The AIG bonus spectacle of last week convinced Goldman Sachs to repay their TARP money ASAP, thus defeating the purpose of having taken it in the first place.
Now comes the unsurprising news that more banks want out of TARP:
For relatively strong banks, doing business with the government may be more trouble than it’s worth.
According to information obtained by CNBC, President Obama has asked members of Congress to “fast-track” a legislation that would allow the Federal government to take over large financial institutions — much in the same way the FDIC does with commercial banks:
Such authority would allow the government to seize control of [bank holding] companies that posed a risk to the system and unwind their businesses in an orderly, yet expeditious fashion. Such authority would presumably allow the government to amend contracts, as necessary.
Even as Congress finds itself getting into the punish-AIG frenzy, it seems that the AIG bonuses are protected by law:
While the Senate was constructing the $787 billion stimulus last month, [Connecticut Senator Chris] Dodd added an executive-compensation restriction to the bill. The provision, now called “the Dodd Amendment” by the Obama Administration provides an “exception for contractually obligated bonuses agreed on before Feb. 11, 2009” — which exempts the very AIG bonuses Dodd and others are now seeking to tax. …
The market observers on the bailout watch, scanning the economic waters for the next potential “black hole,” say they’ve spotted one: Freddie Mac. The mortgage giant reported a 4th quarter loss of $24 billion, raising their total of red ink for 2008 up to $50 billion. Just last week Freddie tapped another $31 billion in exchange for preferred stock.
The substantial losses at Freddie can be accredited to a number of shortfalls: mortgage insurance, mortgage-backed securities tied to subprime, adjustable rate, and/or jumbo mortgages, interest rate derivatives, bonds, and the approximately 30,000 homes they currently own (costing the GSE about $3,300 a month to maintain): Read the rest of this entry »
President Obama announced today that he will attempt to block the millions in bonuses that AIG plans on doling out to certain employees. The president had harsh words for the insurer who has received $173 billion in bailouts from the U.S. Treasury in the past six months:
“This is a corporation that finds itself in financial distress due to recklessness and greed,” Obama told politicians and reporters…
The U.S. government announced their latest bailout of global insurer AIG this morning. While the $30 billion loan will continue to remain on the shoulders of taxpayers (via the TARP), and the government will add to its equity share in the company, the Treasury and Federal Reserve will do some things differently:
The new deal, the government’s fourth for AIG, represents a nearly complete reversal from the one first laid out in mid-September. Back then, federal officials acted as a demanding lender, forcing the insurer to pay a steep interest rate for what was expected to be a short-term loan. Now the government is relaxing loan terms by wiping out interest in hopes of preserving AIG’s value over a longer period.
The Federal Reserve has refused to identify the recipients of nearly $2 trillion of taxpayer-supported loans, or the value of the troubled assets the central bank has accepted as collateral for their lending. The Fed’s refusal has led to taxpayer outrage, as well as a lawsuit from Bloomberg News, who claims that the Fed has violated the Freedom of Information Act.
Congress had required “transparency” as a stipulation of the $700 billion rescue plan, and both Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson agreed to the necessity of the requirement back in September. Two months later, the scope of federal lending has far exceeded the $700 billion TARP program, into various other initiatives not under the watchful eye of Congress: Read the rest of this entry »
On both the consumer and corporate sides of the coin, fraud has truly begun to stain the mortgage market. However, federal investigations and new regulations, measures are underway to bolster a bedrock of our economy to return it to the productive and structured state in which it once operated.
The Federal Bureau of Investigation announced yesterday they have begun investigating four past giants of the mortgage market for their possible role in the collapse of the industry. Fannie Mae, Freddie Mac, AIG, and Lehman Brothers have been added to the list of 26 corporate lenders currently under federal investigation. The FBI’s investigation comes on the heels of the government’s proposed $700 billion bailout. According to federal officials, the investigation will focus on “financial institutions and the individuals that ran them.”
Last week was one of the most tumultuous weeks the financial markets have ever experienced. If you’re looking for a free tool to guide you through the latest financial developments, and explain to you where the markets may be headed, be sure to subscribe to HSH’s weekly financial newsletter Market Trends. The latest issue, Mortgage Rates and New Market Realities, goes though each of the markets’ latest developments, from Lehman filing for Chapter 11, to the doubling in LIBOR rates:
September 19, 2008 – Just a week after announcing that Fannie Mae and Freddie Mac won’t go out of business, cascading changes in financial markets left Federal regulators with no remaining appetite for the machinations of the private sector. The agonizing writhing and twisting of markets saw the failure of Lehman Brothers, the announced sale of Merrill Lynch to Bank of America, and the need for an $85 billion stabilization plan for AIG, a huge insurer.
After refusing to extend a $40 billion loan to struggling insurer AIG on Sunday, the Fed reevaluated AIG’s systemic risk and decided to pledge an $85 billion loan yesterday — the fourth such rescue of a major financial player in six months. Once again, this loan will be riding on taxpayers’ shoulders. In exchange for the two-year loan, the government will receive 79.9% ownership of AIG through common stocks.
It wasn’t the fact that another major financial player could go bankrupt that caused the Fed to reassess their decision; AIG’s extensive global influence could cause a domino effect that would be felt by institutions worldwide. AIG is an insurer of securities held by companies around the globe. If AIG were to fail, all of those companies would be left with uninsured securities that would in effect drain out their capital: Read the rest of this entry »
HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.
