Posts Tagged ‘Bear Stearns’

Federal Reserve Comes Clean on Who Received Bailout Money

Thursday, January 27th, 2011

Federal Reserve Comes Clean on Who Received Bailout MoneyAt the instruction of Congress, the Federal Reserve has released the names of the approximately 21,000 recipients of $3.3 trillion in aid provided during the financial meltdown –without doubt the nation’s worst economic crisis since the Great Depression.  Not surprisingly, two of the top beneficiaries were Bank of America and Wells Fargo, who received approximately $45 billion each from the Term Auction Facility.  American units of the Swiss bank UBS, the French bank Societe Generale and German bank Dresdner Bank AG also received financial assistance.  The Fed posted the information on its website in compliance with a provision of the Dodd-Frank bill that imposed strict new financial regulations on Wall Street.

One of the biggest surprises on the list is the fact that General Electric accessed a Fed program no fewer than 12 times for a total of $16 billion.  Although the Fed originally objected, Congress demanded accountability because there was evidence that the central bank had gone beyond their usual role of supporting banks.  In addition, the Fed purchased short-term IOUs from corporations, risky assets from Bear Stearns and more than $1 trillion in housing debt.

Reactions to the revelations are both positive and negative.  On the positive side, Richmond Fed President Jeffrey Lacker said “We owe an accounting to the American people of who we have lent money to.  It is a good step toward broader transparency.”  Sarah Binder, a senior fellow with the Brookings Institution, disagrees, noting that “These disclosures come at a politically opportune time for the Fed.  Just when Chairman Bernanke is trying to defend the Fed from Republican critics of its asset purchases, the Fed’s wounds from the financial crisis are reopened.”

Senator Bernard Sanders (I-VT) said “We see this (list) not as the end of a process but really a significant step forward in opening the veil of secrecy that exists in one of the most powerful agencies in government.  Given the size of these commitments, it is incomprehensible that the American people have not received specific details about them.”

Bernanke Edges Closer to Closing the Cash Floodgates

Wednesday, February 17th, 2010

The Fed needs to start paying its own bills from the financial bailout.  Federal Reserve Chairman Ben Bernanke is starting to look at ways to back off from the central bank’s heroic efforts to keep the nation’s economy afloat through the financial crisis of the past 18 months. The trick to raising short-term interest rates, which have been at historic lows for more than a year, is to time them with extraordinary precision to avoid new damage to the still-fragile economy.

At present, the Fed has $2.29 trillion on its balance sheets, an increase from the $934 billion reported in September, 2008, when the financial crisis was at its worst. Bernanke plans to sell some of the Fed’s mortgages, Treasuries and debt by offering reverse repurchasing agreements.  Under these arrangements, the Fed sells its securities to a third party while agreeing to re-buy them at some point in the future.

The Fed’s next step is to sell banks and financial firms the equivalent of certificates of deposit.  In these cases, the Fed gets a portion of the bank’s reserves in exchange for paying interest at a fixed rate.  Called a “term deposit facility,” these deposits would be auctioned off and banks couldn’t count their investment in the Fed as cash or reserves.

“These programs, which imposed no cost on the taxpayer, were a critical part of the government’s efforts to stabilize the financial system and restart the flow of credit,” Bernanke said in testimony at a Capitol Hill hearing.  “As financial conditions have improved, the Federal Reserve has substantially phased out these lending programs.”

Wall Street Relocating to Constitution Avenue

Friday, July 17th, 2009

America’s financial capital is now Washington, D.C. With Congress and the White House acting forcefully to stop the bleeding resulting from the worldwide financial crisis, numerous investors and brokers are relocating from New York to Washington because that’s where the action is these days.

wall-street-flagOne of the nation’s healthiest metropolitan areas, Washington is benefiting from government hiring as the Obama Administration works to strengthen the nation’s financial system.  The collapse of prominent investment banking firms such as Lehman Brothers and Bear Stearns has triggered increased scrutiny of large banks and created a need for additional workers with auditing and investment expertise in government regulatory offices.

The government’s deep involvement in the financial sector is bringing in investment that in other times would have gone to Manhattan.  German banks, for example, are investing significant dollars in hotels and office buildings.

According to Ramon Kochavi, regional manager of Marcus and Millichap, “The government will grow.”  Kochvai foresees declining defense contracting and an expansion of biotech firms under the Obama administration.  New R & D firms are opening facilities in Rockville, MD, and along Virginia’s Dulles Corridor to support the National Institutes of Health in Bethesda, MD.  Medical services growth is also expected as access to healthcare is a national priority.

Fannie, Freddie and the American Taxpayer

Thursday, September 11th, 2008

As the United States government commits a bare minimum of $100 billion of taxpayer money to bail out Fannie Mae and Freddie Mac, the final reckoning depends on how effectively Washington runs the mortgage powerhouses.

According to the Christian Science Monitor, with the sheer magnitude of Fannie and Freddie – with $5 trillion in home loans on their combined books – the taxpayers’ burden is likely to add up to billions of dollars very quickly. 00037darling-let-s-get-deeply-into-debt-postersThe worst-case scenario could see the tab rise as high as the $125 billion it cost the taxpayers in the early 1990s to bail out failed savings-and-loan institutions. The rosiest scenarios hypothesize that the short-term cash infusion might be recouped with little or no net cost to the taxpayers.

Part of the reason that Fannie and Freddie are under conservatorship is that foreign central banks and investors have been divesting themselves of American mortgage debt, because they are nervous about falling prices, weak credit and the weak dollar. Since foreign ownership represents $1.4 trillion, it is a sizable piece of the puzzle.

The bottom line is that every U.S. taxpayer is now tied directly to the troubled housing market. And the stakes here are significantly higher than the government’s $30 billion bailout of Bear Stearns. The ultimate cost to taxpayers is tied directly to the depth of the housing slump. If housing prices continue to fall and foreclosures rise, the losses to Fannie and Freddie will increase. The opposite scenario would be far better news for taxpayers.

Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs), because Congress chartered them to create a stable mortgage market. They have functioned well by guaranteeing home loans or buying them outright. Even with steep declines in the number of sales and prices, investors have continued to fund home loans with a Fannie or Freddie seal of approval; this has kept mortgages relatively available and affordable.

The Treasury Department had no alternative but to intervene, become an equity investor in Fannie and Freddie, and a buyer of their mortgage-backed bonds. Their objective is to restore consumer confidence in the credit markets, reduce the cost of mortgages, and help the housing market recover.