America's Financial Crisis

[Armenian]

Re: America's Financial Crisis

A $1.8 Trillion Bailout: Where the Money's Going

The U.S. Treasury Department is working through the weekend with Congress to craft a plan to spend as much as $700 billion to absorb bad mortgages and other assets from bank or other institution balance sheets to keep the financial system from collapsing. The move comes close on the heels of an $85 billion Federal Reserve rescue of American International Group and the Treasury's takeover of housing finance firms Fannie Mae and Freddie Mac . The Treasury plan, which follows a new federal guarantee for money market fund holdings, would push Washington's potential bailout tab to $1.8 trillion. Following are details of actions, proposals and amounts:

—Up to $700 billion to buy assets from struggling institutions. The plan is aimed at sopping up residential and commercial mortgages from financial institutions but gives Treasury broad latitude.

—Up to $50 billion from the Great Depression-era Exchange Stabilization Fund to guarantee principal in money market mutual funds to provide the same confidence that consumers have in federally insured bank deposits.

—The Fed committed to make unspecified discount window loans to financial institutions to finance the purchase of assets from money market funds to aid redemptions.

—At least $10 billion in Treasury direct purchases of mortgage-backed securities in September. In doubling the program on Friday, the Treasury said it may purchase even more in the months ahead.

—Up to $144 billion in additional MBS purchases by Fannie Mae and Freddie Mac.The Treasury announced they would increase purchases up to the newly expanded investment portfolio limits of $850 billion each. On July 30, the Fannie portfolio stood at $758.1 billion with Freddie's at $798.2 billion.

—$85 billion loan for AIG, which would give the Federal government a 79.9 percent stake and avoid a bankruptcy filing for the embattled insurer. AIG management will be dismissed.

—At least $87 billion in repayments to JPMorgan Chase for providing financing to underpin trades with units of bankrupt investment bank Lehman Brothers . Paulson said over the weekend he was adamant that public funds not be used to rescue the firm.

—$200 billion for Fannie Mae and Freddie Mac. The Treasury will inject up to $100 billion into each institution by purchasing preferred stock to shore up their capital as needed. The deal puts the two housing finance firms under government control.

—$300 billion for the Federal Housing Administration to refinance failing mortgage into new, reduced-principal loans with a federal guarantee, passed as part of a broad housing rescue bill.

—$4 billion in grants to local communities to help them buy and repair homes abandoned due to mortgage foreclosures.

—$29 billion in financing for JPMorgan Chase's government-brokered buyout of Bear Stearns in March. The Fed agreed to take $30 billion in questionable Bear assets as collateral, making JPMorgan liable for the first $1 billion in losses, while agreeing to shoulder any further losses.

—At least $200 billion of currently outstanding loans to banks issued through the Fed's Term Auction Facility, which was recently expanded to allow for longer loans of 84 days alongside the previous 28-day credits.

Source: http://www.cnbc.com/id/26808715

[freakyfreaky]

Bush administration: financial crisis

Do you think the Bush Administration will use the financial meltdown as a pre-text to declare a state of emergency, suspend the elections and usurp executive power beyond his constitutionally permitted term?

I don't know but current events (i.e. Bush asking all the congressional big wigs to the White House, McCain suspending his Republican presidential campaign and the look on Bush's face tonight) are making the hairs on the back of my neck stand up and giving me goosebumps.

[jgk3]

Re: Bush administration: financial crisis

are you suggesting martial law?

[freakyfreaky]

Re: Bush administration: financial crisis

I am not suggesting anything. But, the scenario I detailed above would ordinarily be called 'martial law' in democratic nations.

[yerazhishda]

Re: Bush administration: financial crisis

I can see it now:

Impersonal facial expression from Bush: "We are in unprecedented times and that calls for unprecedented measures. I am asking Congress to pass a bill that would delay the elections for an unspecified amount of time. If the bill doesn't pass, it would only mean more trouble for you, the hard-working taxpayer who pays his taxes on time every April. God bless you, every one."

F*cking idiot.

[Armanen]

Re: Bush administration: financial crisis

No, the fu*king idiots are the sheeple who continue to wallow in their ignorance and know more about who is leading in the BCS rankings than the shi*y state of their nation.

[yerazhishda]

Re: Bush administration: financial crisis

No, the fu*king idiots are the sheeple who continue to wallow in their ignorance and know more about who is leading in the BCS rankings than the shi*y state of their nation.

So you don't think Bush is an idiot? If you mean that he is just a pawn playing the game I can understand that.

And I happen to agree with you by the way. People should be up in arms about this - if this was any other country you would have massive amounts of people storming the White House and putting these higher-ups on trial (read: kangaroo court). In any other country you would have a reaction *at least* equal to the one our Republic experienced in March.

[Armanen]

Re: Bush administration: financial crisis

Well too many people in the u.s. have it nice and don't want to rock the boat. For all the talk about freedoms and cherishing them, most people care about their wallet and being able to make a living, not liberty or the other so called foundations of america.

Bush isn't an idiot, he is a puppet though and he must have done something right for the powers that be to put him where he is.

[meline]

Re: Bush administration: financial crisis

The Fed already decided to bail them out, so it will be the "slow death" scenario, I guess. Give some more time to the masses to relax and stay calm until they run a few more public procurement contracts in Iraq. The calm before the storm

[Armenian]

Re: America's Financial Crisis

Time for a gold rouble?

There used to be a habit of framing old Tsarist bonds and putting them on the wall. Lenin's decision to renege on the Russian imperial debt meant that it became mere paper, interesting only as a historical relic. In the light of the recent financial crisis in the USA, could the same thing happen now to the bonds issued by the American government, and could the country which has dominated the world for the last half century now enter history as a bankrupt state? And what can Russia do in the circumstances?

The decision by the US government to inject $700 billion into the financial system means that the already gigantic annual budget deficit of the American state (previously some $450 billion a year) will now rise by a factor of three. The total state debt of the USA will rise to well over $11 trillion. It is obvious that such a colossal debt can never be repaid. Instead, it will be serviced by more debt in the future. The contrast with Russia, which has painstakingly sanitised its state finances to the point that it now has more money to lend than the IMF, could hardly be greater. The recent financial crisis itself grew out of this American culture of debt. To some extent, all countries share it: since 1914, all countries use paper currencies, i.e. debt instruments which are never redeemed. Whereas before the First World War, bank notes were essentially vouchers for specific amounts of gold cash, now the "promise to pay the bearer" (which remains inscribed on British bank notes) is in fact hollow.

In America, this basic culture of debt is aggravated by the fact that other countries use the dollar itself as a reserve. This means that the United States can export dollars in order to pay for its imports without the dollar losing value. Other states also need dollars to buy key commodities like oil. The USA can therefore export paper currency almost indefinitely - the famous "deficit without tears" analysed by the great French economist, Jacques Rueff. Naturally, if the state itself encourages such a culture of debt by issuing unredeemable paper currency to pay for imports, and by accumulating such mountains of debt, then it is no surprise if the American financial markets themselves operate on the same basis. But the collapse of those markets is only a symptom of a much deeper problem, the basic insolvency of the American state itself.

What can Russia do about this? At first sight, Russia's role in the international financial system does not seem very large. However, as a major exporter of hydrocarbons, her role in the world economy is actually very important. As the age of the dollar draws to a close, Russia will have to consider selling her oil and gas not in the devalued American currency, but instead in the euro used by most of her customers. It is surely unnatural for two geographical neighbours to do such large volumes of business using the currency of a distant and now ailing nation. Second, the Russian leaders might also consider making their own currency, the rouble, convertible into gold. The idea of gold convertible currencies is extremely unpopular among most economists: they dismiss gold as a "barbarous relic" (to use the famous phrase of John Maynard Keynes) and suggest either the present regime of paper currencies or, at best, a link to a basket of commodities.

Both these solutions are highly artificial and based on the same level of state control which has now just so spectacularly failed. Indeed, which is more "barbarous" - the reintroduction of gold as an instrument of payment, or the practice of amassing huge quantities of the precious metal to keep it locked underground in the vaults of central banks? The contempt of the Keynesians notwithstanding, it is an indisputable fact that gold does remain the ultimate store of value, which is precisely why states own so much of it. Russia has less to fear than other countries from the introduction of a currency convertible into gold. Governments are typically hostile to gold because it reduces their discretionary power over the currency and the economy: they say that the money supply cannot be made dependent on the production of gold mines. In reality, this argument is bogus because the amount of mined gold already in existence vastly exceeds the yearly production, so mining does not in fact have an appreciable impact on supply. But, as it happens, Russia is a major producer of gold anyway and therefore to some extent controls production.

Secondly, Russia is vulnerable to her status as an exporter of primary materials - and as an exporter generally - especially in the age of inflation which is about to dawn. The more the Russian economy exports, the more her national paper currency will rise, making those exports more expensive. This is bad for an export-oriented economy. By contrast, the value of a gold rouble would depend not on the trade balance of the Russian economy at all, but instead simply on the price of gold itself which generally remains stable with relation to other commodities. Russia has shown surprising success in putting an end to the unipolar world of which American strategists have dreamed now for over a decade. There are no permanent victories in diplomacy, however, but a shift in the structure of the world financial system would help to entrench recent gains.

John Laughland is a British historian and political analyst, and Director of Studies at the Institute of Democracy and Cooperation in Paris.

Source: http://en.rian.ru/analysis/20080924/117072937.html