Credit Crisis

Stocks rally on report of entity for bad debt

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Stocks end sharply higher on report that government will create entity to hold banks’ debt

NEW YORK (AP) — Wall Street rallied in a stunning late-session turnaround Thursday, shooting higher and hurtling the Dow Jones industrials up 400 points following a report that the federal government might create an entity to absorb banks’ bad debt. The report also cooled investors’ fervor for the safest types of investments like government debt.

The report that Treasury Secretary Henry Paulson is considering the formation of a vehicle like the Resolution Trust Corp. that was set up during the savings and loan crisis of the late 1980s and early 1990s left previously solemn investors ebullient. Wall Street hoped a huge federal intervention could help financial institutions jettison bad mortgage debt and stop the drain on capital that has already taken down companies including Bear Stearns Cos. and Lehman Brothers Holdings Inc.

Read moreStocks rally on report of entity for bad debt

Ron Paul on the Global Financial Crisis 9/18/08

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Added: Sept. 18, 2008

Source: YouTube

Roubini: USA transforming into USSRA

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Nouriel Roubini

An economic analyst says by buying out investment giants, the USA had transformed into the USSRA (the United Socialist State Republic of America).

“This transformation of the USA into a country where there is socialism for the rich, the well connected and Wall Street (i.e. where profits are privatized and losses are socialized) continues today with the nationalization of AIG,” Nouriel Roubini said.

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Fed, ECB, Bank of Japan Lead Global Plan to Pump $247 Billion Into Markets

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Sept. 18 (Bloomberg) — The Federal Reserve almost quadrupled the amount of dollars central banks can auction around the world to $247 billion in a coordinated bid to ease the worst crisis facing financial markets since the 1920s.

The Fed increased the amount of dollars that the European Central Bank, the Bank of Japan and other counterparts can offer from $67 billion “to address the continued elevated pressures in U.S. dollar short-term funding markets.” The Bank of England, the Bank of Canada and the Swiss National Bank also participated.

Policy makers have struggled to revive confidence in markets this week as investors stockpiled money on concern more financial institutions would fail after the bankruptcy of Lehman Brothers Holdings Inc. and the U.S. government bailout of American International Group Inc. The cost to hedge against losses on U.S. government debt climbed to a record yesterday.

“There’s a complete lack of faith in the markets,” said Jim O’Neill, chief economist at Goldman Sachs Group Inc. in London. “There’s a lot of cash hoarding and people losing trust in banks, so the central banks are acting to relieve that. This might not be the last time they have to act.”

Read moreFed, ECB, Bank of Japan Lead Global Plan to Pump $247 Billion Into Markets

Wall Street crisis deepens and Banks rush to do deals

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NEW YORK (Reuters) – Manic and increasingly desperate dealmaking gripped Wall Street on Wednesday as U.S. stocks plummeted to three-year lows amid new signs of distress in the global financial industry.

Morgan Stanley was discussing a merger with regional banking powerhouse Wachovia, the New York Times reported. CEO John Mack got a phone call from Wachovia on Wednesday but is also pursuing other options, the paper said.

“In this market, anything’s possible. It seems like the market wants the investment banking model to disappear,” said Danielle Schembri, bond analyst covering brokers at BNP Paribas in New York.

Washington Mutual , the country’s largest savings bank, put itself up for sale, sources said, confirming a New York Times report. Potential suitors include Citigroup, JPMorgan, Wells Fargo and HSBC, they added.

Read moreWall Street crisis deepens and Banks rush to do deals

Federal bank insurance fund dwindling

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Federal bank insurance fund dwindling, regulators consider options for replenishing it

WASHINGTON (AP) — Banks are not the only ones struggling in the growing financial crisis. The fund established to insure their deposits is also feeling the pinch, and the taxpayer may be the lender of last resort.

The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation’s largest thrift, or another struggling rival fails, economists and industry analysts said Tuesday.

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Fed to give AIG $85 billion loan and take 80% stake

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A man behind the door at an American International Group building in New York’s financial district on Tuesday. (Lucas Jackson/Reuters)

In an extraordinary turn, the Federal Reserve agreed Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan.

The Federal Reserve and Goldman Sachs and JPMorgan Chase had been trying to arrange a $75 billion loan for the company to stave off the financial crisis caused by complex debt securities and credit default swaps. The Federal Reserve stepped in after it became clear Tuesday afternoon that the banking consortium would not be able to complete the deal.

Without the help, AIG was expected to be forced to file for bankruptcy protection.

Read moreFed to give AIG $85 billion loan and take 80% stake

AIG has under 24 hours to raise $80bn and avoid collapse

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A man walks through a revolving door at an American International Group (AIG) building in New York’s financial district September 16, 2008. REUTERS/Lucas Jackson

The world’s largest insurance company has less than 24 hours to raise $80bn (£45bn) or face collapse, a leading US politician has warned.

The dire diagnosis for American International Group (AIG), made by New York State Governor David Paterson, came amid another day of continued turbulence on the global stock markets.

Read moreAIG has under 24 hours to raise $80bn and avoid collapse

U.S. Stocks Advance on Expectations Fed Will Rescue AIG

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I ‘expect’ a ‘Great Depression’ in the not too distant future.
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Sept. 16 (Bloomberg) — U.S. stocks rose, helping the Standard & Poor’s 500 Index rebound from its steepest drop in seven years, as expectations grew the Federal Reserve may rescue American International Group Inc. from collapse.

Benchmark indexes crossed between gains and losses more than 25 times, and AIG pared most of a 74 percent decline, as investors weighed the fate of the largest U.S. insurer after credit-market losses forced Lehman Brothers Holdings Inc. into bankruptcy. Merrill Lynch & Co. led a 6.2 percent rally in the S&P 500 Financial Index a day after the measure of banks, brokerages and insurers plunged the most since at least 1989.

Read moreU.S. Stocks Advance on Expectations Fed Will Rescue AIG

Goldman profit plunges 70 pct amid market slump

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Goldman Sachs Group CEO Lloyd Blankfein

NEW YORK (Reuters) – Goldman Sachs Group Inc (GS.N) said quarterly profit plunged 70 percent as the worst market slump in decades led to weaker-than-expected revenues, knocking the stock to its lowest level in nearly three years.

Still, the larger of the two major U.S. investment banks still standing, beat profit expectations on Tuesday, even as it recorded $1.1 billion in write-downs and losses from its principal investments. It was the biggest earnings decline since Goldman went public in 1999.

Read moreGoldman profit plunges 70 pct amid market slump

Fed pumps $70B into nation’s financial system

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WASHINGTON – Urgently trying to keep cash flowing amid a Wall Street meltdown, the Federal Reserve on Tuesday pumped another $70 billion into the nation’s financial system to help ease credit stresses.

The Federal Reserve Bank of New York’s action came in two operations in which $50 billion and then another regularly scheduled $20 billion were injected in temporary reserves.

By JEANNINE AVERSA, AP Economics Writer
Tue Sep 16, 9:57 AM ET

Full article here: AP

Wall Street’s Next Big Problem

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WHEN I drove to the Beverly Hills offices of Drexel Burnham Lambert on Feb. 13, 1990, the last thing I expected to hear was that the investment bank where I worked was going under. Yet early that morning, we were told that the company was filing for bankruptcy. I was, to put it mildly, blown away. At the time, Drexel had $3.5 billion in assets and was the biggest underwriter of junk bonds.

It all seemed like a very big deal at the time. But what’s happening this week makes me pine for the good old days.

Read moreWall Street’s Next Big Problem

AIG falls 42% in cash scramble

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Nation’s largest insurer races to raise capital after being hit by credit raters.

NEW YORK (CNNMoney.com) — Shares of American International Group tumbled Tuesday as the company scrambled to raise as much as $75 billion to keep itself afloat.

The pressure on the nation’s largest insurer reached fevered pitch on Monday night as the troubled insurer was hit by a series of credit rating downgrades.

The cuts could prove deadly to AIG (AIG, Fortune 500), forcing it to post more than $13 billion in additional collateral.Shares were down 42% in early morning trading, after falling more than 70% in early morning trading and losing 61% of their value the day before.

Read moreAIG falls 42% in cash scramble

WaMu shares hit hard

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Already battered, Washington Mutual shares fall as potential capital sources’ attention is diverted.

NEW YORK (CNNMoney.com) — Don’t forget about Washington Mutual.

Concerned that Wall Street has done just that, the nation’s largest savings-and-loan plummeted 22% in mid-day trading. Investors are concerned that potential sources of capital have disappeared in the upheaval this weekend on Wall Street that saw Lehman Brothers (LEH, Fortune 500) file the nation’s largest bankruptcy and Bank of America (BAC, Fortune 500) scoop up Merrill Lynch (MER, Fortune 500).

Washington Mutual (WM, Fortune 500) shares were battered last week, losing 36% of their value as investors grew increasingly nervous that the bank didn’t have enough capital to see it through the tsunami sweeping Wall Street.

Read moreWaMu shares hit hard

AIG shares fall 52 percent

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NEW YORK (Reuters) – Shares of American International Group fell more than 50 percent in early trading on reports that the insurer had turned to the Federal Reserve for $40 billion in bridge financing to ward off a liquidity crisis and ratings downgrades.

AIG shares dropped 52 percent to $5.82 on the New York Stock Exchange before recouping a bit to $7.41. The shares have fallen 80 percent this year and closed Friday at $12.14.

Read moreAIG shares fall 52 percent

Lehman Files Biggest Bankruptcy Case in History

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Sept. 15 (Bloomberg) — Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history.

The 158-year-old firm, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. The collapse of Lehman, which listed more than $613 billion of debt, dwarfs WorldCom Inc.’s insolvency in 2002 and Drexel Burnham Lambert’s failure in 1990.

Read moreLehman Files Biggest Bankruptcy Case in History

Bank of America Said to Reach $44 Billion Deal to Buy Merrill

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Sept. 14 (Bloomberg) — Bank of America Corp. reached a deal to acquire Merrill Lynch & Co. for about $44 billion, the Wall Street Journal reported, after shares of the third-biggest U.S. securities firm fell by more than 35 percent last week and smaller rival Lehman Brothers Holdings Inc. neared bankruptcy.

Read moreBank of America Said to Reach $44 Billion Deal to Buy Merrill

Deposit insurance system may face WaMu test

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Attention has focused on the danger presented by the failure of Lehman Brothers. But the failure of a commercial bank such as Washington Mutual can have systemic consequences if it threatens a run on other weak banks.

Washington Mutual – the sixth largest bank in the US – has lost more than a third of its market value recently as investors fear it lacks liquidity and capital to survive the credit crisis.

The failure of a bank its size would test the strength of the US deposit insurance system and its ability to maintain the confidence of the nation’s savers.

Read moreDeposit insurance system may face WaMu test

Jobless set to top two million as the UK economy heads for meltdown

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A JobCentre office

The true scale of the jobs disaster facing Britain is revealed today as experts issue dire warnings that up to half a million workers will lose their jobs over the next two years, as companies cut costs and scale back investment plans to survive the economic downturn.

Official figures are widely expected to reveal this week that the number of people out of work and claiming benefits increased for a seventh successive month in August.

Finance companies based in London’s Square Mile have already laid off thousands of workers since the US mortgage crisis unleashed chaos in the world’s markets last summer; and the 5,000 UK-based staff at crisis-hit investment bank Lehman Brothers are awaiting news this weekend about how many of them will be made redundant.

Read moreJobless set to top two million as the UK economy heads for meltdown

Lehman Brothers teeters on verge of collapse as Barclays pulls out

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Lehman Brothers HQ in New York
Lehman Brothers HQ in New York

Global investment bank Lehman Brothers is teetering on the verge of collapse after Barclays pulled out of an 11th-hour rescue.

The departure of Barclays left US Treasury Secretary Hank Paulson and Tim Geithner, the head of the Federal Reserve Bank of New York, spearheading desperate last-ditch attempts to put in place some form of a workable rescue package.

Traders fear that the collapse of Lehman would send shockwaves around the world and spark a global sell-off of shares.

Lehman which employs 4,000 staff in London and 24,00 around the world, could be placed into liquidation as soon as Monday. The bank would be the single largest casualty of the current credit crisis and its collapse one of the biggest failures in Wall Street history.

In one of the most traumatic days in the history of Wall Street, Bank of America is reported to be on the verge of buying Merrill Lynch for $38bn.

Read moreLehman Brothers teeters on verge of collapse as Barclays pulls out

China may cut its dollar holdings – CICC

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China, which holds a fifth of its currency reserves in Fannie Mae and Freddie Mac debt, may cut the portion held in US dollars, according to China International Capital Corp (CICC), one of the nation’s biggest investment banks.

The US government this week seized control of the two mortgage-finance companies, which account for almost half of the home-loan market in the world’s biggest economy, to prevent defaults from crippling them. China holds up to $400 billion in the two firms’ debt, CICC Chief Economist Ha Jiming said in a report Thursday.

“The crisis has made Chinese officials realize it’s a bad idea to put all their eggs in one basket,” wrote Hong Kong-based Ha. “This will likely lead to greater diversification of foreign exchange reserve investments.”

China held $447.5 billion of US agency bonds as of June 2008, according to the CICC calculations using disclosures by the US Treasury. It is likely to reduce the portion of reserves in dollar assets from the current 60 percent by purchasing more non-dollar assets with new reserves, he said.

Read moreChina may cut its dollar holdings – CICC

N.Y. Fed calls meeting to forestall Lehman collapse

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SAN FRANCISCO (MarketWatch) — As U.S. Treasury officials made it clear the government will not bail out Lehman Bros., the Federal Reserve Bank of New York met Friday night with Wall Street executives in an effort to forestall the collapse of the investment firm and shore up rapidly weakening financial markets.

The New York Fed called the emergency meeting Friday evening with the heads of major financial institutions and the group reportedly plans to continue meeting throughout the weekend if necessary to come up with a plan to save the ailing Lehman Bros. (LEH:Last: 3.76, -0.46, -10.90%) and prevent further damage among financial companies.

Read moreN.Y. Fed calls meeting to forestall Lehman collapse

Washington Mutual shares sink below $2 on capital worry

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NEW YORK (Reuters) – Washington Mutual Inc (WM.N: Quote, Profile, Research, Stock Buzz) shares sank below $2 for the first time since 1990 as anxiety grew about the largest U.S. savings and loan’s mortgage losses, capital needs and survival prospects.

Its shares were down 17 cents, or 7.3 percent, at $2.15 on Thursday on the New York Stock Exchange, but fell to $1.75 earlier in the session. The stock has plunged 44 percent in the previous two days.

Wall Street is worried that Washington Mutual, like Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research, Stock Buzz), may not have time to right itself, and that new the chief executive, Alan Fishman, will not find a buyer or raise enough capital for the Seattle-based thrift.

Read moreWashington Mutual shares sink below $2 on capital worry

Lehman survival questioned on scramble to sell assets

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NEW YORK (Reuters) – Lehman Brothers Holdings Inc’s survival was called into question as its chief executive scrambled to sell assets to cover losses from toxic real estate investments, sending shares down as much as 46 percent.

The investment bank’s need to raise desperately needed cash, broadly outlined by CEO Dick Fuld on Wednesday, failed to assuage investor concerns. The stock dropped $2.92, or 40 percent, to $4.33 on Thursday after falling as low as $3.88.

The steady stream of grim tidings and the dearth of details from the company stoked fears that some of Lehman’s clients and trading partners might take their business to more stable firms.

Read moreLehman survival questioned on scramble to sell assets