Credit Crunch – Page 5 – Infinite Unknown

Prof. Feldstein: The bailout bill doesn’t get at the root of the credit crunch

October 4, 2008 by Infinite

The Problem Is Still Falling House Prices

A successful plan to stabilize the U.S. economy and prevent a deep global recession must do more than buy back impaired debt from financial institutions. It must address the fundamental cause of the crisis: the downward spiral of house prices that devastates household wealth and destroys the capital of financial institutions that hold mortgages and mortgage-backed securities.

The recently enacted financial rescue plan does nothing to stop this spiral. Credit will not flow and liquidity will not return to the banking system until financial institutions have confidence in the solvency and liquidity of other banks.

Because of the 20% fall in the price of homes since the bursting of the house-price bubble, there are now some 10 million homes with mortgages that exceed the value of the house.

The Elephant in the Room: Credit Default Swaps

October 2, 2008 by Infinite

Studies show that people often fear the wrong things. We are terrified of things which probably won’t hurt us, but blissfully unconcerned with things that might really kill us (see this, this and this). So we put a tremendous amount of energy into solving non-problems, and get blindsided by things that we don’t know about or which we are too afraid to even think about.

The same applies to the economic crisis.

For example, the market for credit default swaps is larger than the entire world economy.

Credit default swaps – which were largely responsible for bringing down Bear Stearns, AIG, WaMu and other mammoth corporations – are now being taken out against the U.S. government.

So you’d think that politicians trying to prop up the teetering U.S. economy would want to cancel credit default swaps, or at least declare their value is somewhere near zero.

Nope . . . not even on their discussion list, even though it is the real economic crisis.

Instead, they are proposing things which most experts say will actually harm the economy.

Call congress and tell them to stop their political posturing, stop ignoring the derivatives elephant in the room, and either do something useful or nothing at all.

Posted by George Washington at 1:08 PM
Wednesday, October 1, 2008

Source: George Washington’s Blog

Why Paulson has not explained the real purpose of the bailout to the American people

October 2, 2008 by Infinite

Treasury Secretary Henry Paulson declared that the current turmoil in markets and financial institutions ultimately will “make things better.” (September 15, 2008)

The mystery has been solved

For nearly a year, we have been asking ourselves why the investors and foreign banks that bought up hundreds of billions of dollars of worthless mortgage-backed securities (MBS) from US investment banks have not taken legal action against these same banks or initiated a boycott of US financial products to prevent more people from getting ripped off?

Now we know the answer. It’s because, behind the scenes, Henry Paulson and Co. were working out a deal to dump the whole trillion dollar mess on the US taxpayer. That’s what this whole $700 billion boondoggle is all about; wiping out the massive debts that were generated in the biggest incident of fraud in history.

Rep Brad Sherman explained it like this last night to Larry Kudlow:

“It (The bill) provides hundreds of billions of dollars of bailouts to foreign investors. It provides no real control of Paulson’s power. There is a critique board but not really a board that can step in and change what he does. It’s a $700 billion program run by a part-time temporary employee and there is no limit on million dollar a month salaries……. It’s very clear. The Bank of Shanghai can transfer all of its toxic assets to the Bank of Shanghai of Los Angeles which can then sell them the next day to the Treasury. I had a provision to say if it wasn’t owned by an American entity even a subsidiary, but at least an entity in the US, the Treasury can’t buy it. It was rejected.

The bill is very clear. Assets now held in China and London can be sold to US entities on Monday and then sold to the Treasury on Tuesday. Paulson has made it clear he will recommend a veto of any bill that contained a clear provision that said if Americans did not own the asset on September 20th that it can’t be sold to the Treasury. Hundreds of billions of dollars are going to bail out foreign investors. They know it, they demanded it and the bill has been carefully written to make sure it can happen.”

So, why hasn’t the Treasury Secretary explained the real purpose of the bailout to the American people? Could it be that he knows that his $700 billion bailout would end up like the Hindenburg, vanishing in sheets of flames?

U.S. Factories Contracted at Faster Pace in September

October 1, 2008 by Infinite

Oct. 1 (Bloomberg) — Manufacturing in the U.S. contracted in September at the fastest pace since the last recession as sales slowed, signaling the credit crisis is spreading beyond Wall Street.

The Institute for Supply Management’s factory index dropped to 43.5, the lowest level since October 2001 and less than economists anticipated, the Tempe, Arizona-based group reported today. A reading of 50 is the dividing line between expansion and contraction.

The housing slump has already spread to autos, and other industries may soon follow, as mounting foreclosures, tougher lending rules and rising unemployment choke off consumer spending. While exports have so far kept manufacturing from slipping much more, weakening economies around the globe are also causing overseas sales to slow.

“Manufacturing could be on the brink of a collapse,” said Lindsey Piegza, a market analyst at FTN Financial in New York. `There are no orders, no jobs and there is really no incentive for businesses to invest. The credit crisis is compounding the problem.”

Lehman Hedge-Fund Clients Left Cold as Assets Frozen

October 1, 2008 by Infinite

Barclays Capital logos are displayed on the facade of the Lehman Brothers Holdings Inc. headquarters building in New York, Sept. 24, 2008. Photographer: Gino Domenico/Bloomberg News

Oct. 1 (Bloomberg) — Lehman Brothers Holdings Inc.’s bankruptcy probably means the end of hedge-fund manager Oak Group Inc. after 22 years in business.

John James, who runs the Chicago-based firm with $25 million of assets, didn’t buy Lehman stock or debt. Instead, his potentially fatal mistake was to rely on the bank’s prime brokerage in London, a unit that provides loans, clears trades and handles administrative chores for hedge funds. He’s one of dozens of investment managers whose Lehman prime-brokerage accounts were frozen when the company filed for protection from creditors on Sept. 15.

“We’re probably going out of business and liquidate, game over,” James, 59, said. “We’ve lost 70 percent of our assets.”

The list of funds trapped in the Lehman morass keeps growing. London-based MKM Longboat Capital Advisors LLP said last week it will close its $1.5 billion Multi-Strategy fund in part because of assets stuck at Lehman, according to an investor letter.

The $55 trillion question

September 30, 2008September 30, 2008 by Infinite

The financial crisis has put a spotlight on the obscure world of credit default swaps – which trade in a vast, unregulated market that most people haven’t heard of and even fewer understand. Will this be the next disaster?

(Fortune Magazine) — If Hieronymus Bosch were alive today to paint a triptych called “The Garden of Mortgage Delights,” we’d recognize most of the characters in the bacchanalia and its hellish aftermath. Looming largest, of course, would be the Luciferian figures of Greed and Excessive Debt. Scurrying throughout would be the Wall Street bankers who turned these burgeoning debts into exotic securities with tangled structures and soporific acronyms – CDO, MBS, ABS – that concealed the dangers within. Needless to say, we’d see the smooth-tongued emissaries of the credit-rating agencies assuring people that assets of lead could indeed be transformed into investments of gold. Finally, somewhere past the feckless Fannie Mae executives and the dozing politicians, one final figure would lurk in the shadows: a hulking and barely recognizable monster known as Credit Default Swaps.

CDS are no mere artist’s fancy. In just over a decade these privately traded derivatives contracts ballooned from nothing into a $54.6 trillion market. CDS are the fastest-growing major type of financial derivatives. More important, they’ve played a critical role in the unfolding financial crisis. First, by ostensibly providing “insurance” on risky mortgage bonds, they encouraged and enabled reckless behavior during the housing bubble.

Home Prices in 20 U.S. Cities Declined 16.3% in July

September 30, 2008 by Infinite

Sept. 30 (Bloomberg) — House prices in 20 U.S. cities declined in July at the fastest pace on record, signaling the worst housing recession in a generation had yet to trough even before this month’s credit crisis.

The S&P/Case-Shiller home-price index dropped 16.3 percent from a year earlier, more than forecast, after a 15.9 percent decline in June. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.

The housing slump is at the center of the meltdown in financial markets as declining demand pushes down property values and causes foreclosures to mount. Banks will probably stiffen lending rules even more in coming months to limit losses, indicating residential real estate will keep contracting and consumer spending will continue to falter.

“The fact that house prices quickened their slide before the worst point in credit markets hit this month does not bode well,” said Derek Holt, an economist at Scotia Capital Inc. in Toronto.

Financial crisis: Mortgage lending plunges 95 per cent as housing market suffers

September 29, 2008 by Infinite

The value of mortgages lent to British homebuyers fell 95 per cent last month, according to the Bank of England.

Mortgage approvals hit a record low after banks tightened lending Photo: PA

It said mortgage lending dived to just £143 million during August – its lowest since this data was first collected in April 1993 and a fraction of the £2.998 billion lent in July.

The bank also revealed that mortgage approvals fell to 32,000 last month from 33,000 in July.

While marginally higher than analyst forecasts, it was the lowest since data began being collected and means approvals are running at less than a third of their 109,000 total in August 2007.

Fed Pumps Further $630 Billion Into Financial System

September 29, 2008 by Infinite

Sept. 29 (Bloomberg) — The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

The Fed increased its existing currency swaps with foreign central banks to $620 billion from $290 billion to make more dollars available worldwide. The Term Auction Facility, the Fed’s emergency loan program, will expand to $450 billion from $150 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

The Fed’s expansion of liquidity, the biggest since credit markets seized up last year, comes as Congress prepares to vote on a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, forcing European governments to rescue four banks over the past two days alone.

FDIC Announces Citigroup to Buy Wachovia

September 29, 2008 by Infinite

Citigroup has agreed to buy Wachovia bank in a deal brokered by the Federal Deposit Insurance Corporation to avoid another major corporate failure in the midst of the ongoing financial crisis.

The FDIC announced the deal on its Web site this morning. No price for the transaction was included in the announcement. But the FDIC said that the deal hinged on a loss sharing arrangement between Citigroup and the FDIC, the agency responsible for insuring bank deposits.

Wachovia has been saddled by mortgage-related losses. Under the terms of the deal, Citigroup will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will be responsible for any losses beyond that, but was given $12 billion in Citigroup preferred stock and warrants in return for that guaranty.

The Wachovia purchase is the second major bank buyout orchestrated by the FDIC in the last week. The agency also helped arrange the sale of the failed Washington Mutual to J.P. Morgan Chase.

Fortis Gets EU11.2 Billion Rescue From Governments

September 28, 2008September 28, 2008 by Infinite

Sept. 29 (Bloomberg) — Fortis, the largest Belgian financial-services firm, received an 11.2 billion-euro ($16.3 billion) rescue from Belgium, the Netherlands and Luxembourg after investor confidence in the bank evaporated last week.

Belgium will buy 49 percent of Fortis’s Belgian banking unit for 4.7 billion euros, while the Netherlands will pay 4 billion euros for a similar stake in the Dutch banking business, the governments said in a statement late yesterday. Luxembourg will provide a 2.5 billion-euro loan convertible into 49 percent of Fortis’s banking division in that country.

Fortis is the largest European firm so far caught up in the global financial crisis that drove Lehman Brothers Holdings Inc. into bankruptcy two weeks ago and prompted U.S. President George W. Bush to seek a $700 billion bank rescue package. Fortis dropped 35 percent last week in Brussels trading on concern the company would struggle to replenish capital depleted by the 24.2 billion- euro takeover of ABN Amro Holding NV units and credit writedowns.

Belgian, Dutch Central Banks Seek Solution for Fortis

September 28, 2008 by Infinite

Sept. 28 (Bloomberg) — Discussions between European, Dutch and Belgian officials on the future of Fortis, Belgium’s largest financial-services firm, carried into the evening as they sought a “solution” for the beleaguered bank.

Dutch central bank chief Nout Wellink and Finance Minister Wouter Bos went to Brussels for talks with the Belgian government and regulators. European Central Bank President Jean-Claude Trichet met with Belgian Prime Minister Yves Leterme and Finance Minister Didier Reynders today.

Fortis fell a record 20 percent in Brussels trading two days ago on concern the firm would struggle to raise the 8.3 billion euros ($12.1 billion) it’s seeking to bolster reserves. The bank said Sept. 26 its financial position is “solid,” and replaced interim Chief Executive Officer Herman Verwilst with Filip Dierckx, who heads the banking unit. Managers and government officials are considering a possible sale of part or all of the bank, the Wall Street Journal reported, citing unidentified people familiar with the situation.

“Fortis failed to restore confidence on its own and that can only be done now with the help of the regulatory institutions or rivals,” said Corne van Zeijl, a senior portfolio manager at SNS Asset Management in Den Bosch, the Netherlands, who oversees about $1.1 billion, including Fortis shares.

Fortis has fallen 71 percent this year in Brussels, the second-worst performance among the 69 companies on the Bloomberg Europe Banks and Financial Services Index, cutting the lender’s market capitalization to 12.2 billion euros ($17.8 billion).

U.K. to Protect Bradford & Bingley; BBC Reports Nationalization

September 28, 2008 by Infinite

Sept. 28 (Bloomberg) — The U.K. government will act to protect Bradford & Bingley Plc customers, Chief Whip Geoff Hoon said after the British Broadcasting Corp. reported the country’s biggest lender to landlords will be taken over by the state.

Prime Minister Gordon Brown and Chancellor of the Exchequer Alistair Darling “have worked right through this weekend to sort out the problems we’re facing,” Hoon, a parliamentary officer, told Sky News today. “I’m confident that in due course there will be a statement from the Treasury about Bradford & Bingley. We will act to ensure that the interests of depositors are properly protected.”

The government will take control of Bradford & Bingley, whose shares have tumbled 93 percent this year, the BBC reported on its Web site, without saying where it got the information. The Treasury and Financial Services Authority will negotiate with banks interested in buying parts of the Bingley, England-based bank, the BBC said. Possible buyers include Banco Santander SA, HSBC Holdings Plc and Barclays Plc, the report said.

Markets face major crash if US bail-out plan collapses

September 27, 2008 by Infinite

There will be a depression anyway, but if the bailout “succeeds” there will be a complete meltdown in the not too distant future. Again the elite is pressing the fear button.
_____________________________________________________________________________

World markets depend on Paulson’s plan Photo: GETTY

London shares could lose a fifth of their value and the money market faces collapse unless US politicians succeed with their financial bail-out plan, it has been warned.

A leading investor predicted that the FTSE 100 could drop by as much as 1,000 points on Monday if Treasury Secretary Hank Paulson’s $700bn (£380bn) plan fails. Such a fall would come close to matching the stock market crash of 1987.

The warning came as markets lurched their way to the end of another fraught week amid fears that the White House rescue operation could be derailed in Congress by conservative Republicans.

WaMu: The biggest bank failure in U.S. history.

September 26, 2008 by Infinite

JPMorgan Buys WaMu Bank Business as Thrift Seized

Sept. 25 (Bloomberg) — JPMorgan Chase & Co., the third- biggest U.S. bank by assets, agreed to acquire Washington Mutual Inc.’s deposits and branches for $1.9 billion after regulators seized the thrift in the biggest bank failure in U.S. history.

Customers withdrew $16.7 billion from WaMu accounts since Sept. 16, leaving the Seattle-based bank “unsound,” the Office of Thrift Supervision said today. WaMu’s branches will open tomorrow and customers will have full access to all their accounts, Sheila Bair, chairman of the Federal Deposit Insurance Corp., said on a conference call.

WaMu’s fate played out as Congress debated an accord to end the global credit crunch that drove Lehman Brothers Holdings Inc. and IndyMac Bancorp out of business and led to the hastily arranged rescues of Merrill Lynch & Co. and Bear Stearns Cos., which was itself absorbed by JPMorgan. WaMu in March rebuffed a takeover offer from JPMorgan Chief Executive Officer Jamie Dimon that WaMu valued at $4 a share.

Hundreds of Economists Urge Congress Not to Rush on Rescue Plan

September 25, 2008 by Infinite

Sept. 25 (Bloomberg) — More than 150 prominent U.S. economists, including three Nobel Prize winners, urged Congress to hold off on passing a $700 billion financial market rescue plan until it can be studied more closely.

In a letter yesterday to congressional leaders, 166 academic economists said they oppose Treasury Secretary Henry Paulson’s plan because it’s a “subsidy” for business, it’s ambiguous and it may have adverse market consequences in the long term. They also expressed alarm at the haste of lawmakers and the Bush administration to pass legislation.

Ron Paul Discussing his Bernanke Confrontation 9/24/2008

September 24, 2008 by Infinite

Ron Paul on Fox Business

Source: YouTube

BAILOUT: Ron Paul Educates Bernanke…yet again 9/24/2008

September 24, 2008 by Infinite

Source: YouTube

Wednesday, September 24, 2008

Dear Friends,
Whenever a Great Bipartisan Consensus is announced, and a compliant media assures everyone that the wondrous actions of our wise leaders are being taken for our own good, you can know with absolute certainty that disaster is about to strike.
The events of the past week are no exception.
The bailout package that is about to be rammed down Congress’ throat is not just economically foolish. It is downright sinister. It makes a mockery of our Constitution, which our leaders should never again bother pretending is still in effect. It promises the American people a never-ending nightmare of ever-greater debt liabilities they will have to shoulder. Two weeks ago, financial analyst Jim Rogers said the bailout of Fannie Mae and Freddie Mac made America more communist than China! “This is welfare for the rich,” he said. “This is socialism for the rich. It’s bailing out the financiers, the banks, the Wall Streeters.”
That describes the current bailout package to a T. And we’re being told it’s unavoidable.
The claim that the market caused all this is so staggeringly foolish that only politicians and the media could pretend to believe it. But that has become the conventional wisdom, with the desired result that those responsible for the credit bubble and its predictable consequences – predictable, that is, to those who understand sound, Austrian economics – are being let off the hook. The Federal Reserve System is actually positioning itself as the savior, rather than the culprit, in this mess!

The Treasury Secretary is authorized to purchase up to $700 billion in mortgage-related assets at any one time. That means $700 billion is only the very beginning of what will hit us.
Financial institutions are “designated as financial agents of the Government.” This is the New Deal to end all New Deals.
Then there’s this: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.” Translation: the Secretary can buy up whatever junk debt he wants to, burden the American people with it, and be subject to no one in the process.

There goes your country.
Even some so-called free-market economists are calling all this “sadly necessary.” Sad, yes. Necessary? Don’t make me laugh.
Our one-party system is complicit in yet another crime against the American people. The two major party candidates for president themselves initially indicated their strong support for bailouts of this kind – another example of the big choice we’re supposedly presented with this November: yes or yes. Now, with a backlash brewing, they’re not quite sure what their views are. A sad display, really.
Although the present bailout package is almost certainly not the end of the political atrocities we’ll witness in connection with the crisis, time is short. Congress may vote as soon as tomorrow. With a Rasmussen poll finding support for the bailout at an anemic seven percent, some members of Congress are afraid to vote for it. Call them! Let them hear from you! Tell them you will never vote for anyone who supports this atrocity.
The issue boils down to this: do we care about freedom? Do we care about responsibility and accountability? Do we care that our government and media have been bought and paid for? Do we care that average Americans are about to be looted in order to subsidize the fattest of cats on Wall Street and in government? Do we care?
When the chips are down, will we stand up and fight, even if it means standing up against every stripe of fashionable opinion in politics and the media?
Times like these have a way of telling us what kind of a people we are, and what kind of country we shall be.
In liberty,
Ron Paul

Bernanke Signals U.S. Should Pay More for Bad Debt

September 24, 2008 by Infinite

Hey it’s taxpayers money, so the higher the price the better.
___________________________________________________________________________

Ben S. Bernanke, chairman of the U.S. Federal Reserve, testifies before the Senate Banking Committee in Washington, Sept. 23, 2008. Photographer: Joshua Roberts/Bloomberg News

Sept. 23 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke signaled that the government should buy devalued assets at above-market values to make its proposed $700 billion rescue package most effective in combating the financial crisis.

“Accounting rules require banks to value many assets at something close to a very low fire-sale price rather than the hold-to-maturity price,” Bernanke said in testimony to the Senate Banking Committee today. “If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price, there will be substantial benefits.”

Bernanke’s remarks, an unusual departure from his prepared testimony, come as lawmakers and the Bush administration negotiate a rescue plan aimed at easing the worst financial crisis since the Great Depression. The Fed chief said paying prices higher than the bad assets would fetch in the open market would help “unfreeze” credit markets and aid the economy.

Democrats and Republicans alike sceptical of Bush bailout plan

September 23, 2008 by Infinite

Federal Reserve chairman Ben Bernanke folds his hands while testifying with US Treasury secretary Henry Paulson before the Senate banking committee on Tuesday. Photograph: Charles Dharapak/AP

The proposed $700bn bailout of US financial markets faced harsh criticism in Congress today, with liberals and conservatives both sceptical that granting the Bush administration power to buy up risky mortgages would avert further economic crisis.

Yet despite the wariness from the Senate banking committee, where Henry Paulson and Ben Bernanke appeared today, the financial rescue seems poised to win approval by next week at the latest.

“This is not something I wanted to ask for,” the US treasury secretary said, assuring senators that “I feel your frustrations” and “I’m angry” at the prospect of Wall Street firms getting saved by the government.

But Paulson and Bernanke did ask for broad latitude to decide which toxic assets would win a purchase by the government. Senators of both parties did not attempt to hide their anger at the request, citing the Bush administration’s previous assurances of market stability.

“We have been given no credible assurances that this plan will work,” Richard Shelby, the senior Republican on the banking panel, said. “Congress does not have time to determine if there are better alternatives.”

The committee’s Democratic chairman, Chris Dodd, questioned Paulson’s request for immunity from any legal or government review of his actions during the bailout process.

“After reading this proposal, I can only conclude that it is not just our economy that is at risk,” Dodd told the treasury secretary, “but our constitution as well.”

Mushroom Clouds Over Wall Street

September 22, 2008 by Infinite

By MIKE WHITNEY

“One bank to rule them all;
One bank to bind them…”

These are dark times. While you were sleeping the cockroaches were busy about their work, rummaging through the US Constitution, and putting the finishing touches on a scheme to assert absolute power over the nation’s financial markets and the country’s economic future. Industry representative Henry Paulson has submitted legislation to Congress that will finally end the pretense that Bush controls anything more than reading the lines from a 4′ by 6′ teleprompter situated just inches from his lifeless pupils. Paulson is in charge now, and the coronation is set for sometime early next week. He rose to power in a stealthily-executed Banksters’ Coup in which he, and his coterie of dodgy friends, declared martial law on the US economy while elevating himself to supreme leader.

“All Hail Caesar!” The days of the republic are over.

Section 8 of the proposed legislation says it all:

“Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

Right; “non-reviewable” supremacy.

Goldman Sachs and Morgan Stanley have been put under Federal control

September 22, 2008 by Infinite

Morgan Stanley headquarters in New York

Investment banks Goldman Sachs and Morgan Stanley have been put under Federal control as part of a package aimed at rescuing the US finance system.

The move not only puts the two financial services giants under the direct supervision of bank regulators but also gives the Fed the power to force the banks to raise additional capital.

The US administration wants to prevent the collapse of two of Wall Street’s remaining investment banks after the fall of Lehman Brothers and the government-funded bailouts of Bear Stearns, Merrill Lynch and global insurer AIG.

Dollar May Get `Crushed’ as Traders Weigh Up Bailout

September 22, 2008 by Infinite

U.S. one dollar bills are displayed for a photograph in New York, April 15, 2008. Photographer: Daniel Acker/Bloomberg News

Sept. 22 (Bloomberg) — Treasury Secretary Henry Paulson‘s plan to end the rout in U.S. financial markets may derail the dollar’s three-month rally as investors weigh the costs of the rescue.

The combination of spending $700 billion on soured mortgage-related assets and providing $400 billion to guarantee money-market mutual funds will boost U.S. borrowing as much as $1 trillion, according to Barclays Capital interest-rate strategist Michael Pond in New York. While the rescue may restore investor confidence to battered financial markets, traders will again focus on the twin budget and current-account deficits and negative real U.S. interest rates.

``As we get to the other side of this, the dollar will get crushed,” said John Taylor, chairman of New York-based International Foreign Exchange Concepts Inc., the world’s biggest currency hedge-fund firm, which manages about $15 billion.

Goldman Sachs, Morgan Stanley Become Banks, Ending an Era for Wall Street

September 22, 2008September 22, 2008 by Infinite

U.S. flags fly outside the headquarters of Goldman Sachs Group Inc., in New York, Sept. 16, 2008. Photographer: Gino Domenico/Bloomberg News

Sept. 22 (Bloomberg) — The Wall Street that shaped the financial world for two decades ended last night, when Goldman Sachs Group Inc. and Morgan Stanley concluded there is no future in remaining investment banks now that investors have determined the model is broken.

The Federal Reserve’s approval of their bid to become banks ends the ascendancy of the securities firms, 75 years after Congress separated them from deposit-taking lenders, and caps weeks of chaos that sent Lehman Brothers Holdings Inc. into bankruptcy and led to the rushed sale of Merrill Lynch & Co. to Bank of America Corp.

“The decision marks the end of Wall Street as we have known it,” said William Isaac, a former chairman of the Federal Deposit Insurance Corp. “It’s too bad.”

Goldman, whose alumni include Henry Paulson, the Treasury secretary presiding over a $700 billion bank bailout, and Morgan Stanley, a product of the 1933 Glass-Steagall Act that cleaved investment and commercial banks, insisted they didn’t need to change course, even as their shares plunged and their borrowing costs soared last week.

The Bailout Is NOT Limited to $700 Billion, Paulson Could Spend UNLIMITED Taxpayer Money

September 22, 2008 by Infinite

Most people think that the proposed bailout will cost $700 billion. In fact, it is not limited to $700 big ones, and will probably go much higher.

Specifically, Paulson’s draft bailout plans says:

“The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time.”

That means that Paulson could buy a couple hundred billion worth of assets one day, sell them, and then the next day buy another couple hundred billion, and so on.

The maximum price tag?

There is no maximum. Paulson could literally spend unlimited taxpayer monies. And remember that Paulson has already broadened the proposal to include the purchase of non mortgage-related assets.