bailout - W21st NYC on Diigo

30 Oct 09

the New York Fed’s decision to make its buddies whole (its then-chairman was a former Goldman chairman who would soon start re-loading up on its stock) cost taxpayers more than $13 billion.
What were American taxpayers doing bailing out French and German ones?

New York Fed’s Secret Choice to Pay for Swaps Hits Taxpayers - Bloomberg.com

www.bloomberg.com/...news - Preview

NY Fed corruption Wall Street government cap v cap AIG redux bailout chronology N.B. Maiden Lane 111

Among AIG’s bank counterparties were New York-based Goldman
Sachs Group Inc. and Merrill Lynch & Co., Paris-based Societe
Generale SA and Frankfurt-based Deutsche Bank AG.
By Sept. 16, 2008, AIG, once the world’s largest insurer,
was running out of cash, and the U.S. government stepped in with
a rescue plan. The Federal Reserve Bank of New York, the
regional Fed office with special responsibility for Wall Street,
opened an $85 billion credit line for New York-based AIG. That
bought it 77.9 percent of AIG and effective control of the
insurer.

The government’s commitment to AIG through credit
facilities and investments would eventually add up to $182.3
billion.
24 more annotations...
- Beginning late in the week of Nov. 3, the New York Fed, led
  by President Timothy Geithner, took over negotiations with the
  banks from AIG, together with the Treasury Department and
  Chairman Ben S. Bernanke’s Federal Reserve. Geithner’s team
  circulated a draft term sheet outlining how the New York Fed
  wanted to deal with the swaps -- insurance-like contracts that
  backed soured collateralized-debt obligations.
- After less than a week of private negotiations
  with the banks, the New York Fed instructed AIG to pay them par,
  or 100 cents on the dollar. The content of its deliberations has
  never been made public.
- The New York Fed’s decision to pay the banks in full cost
  AIG -- and thus American taxpayers -- at least $13 billion.
  That’s 40 percent of the $32.5 billion AIG paid to retire the
  swaps. Under the agreement, the government and its taxpayers
  became owners of the dubious CDOs, whose face value was $62
  billion and for which AIG paid the market price of $29.6
  billion. The CDOs were shunted into a Fed-run entity called
  Maiden Lane III.
- The deal contributed to the more than $14 billion that over
  18 months was handed to Goldman Sachs, whose former chairman,
  Stephen Friedman, was chairman of the board of directors of the
  New York Fed when the decision was made.
- Friedman, 71, resigned
  in May, days after it was disclosed by the Wall Street Journal
  that he had bought more than 50,000 shares of Goldman Sachs
  stock following the takeover of AIG. He declined to comment for
  this article.
- The New York Fed board, which normally consists of nine
  directors, in November 2008 included Jamie Dimon, chief
  executive officer of JPMorgan Chase & Co., and Friedman. The
  directors have no direct role in bank supervision. They’re
  responsible for advising on regional economic conditions and
  electing the bank president.
- “There’s no way they should have paid at par,” she says.
  “AIG was basically bankrupt.”
- Far more money was wasted in paying the banks for their
  swaps, says Donn Vickrey of financial research firm Gradient
  Analytics Inc. “In cases like this, the outcome is always along
  the lines of 50, 60 or 70 cents on the dollar,” Vickrey says.
- One reason par was paid was because some counterparties
  insisted on being paid in full and the New York Fed did not want
  to negotiate separate deals, says a person close to the
  transaction. “Some of those banks needed 100 cents on the
  dollar or they risked failure,” Vickrey says.
- People familiar with the transaction say the New York Fed
  considered a range of options, including guaranteeing the banks’
  CDOs. They say that by buying the securities, AIG got the best
  deal it could.
- According to a quarterly New York Fed report on its
  holdings, the $29.6 billion in securities held by Maiden Lane
  III had declined in value by about $7 billion as of June 30.
- Edward Grebeck, CEO of Stamford, Connecticut-based debt
  consulting firm Tempus Advisors, says the most serious breach by
  the government was to keep the process of approving the bank
  payments secret.
  
  “It’s inexcusable,” says Grebeck, who teaches a course on
  CDSs at New York University. “Everybody should be privy to the
  negotiations that went on. We can’t have bailouts like this
  happening behind closed doors.
- Bloomberg News has filed a Freedom of Information Act
  request seeking copies of the term sheets related to AIG’s
  counterparty payments, along with e-mails and the logs of phone
  calls and meetings among Geithner, Friedman and other New York
  Fed and AIG officials. The request is pending.
- The Federal Reserve has been reluctant to publish
  information on its efforts to stabilize the financial system
  since the crisis began. The Fed has loaned more than $2
  trillion, yet it refuses to name the recipients of the loans, or
  cite the amount they borrowed, saying that doing so may set off
  a run by depositors and unsettle shareholders.
- ruled in
  Bloomberg’s favor, saying the central bank had to provide
  details of the loans.
- The Fed has appealed to the Second Circuit Court of
  Appeals, and the data remain secret while the appeal proceeds.
- Information on the borrowers is “central to understanding
  and assessing the government’s response to the most cataclysmic
  financial crisis in America since the Great Depression,”
  attorneys for Bloomberg said in the Nov. 7 suit.
- Questions about the New York Fed transactions may be
  answered by Neil Barofsky, inspector general for the Troubled
  Asset Relief Program, or TARP. He is working on a report, which
  may be released next month, on whether AIG overpaid the banks.
- TARP is the vehicle through which the Treasury invested more
  than $200 billion in some 600 U.S. financial institutions.
- Still, officials at AIG object to the secrecy that
  surrounded the transactions. One top AIG executive who asked not
  to be identified says he was pressured by New York Fed officials
  not to file documents with the U.S. Securities and Exchange
  Commission that would divulge details.
  
  “They’d tell us that they don’t think that this or that
  should be disclosed,” the executive says. “They’d say, ‘Don’t
  you think your counterparties will be concerned?’ It was much
  more about protecting the Fed.”
- Friedman’s role remains controversial. In December 2008,
  weeks after the payments to the banks were authorized in
  November, Friedman bought 37,300 shares of Goldman stock at
  $80.78 a share, according to SEC filings. On Jan. 22, he bought
  15,300 more at $66.61.
- Both purchases took place before the payments to Goldman
  Sachs were publicly disclosed under pressure from Senator Dodd
  in March. On Oct. 26, Goldman Sachs stock closed at $179.37 a
  share, meaning Friedman had paper profits of $5.4 million.
- Jerry Jordan, former president of the Federal Reserve Bank
  of Cleveland, says Friedman should have resigned from the New
  York Fed as soon as it became clear that Goldman stood to
  benefit from its actions.
- Friedman remains a member of Goldman’s board and held a
  total of 98,600 shares of the firm’s stock as of Jan. 22.

29 Oct 09

Mean Street: A Sham GDP for a Sham Economy - Deal Journal - WSJ

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GDP analysis bailout sham 3Q one year later cap v cap

The recession is over only because Washington decided it should be. With billions in fresh government spending, it was only a matter of time before GDP posted some growth.
It’s too bad all that government spending is borrowed money. Someday, we’ll actually have to pay off this year’s $1.4 trillion deficit.
3 more annotations...
- Just check out where the economy grew. Almost half — or 1.7% of the pickup in GDP growth came from “motor vehicle output.” That’s the summer’s $3 billion cash-for-clunkers program doing its thing. But at what cost?
- Consider another one of Washington’s smashing successes: the $8,000 credit for first-time home buyers. For the third quarter, “real residential fixed investment” — also known as “homebuilding” — jumped 23.4%. That boosted GDP by another 0.5%. Do you feel like hugging Harry Reid now?
- Goldman Sachs ran its own numbers, reckoning that each incremental home sale cost the taxpayer an astounding $80,000. Again, the methodology seems right to me, but decide for yourself

23 Oct 09

Calling on Big Banks to Repay Bailout Now - NYTimes.com

www.nytimes.com/...15tarp.html - Preview

and the beat goes on paper tigers financial reform one year later Fed as arm of private banks bailout

But many of those banks would prefer to keep the money for several more years rather than raise new money and dilute their existing stockholders.
Ten big financial institutions repaid nearly $70 billion in June. But the Treasury said at least several other major financial firms were strong enough to follow suit, and they were debating whether federal bank regulators should send a signal encouraging them to do so.
2 more annotations...
- The issue of getting banks to repay the government has political importance. The Obama administration must decide by Dec. 31 whether to extend the $700 billion financial rescue program for an additional year.
- But other big banks have almost reversed roles with the Treasury, compared with a year ago. Instead of being reluctant to take government money, as some were when the program was started last October, they are now reluctant to part with it.

20 Aug 09

UK bank bailouts in full | News | guardian.co.uk

www.guardian.co.uk/...credit-crunch-economy - Preview

UK bailout public sector bails out private

18 Aug 09

Banks Keep Tightening Loan Standards - WSJ.com

online.wsj.com/...SB125051411593936739.html - Preview

TALF bailout corporate welfare consequences cap v cap

The Fed's Term Asset Backed Securities Loan Facility, or TALF, was set to expire at the end of the year. But Fed and Treasury officials said in a statement that consumer- and business-loan and commercial-real-estate markets were still "impaired" and were likely to remain so for some time. The program will be extended to March 31; some facets will run until the end of June.
Under TALF, the Fed makes low-interest loans to investors and offers them protection against losses. The investors in turn use the cash to buy securities backed by a wide range of assets -- from credit-card debt to auto loans. The aim of the program is to get credit to consumers, businesses and commercial-real-estate borrowers. The Treasury provides financial support to the Fed for any losses on the loans.

17 Aug 09

FDIC Poised to Split Banks to Lure Buyers - WSJ.com

online.wsj.com/...SB124891131732891921.html - Preview

FDIC bailout Bair bank welfare cap v cap

is poised to start breaking failed financial institutions into good and bad pieces in an effort to drum up more interest from prospective buyers.

The strategy, which is likely to begin soon, is aimed at selling the most distressed hunks of failed banks to private-equity firms and other types of investors who may be more willing than traditional banks to take a flier on bad assets. The traditional banks could then bid on the deposits, branches and other bits of the failed institution that are appealing.
Regulators have seized 64 banks this year as the credit crisis continues to wreak havoc on small institutions that have been hit hard by the collapse in housing prices and deteriorating commercial real estate. Although the banks are technically seized by other regulators, it is the FDIC's job to dispose of the assets in a cost-effective manner.
2 more annotations...
- That remains the case despite the FDIC's efforts to encourage bidders by providing loss-sharing agreements in about 40 of this year's bank failures.
- Just last week, State Bank & Trust Co. of Pinehurst, Ga., entered into a loss-share transaction with the FDIC on about $1.7 billion of assets of Security Bank Corp., which owned six banks in Georgia that had a combined $2.8 billion in assets.

31 Jul 09

House Approves Limits on Executive Pay - NYTimes.com

www.nytimes.com/...01pay.html - Preview

Mammon bailout Congress financial reform

The measure, which applies to any firm with more than $1 billion in assets, passed 237 to 185, with most lawmakers voting along party lines. The Senate will not take up a similar measure until after it returns from its August recess in September.

What might the world look like if the bailout works? Like Sarah Palin | Naomi Klein | Comment is free | The Guardian

www.guardian.co.uk/...sarah-palin-capitalism-climate - Preview

capitalism's pirate ship Palin bailout

24 Jul 09

Goldman Sachs pays off bailout bill | Business | guardian.co.uk

www.guardian.co.uk/...oldman-sachs-repays-government - Preview

Mammon and the beat goes on Wall Street government bailout

by paying $1.1bn (£660m) to redeem warrants it granted the US Treasury under the emergency banking bailout last year.
The investment bank redeemed the warrants, which were convertible into shares, late on Wednesday. It followed Goldman's repayment last month of $10bn in money from the Treasury's troubled asset relief programme, or Tarp, and it put an end to the government's presence on the bank's balance sheet.
3 more annotations...
- Goldman was keen to extricate itself from any direct White House influence over its controversial payment of multimillion-dollar bonuses to staff.
- A so-called compensation czar appointed by the Obama administration, Kenneth Feinberg, has been charged with vetting pay at banks receiving state aid, but has no formal power over those that have broken free.
- A stiff negotiation took place to set the price of the warrants. Goldman initially offered little more than $650m but the Treasury demanded more. Other banks are striking a harder bargain. JP Morgan's boss, Jamie Dimon, has declined to buy out Treasury warrants in his firm and has instead asked for the instruments to be auctioned on the open market. Some, including Citigroup and Bank of America, are not in a sufficiently strong financial position to repay the money.

08 May 09

Need for Aid Grows at Fannie Mae - washingtonpost.com

www.washingtonpost.com/...AR2009050801558.html - Preview

bailout

07 May 09

As Good as Their Word

www.thenation.com/...howl2 - Preview

bailout

Stress-Test Leaks Suggest Big Bank Bailouts May Be Over - NYTimes.com

www.nytimes.com/...07bank.html - Preview

bailout stress tests

n fact, after so much talk of nationalizing banks, the administration’s stress tests and capital programs seem to be intended to encourage lenders to take steps to minimize government ownership.

29 Apr 09

FT.com / Capital Markets - Munis show signs of recovery

www.ft.com/...1c-11de-9eea-00144feabdc0.html - Preview

bailout municipal bonds

The intervention of the US government has been essential not just for propping up the wounded banking system, but also for restoring some semblance of normalcy to the $2,700bn public finance markets.
helped by a federal subsidy programme known as Build America Bonds (Babs).

A New Plan to Help Modify Second Mortgages - NYTimes.com

www.nytimes.com/...29housing.html - Preview

TARP bailout

The Obama administration sought to expand its $50 billion plan to reduce home foreclosures, announcing a new program on Tuesday to help troubled homeowners modify second mortgages or piggyback loans.
But millions of homebuyers took out second mortgages to buy houses with little or no down payment or to finance home improvements and other purchases. Those second-lien mortgages have to be renegotiated separately, a step that often complicates efforts to modify the primary loans.
Analysts predict that at least 4 million homeowners will face foreclosure proceedings this year, up from about 2.2 million in 2008. Administration officials said about half of those people had second mortgages.

FT.com / US / Economy & Fed - US help for second mortgages

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bailout

20 Apr 09

U.S. May Convert Bank Bailouts to Common Stock - NYTimes.com

www.nytimes.com/...20bailout.html - Preview

failing banks want no responsibility bailout

officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.
Converting those loans to common shares would turn the federal aid into available capital for a bank — and give the government a large ownership stake in return.
12 more annotations...
- some critics would consider it a back door to nationalization, since the government could become the largest shareholder in several banks.
- Taxpayers would also be taking on more risk, because there is no way to know what the common shares might be worth when it comes time for the government to sell them.
- Treasury officials estimate that they will have about $135 billion left after they follow through on all the loans that have already been announced. But the nation’s banks are believed to need far more than that to maintain enough capital to absorb all their losses from soured mortgages and other loan defaults.
- The change to common stock would not require the government to contribute any additional cash, but it could increase the capital of big banks by more than $100 billion.
- The administration said in January that it would alter its arrangement with Citigroup by converting up to $25 billion of preferred stock, which is like a loan, to common stock, which represents equity.
  After the conversion, the Treasury would end up with about 36 percent of Citigroup’s common shares, which come with full voting rights. That would make the government Citigroup’s biggest shareholder, effectively nudging the government one step closer to nationalizing a major bank.
- Beyond the 19 big banks, which are defined as those with more than $100 billion in assets, the Treasury has also injected capital into hundreds of regional and community banks and may need to provide more money before the financial crisis is over.
- Officials estimate that the fund will have about $134.5 billion left after the Treasury completes its $100 billion plan to buy toxic assets from banks and after it uses $50 billion to help homeowners avoid foreclosure.
- But the biggest way to stretch funds could be to convert preferred shares to common stock, a strategy that the government seems prepared to use on a case-by-case basis.
- As their yardstick, regulators are expected to examine a measure of bank capital called “tangible common equity.” By that measure of capital, every dollar a bank converts from preferred to common shares becomes an additional dollar of capital.
- The 19 big banks have received more than $140 billion from the Treasury’s financial rescue fund, and all of that has been in exchange for nonvoting preferred shares that pay an annual interest rate of about 5 percent.
- The Treasury would also become a major shareholder, and perhaps even the controlling shareholder, in some financial institutions. That could lead to increasingly difficult conflicts of interest for the government, as policy makers juggle broad economic objectives with the narrower responsibility to maximize the value of their bank shares on behalf of taxpayers.
- Those are exactly the kinds of conflicts that Treasury and Fed officials were trying to avoid when they first began injecting capital into banks last fall.

W21st NYC's Library tagged bailout → View Popular

Bloomberg on AIG as Banks' Backdoor Bailout : CJR

New York Fed’s Secret Choice to Pay for Swaps Hits Taxpayers - Bloomberg.com

Mean Street: A Sham GDP for a Sham Economy - Deal Journal - WSJ

Calling on Big Banks to Repay Bailout Now - NYTimes.com

UK bank bailouts in full | News | guardian.co.uk

Banks Keep Tightening Loan Standards - WSJ.com

FDIC Poised to Split Banks to Lure Buyers - WSJ.com

House Approves Limits on Executive Pay - NYTimes.com

What might the world look like if the bailout works? Like Sarah Palin | Naomi Klein | Comment is free | The Guardian

Goldman Sachs pays off bailout bill | Business | guardian.co.uk

Need for Aid Grows at Fannie Mae - washingtonpost.com

As Good as Their Word

Stress-Test Leaks Suggest Big Bank Bailouts May Be Over - NYTimes.com

FT.com / Capital Markets - Munis show signs of recovery

A New Plan to Help Modify Second Mortgages - NYTimes.com

FT.com / US / Economy & Fed - US help for second mortgages

U.S. May Convert Bank Bailouts to Common Stock - NYTimes.com

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