Trasury Department Might Take Ownership Stakes in Banks

9 10 2008

Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials.

Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks’ balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.

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S&P 500 Loses -8%

29 09 2008

Stocks took a dramatic plunge on Monday afternoon after the government’s bailout plan — touted by its supporters as a balm for the current market stress — failed to pass the House of Representatives, setting off a fresh wave of anxious selling.

In yet another day that has shaken the embattled canyons of Wall Street, the Dow Jones industrials fell more than 725 points after it became clear that the legislation could not muster the support it needed to pass the House. points shortly before 3:45 p.m.

A more holistic measure of the American stock market, the Standard & Poor’s 500-stock index, was down by -8.79% at closing, after the House defeated the bill by a vote of 228-205. The Nasdaq was down -9.14% at closing.

The fear was most pronounced in the world’s credit markets, considered gauges of anxiety among investors. Yields on Treasuries plummeted after the House rejected the plan, with the one-month Treasury note yielding virtually zero.

Banks are charging enormous premiums for short-term financing; the difference between the cost of a three-month loan from a bank, and a three-month loan from the government, rose to the widest point since at least 1984. Other lending rates stayed high.

On Wall Street, the drops were sharp and swift, catching many investors and stock strategists on Wall Street by surprise. Many had expected the measure to be passed in the House, and lawmakers in Congress had suggested as much in comments earlier on Monday.

Instead, traders around the world turned to their television screens to see the votes opposed to the bill adding up, and eventually surpassing those in favor. The banal image broadcast on several television networks — a no-frills table of ‘yay’ and ‘nay’ votes — contrasted with the expressions of increasing concern on the faces of workers on the floor of the New York Stock Exchange.

“The bottom line is that everybody seems confused,” Ryan Detrick, a strategist at Schaeffer’s Investment Research, said just moments after the initial plunge. “When that happens, you get selling, you get panicky, you get selling.”

The sell-off reinforced the fear coursing through Wall Street as investors wondered, first, whether the bailout plan would pass Congress, and second, what would happen if it did not.





S&P 500 Loses -8%

29 09 2008

Stocks took a dramatic plunge on Monday afternoon after the government’s bailout plan — touted by its supporters as a balm for the current market stress — failed to pass the House of Representatives, setting off a fresh wave of anxious selling.

In yet another day that has shaken the embattled canyons of Wall Street, the Dow Jones industrials fell more than 725 points after it became clear that the legislation could not muster the support it needed to pass the House. points shortly before 3:45 p.m.

A more holistic measure of the American stock market, the Standard & Poor’s 500-stock index, was down by -8.79% at closing, after the House defeated the bill by a vote of 228-205. The Nasdaq was down -9.14% at closing.

The fear was most pronounced in the world’s credit markets, considered gauges of anxiety among investors. Yields on Treasuries plummeted after the House rejected the plan, with the one-month Treasury note yielding virtually zero.

Banks are charging enormous premiums for short-term financing; the difference between the cost of a three-month loan from a bank, and a three-month loan from the government, rose to the widest point since at least 1984. Other lending rates stayed high.

On Wall Street, the drops were sharp and swift, catching many investors and stock strategists on Wall Street by surprise. Many had expected the measure to be passed in the House, and lawmakers in Congress had suggested as much in comments earlier on Monday.

Instead, traders around the world turned to their television screens to see the votes opposed to the bill adding up, and eventually surpassing those in favor. The banal image broadcast on several television networks — a no-frills table of ‘yay’ and ‘nay’ votes — contrasted with the expressions of increasing concern on the faces of workers on the floor of the New York Stock Exchange.

“The bottom line is that everybody seems confused,” Ryan Detrick, a strategist at Schaeffer’s Investment Research, said just moments after the initial plunge. “When that happens, you get selling, you get panicky, you get selling.”

The sell-off reinforced the fear coursing through Wall Street as investors wondered, first, whether the bailout plan would pass Congress, and second, what would happen if it did not.





Congress Aims to Finalize Rescue Bill

28 09 2008

Congress on Sunday made public a proposed bill that would enact a far-reaching government rescue of the financial system.

The core of the bill is based on Treasury Secretary Henry Paulson’s request for authority to purchase as much as $700 billion in troubled mortgage assets from financial institutions so banks can resume lending and so the credit markets, now virtually frozen, can begin to operate more normally.

But Democrats and Republicans – concerned about the potential taxpayer cost – have added several conditions and restrictions. Key negotiators for the financial rescue plan will be busy trying to line up votes on Capitol Hill on Sunday to support the accord they reached soon after midnight.

Among the provisions:

  • The $700 billion would be disbursed in stages, with $250 billion made available immediately for the Treasury’s use.
  • Curbs will be placed on the compensation of executives at companies that sell mortgage assets to Treasury. Among them, the bill would limit golden parachutes to executives at companies that participate; they will not be able to deduct the salary they pay to executives above $500,000.
  • An oversight board will be created. The board will include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director and the Housing and Urban Development secretary.
  • Allow for the Treasury to receive the option to take ownership stakes in participating companies under certain circumstances.
  • Treasury may establish an insurance program – with risk-based premiums paid by the industry – to guarantee companies’ troubled assets, including mortgage-backed securities, purchased before March 18, 2008.

Lawmakers’ goal is to shore up a deal before financial markets around the world open on Sunday evening.

Treasury Secretary Henry Paulson first announced the administration would seek an economic bailout plan on Sept. 18, after meeting with key lawmakers in the House and Senate – a meeting that left lawmakers looking ashen when they spoke to the press afterwards.

If enacted, the rescue plan would be the most dramatic and extensive government intervention in the economy since the Great Depression. President Bush on Sept. 24 gave a prime-time address to the nation in which he urged lawmakers to pass his plan and warned that the “entire economy is in danger.”

The aim of the rescue is to unfreeze the credit markets – short-term lending among banks and corporations. The core of the problem is bad real estate loans that have led to record foreclosures when the housing bubble burst and home prices declined.

In the past two weeks, the banking world and Wall Street have been reordered by a wave of collapses and corporate mergers. The most recent development was the seizure by federal regulators on Thursday night of Washington Mutual, once the nation’s largest thrift and a major mortgage lender.

Pain on Main Street, risk to taxpayers

The chill of the credit freeze has been felt far beyond Wall Street, as well. Businesses large and small have seen the cost of borrowing spike higher.

At the same time, the scale of the administration’s plan – and the quick pace of the debate over it – has given pause to many Americans and lawmakers worried about its potential cost to taxpayers.

“We begin with a very important task, a task to stabilize the markets, to protect all Americans – and do it in a way that protects the taxpayer to the maximum extent possible,” Paulson said early Sunday morning.





US In Agreement

25 09 2008

A leading US senator says both parties in Congress are in agreement on the outline of a $700bn (£380bn) bail-out plan to revive the finance sector.

Christopher Dodd, chairman of the Senate Banking Committee said they had reached “fundamental agreement” on the principles of a deal.

But he later added that it could take beyond Friday’s target to finish work.

US President George W Bush is meeting presidential candidates John McCain and Barack Obama to discuss the bail-out.

Republicans and Democrats have been worried about who will fund the plan.

Mr Bush has said he hoped there would be agreement on a rescue deal “very shortly”.

However US Senate Majority leader Harry Reid told journalists discussions were “ongoing”.

Mr Dodd said Congress could act in the next few days to pass a bill on the subject.

“We look forward to reviewing the proposal. Our focus remains the same – ensuring that the final package is effective,” said Treasury spokeswoman Jennifer Zuccarelli.

After Mr Dodd’s comments Tony Fratto, the White House deputy press secretary, said it was a “a good sign that progress is being made”.

The plan, as it was first proposed last week, would broadly help finance firms offload bad debt, which has triggered a global credit crisis.

“We now expect that we will have a plan that can pass the House, pass the Senate and be signed by the president,” Republican Senator Robert Bennett of Utah said after meetings with lawmakers on Thursday.

Details of the package were not immediately available but it is tipped to include restrictions on executives’ pay as well as oversight requirements.

The benchmark Dow Jones index rose after Senator Dodd’s comments, to close 198.09 points, or 1.83%, up at 11,023.26.

Presidential candidates Barack Obama and John McCain are in Washington for the talks.

The pair are due to hold a presidential campaign debate on Friday, but Mr McCain had said it should be called off because of the pressing financial crisis.

However, on Thursday evening Mr McCain’s campaign team said the Republican senator had not yet decided whether to attend the debate.





Bail-out ‘Vital’

24 09 2008

Americans must support a massive bail-out of financial markets to ease a “serious financial crisis”, US President George W Bush has said.

The entire economy was in danger, he said in a live TV speech, and failure to act now would cost more later.

He has invited presidential rivals John McCain and Barack Obama to the White House on Thursday to discuss the $700bn (£378bn) rescue package.

The rivals have disagreed on delaying a TV debate over the economic turmoil.

Mr McCain says he is suspending his campaign to help with the crisis, but Mr Obama says voters now need to hear from the candidates more than ever.





Bail-out ‘Vital’

24 09 2008

Americans must support a massive bail-out of financial markets to ease a “serious financial crisis”, US President George W Bush has said.

The entire economy was in danger, he said in a live TV speech, and failure to act now would cost more later.

He has invited presidential rivals John McCain and Barack Obama to the White House on Thursday to discuss the $700bn (£378bn) rescue package.

The rivals have disagreed on delaying a TV debate over the economic turmoil.

Mr McCain says he is suspending his campaign to help with the crisis, but Mr Obama says voters now need to hear from the candidates more than ever.