Sunday, January 18, 2009

Wall Street bailouts estimated to be $6 Trillion

In hopes of stanching the bleeding, the federal government has now spent or put at risk approximately $6 trillion. True, a big part of that number reflects the government's purchase of securities that may actually yield a profit one day.

The best-known aspect of this epic spending spree is the U.S. Treasury's $700 billion Troubled Assets Relief Program, whose remit has included purchasing so-called toxic securities, giving banks cash and helping Detroit automakers avoid bankruptcy.

The Treasury also gave $300 billion in guarantees for struggling Citigroup, poured $200 billion into Fannie Mae and Freddie Mac, and granted an additional $50 billion in temporary guarantees to keep investors from pulling out of money market funds.

The Federal Reserve has also been busy. Central bankers have said they could purchase as much as $1.3 trillion of commercial paper from nonfinancial companies to make sure businesses have the working capital they need in an environment where banks are hesitant to lend. The Fed has committed an additional $1 trillion to a variety of credit facilities designed to encourage banks to loosen up.

Among other federal rescue measures we have the Federal Deposit Insurance Corp.'s decision to guarantee as much as $1.4 trillion in interbank loans, $300 billion for the Federal Housing Administration to insure mortgages in danger of foreclosure and a $150 billion aid package for insurance giant AIG.

The federal government is on the hook for $5 trillion of debt that Fannie Mae and Freddie Mac underwrote. The two companies themselves hold only a third of that debt, so it's unclear what the taxpayer's ultimate liability will be there.


Thursday, January 01, 2009

Happy New Year? Certainly not economically!

What can we expect in 2009? Among other things, more financial revelations amongst the results of the IMF’s rigorous assessment of the U.S. financial system.

Under its bylaws, the International Monetary Fund (IMF) is charged with the supervision of the international monetary system. Officials with the IMF however informed Ben Bernanke of a plan that would have been unheard-of in the past: The IMF's board of directors has ruled that a so-called Financial Sector Assessment Program (FSAP) is to be carried out in the United States. It is nothing less than an X-ray of the entire US financial system.

For seven years, US President George W. Bush refused to allow the IMF to conduct its assessment. Even now, he has only given the IMF board his consent under one important condition: The review could only begin in Bush's last year in office.

Roughly two-thirds of IMF members -- but never the United States -- have already endured this painful procedure. As part of the assessment, the Fed, the Securities and Exchange Commission (SEC), the major investment banks, mortgage banks and hedge funds will be asked to hand over confidential documents to the IMF team.

The final report on the risks of the US financial system is to be released by 2010 -- and it is likely to cause a stir internationally.