Geithner’s Problem In A Nutshell
Yesterday was his boss’s turn. Today’s it’s Tim Geithner’s. There are two crises going on, a financial one and an economic one. Yesterday, Obama went to Indiana (a red state that he flipped and needs to suck up to, so they’ll keep going blue), and then to national television, to talk about the economic situation. His message was that the only way to make the | Read More »
Bond Market Confusion
Global stock markets are soft across the board as we swing into the first trading day of February. At first glance, this appears to be responsive to the constant drumbeat of terrible economic news, as economies and trade shrink in unison. The action in the bond markets appears to be somewhat healthier. For several weeks, the theme underneath the surface noise in corporate debt markets | Read More »
A Banking System Frozen in Amber
One of the most critical problems facing the US economy is the “credit crunch,” which shows up as an extreme reluctance by banks and other financial intermediaries to lend money. Without a normal flow of credit, no sector of the economy can function up to its capacity, and that of course leads to lower output and higher unemployment. You’ve read a lot about the TARP | Read More »
There’s More Banking Crisis Ahead
This morning, we’ll get accelerated earnings announcements from Citigroup and Bank of America. They basically have to do this because the whispering and the uncertainty about both enterprises is starting to get really hard to ignore. And BAC just became the recipient of a government-assistance deal much like what Citi got in December: $20 billion in new preferred equity, and a guarantee of $118 billion | Read More »
Obama Reinterprets the TARP. Don’t Be Fooled.
Yesterday, Obama asked President Bush to formally request Congress to approve the second $350 billion tranche of the TARP fund. Bush complied, and sent his letter to Congress last night. This little dance is necessary because Congress split up the $700 billion TARP fund into two halves. The first $350 billion has all been committed or spent now, with the last of it serving as | Read More »
A Response to Reader George Jetson
On another thread, you asked the question, Is there a published analysis of the net cost to taxpayers of the TARP plan? Here’s a preliminary draft of one. This comes from two economists at the University of Chicago, and they find a likely net cost (representing a transfer of value from taxpayers to stakeholders of banks) in the range of a few tens of billions | Read More »
The White House Bails Out the United Auto Workers
You’ve heard the headlines. This morning at 9:00am ET, President Bush announced that the Treasury Department, acting without authorization from Congress, will execute several key provisions of the bailout legislation that was defeated by Senate Republicans on December 11. Let me tell what we know and what we don’t know at this point. There are no printed statements yet at the White House or the | Read More »
Last week was Citigroup’s turn. Citi is one of the world’s best-known banking brands, and was once America’s largest bank by market capitalization. Last week, investors knocked 60% off the value of Citi’s stock, in a nerve-rattling selloff that was too reminiscent of Bear Stearns and Lehman Brothers for comfort. Citigroup is too large to fail. It has about 200 million accounts in more than | Read More »
Going Through The Front Door
The major news this morning affecting financial markets is that the Treasury is making a drastic change in its approach to the current crisis. You know about the $700 billion Troubled Assets Relief Program (TARP). As originally conceived, the idea here was to contrive ways of purchasing assets like mortgage-backed securities from banks and Wall Street firms. The purchases were to have been done at | Read More »
Stay Calm, Everyone. We’ll Get Through This.
The ground is shifting in the acute financial crisis that started around Labor Day, and erupted like a boil into public consciousness about three weeks ago. While Congress continues its indecision over whether to respond with forceful measures, the crisis has begun to have a powerful impact on the Main Street economy. None other than Warren Buffett (who’s been around for a lot of years | Read More »
Congress Says “We Have A Deal”
During my daily chronicle of the Panic of 2008, I’ve had occasion once before to say that the fever has broken. That was a week ago Friday, after Secretary Paulson first announced the outlines of his plan to buy up to $700 billion in distressed mortgage-backed paper. I’ve also had several occasions to tell you that officials at the Fed had taken extraordinary actions in | Read More »
What Happens If There’s No Bailout?
Yesterday morning, the new week started off on a hopeful note in world financial markets, as all eyes turned to the action in the US Congress. Secretary Paulson and Chairman Bernanke had managed to create enough fear among lawmakers to convince them that a large emergency bailout is needed, in order to repair the balance sheets of banks, Wall St. firms, and other financial intermediaries. | Read More »