had boosted these reserves to $24 billion.
Projected Losses
The balance-sheet reserves don’t capture all the insurance fund’s anticipated losses. In May, the FDIC said it was projecting $70 billion of losses during the next five years due to bank failures. The agency said it expects most of those collapses to occur in 2009 and 2010.
The FDIC’s problem is that it didn’t collect enough revenue over the years to cover today’s losses. The blame lies partly with Congress. Until the law was changed in 2006, the FDIC was barred from charging premiums to banks that it classified as well-capitalized and well-managed. Consequently, the vast majority of banks weren’t paying anything for deposit insurance.
Of course, we now know it means nothing when the FDIC or any other regulator labels a bank “well-capitalized.” Most banks that failed during this crisis were considered well- capitalized just before their failure. After the law changed, the FDIC still didn’t charge enough premiums.
So far this year, 94 banks have been shut, the fastest pace in almost two decades. Hundreds of others are in trouble. The FDIC said 416 banks were on its “problem” list, a 15-year high, as of June 30. That was up from 305 three months earlier.
Regardless of the law’s requirements, if the FDIC starts tapping its credit line at the Treasury, there can be no assurance it would be able to pay back all the money through future assessments on banks. That’s why it should be reluctant to borrow from taxpayers now, even though the banking industry whines that it can’t afford any short-term cost increases.
At the rate it’s going, though, the FDIC may not have a choice much longer. Perhaps Bair and the FDIC someday might see fit to deliver a full account of how the agency managed to mess itself up this badly. The country deserves an explanation.
(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: Jonathan Weil in New York at jweil6@bloomberg.net
Last Updated: September 23, 2009 21:00 EDT
Saturday, September 19, 2009
Friday, September 18, 2009
Alan Grayson: Is Anyone Minding the Store at the Federal Reserve?
Alan Mark Grayson (born March 13, 1958 in Bronx, New York) is the Democratic Congressman in Florida's 8th congressional district. The district includes just over half of Orlando, as well as Celebration, Walt Disney World and part of Ocala. He defeated four-term incumbent Republican Ric Keller in the 2008 congressional election. I can see there is a lot talking but any action done...? I seriously hope there is...
Friday’s Food For Fear
Interesting article from my mentor... (pls click on title to re-direct)
RESPECT him...
Gerald Celente : Revolution next for U.S.
Extract from wikipedia:- Gerald Celente (born November 29, 1946) is a United States trend forecaster,publisher of the Trends Journal, business consultant and author who makes predictions about the global financial markets and other events of historical importance. An article in the Washington Times has claimed "Celente's accurate forecasts include the 1987 stock market crash, the collapse of the Soviet Union in 1991, the 1997 Asian currency crash" and "the 2007 subprime mortgage scandal." His forecasts since 1993 have included predictions about terrorism, economic collapses and war. More recent forecasts involve fascism in the United States, food riots and tax revolts. Celente has long predicted global anti-Americanism, a failing economy and immigration woes in the US. In December 2007 Celente wrote, "Failing banks, busted brokerages, toppled corporate giants, bankrupt cities, states in default, foreign creditors cashing out of US securities ... whatever the spark, the stage is set for panic in the streets" and "Just as the Twin Towers collapsed from the top down, so too will the US economy ... when the giant firms fall, they’ll crush the man on the street." He has also predicted tax revolts. In November 2008 Celente appeared on Fox Business Network and predicted economic depression, tax rebellions and food riots in the United States by 2012. Celente also predicted an "economic 9/11" and a "panic of 2008." In 2009 Celente predicted turmoil which he described as "Obamageddon" and he was a popular guest on conservative cable-TV shows such as Fox News Sunday and Glenn Beck's news program. In April 2009 Celente wrote, "Wall Street controls our financial lives; the media manipulates our minds. These systems cannot be changed from within. There is no alternative. Without a revolution, these institutions will bankrupt the country, keep fighting failed wars, start new ones, and hold us in perpetual intellectual subjugation."He appeared on the Fox/Glenn Beck show and criticized the US stimulus plan, calling government controlled capitalism "fascism" and saying shopping malls in the US would become "ghost malls."Celente has said, "smaller communities, the smaller groups, the smaller states, the more self-sustaining communities, will 'weather the crisis in style' as big cities and hypertrophic suburbias descend into misery and conflict," and forecasts "a downsizing of America."
10 Small Caps With High “Insider Ownership”
By Marc Norton on September 16, 2009 More Posts By Marc Norton Author's Website
All 10 stocks mentioned below offer double digit rates of return on equity as well as assets.
ROE is a corporations measurement of how profitable the company is with the money shareholders have invested.
ROA shows how efficient management is at using its assets to generate earnings. All ten are trading at reasonable P/E ratios.
All 10 mentioned have current ratios above 1.9, any thing above 1.5 shows that the company is capable at paying back short term debt. All 10 have a large inside ownership with modest to low debt and free cash flow, with each paying a dividend.
* Deep Value Investor Seth Klarman of The Baupost Group holds 8.49 million shares of BreitBurn Energy which accounts for over 16% of the stock.
Tuesday, September 15, 2009
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