Bush continuing the absurd... WASHINGTON — President Bush on Monday welcomed the Federal Reserve’s sweeping intervention in the nation’s financial markets as his administration faced accusations that it had supported the bailout of a prestigious investment bank while doing little to address the hardships of Americans facing foreclosures on their homes. Meeting with his economic aides at the White House in the morning in the first of two meetings on the economy, Mr. Bush again sought to project optimism at a time of financial turbulence after the Fed’s brokering of the takeover of Bear Stearns by JPMorgan Chase. Mr. Bush singled out Treasury Secretary Henry M. Paulson Jr. for praise, saying he had shown “the country and the world that the United States is on top of the situation,” an assertion that was broadly disputed by the president’s critics. “I want to thank you, Mr. Secretary, for working over the weekend,” Mr. Bush said in brief remarks in the Roosevelt Room. The president’s remarks and his schedule underscored the growing political concern about the economy on a day that would otherwise have been devoted to traditional St. Patrick’s Day meetings and events. The issue also spilled into the presidential campaign, drawing reactions from both Democratic contenders and the presumptive Republican candidate, underscoring how much the economy has overshadowed the war in Iraq, even as the fifth anniversary of the start of that war approaches on Wednesday. Mr. Bush, between an Irish-American lunch on Capitol Hill and a dinner at the White House, met with a group of advisers and regulators that included Ben S. Bernanke, the chairman of the Federal Reserve, who has orchestrated a series of moves intended to rescue the nation’s financial markets from what officials feared could have been a chain reaction of defaults. Mr. Bush’s handling of the economy has vaulted to the top of the political agenda, where the White House would clearly it rather not be. He stood accused on one hand of violating his own ideological opposition to government intervention and on the other of not doing enough to protect the nation’s economy from the disarray in the markets. “Now that the president has shown his willingness to bail out Wall Street at taxpayer expense, I hope he will drop his opposition to proposals designed to help ordinary homeowners,” Senator Harry Reid, Democrat of Nevada and the majority leader, said in a statement. Senator Barack Obama of Illinois declared the economy “in shambles,” but he and his rival for the Democratic presidential nomination, Senator Hillary Rodham Clinton, trod carefully, expressing concern about the broader market and, in Mrs. Clinton’s case, for the employees of Bear Stearns, based in her home state, New York. “There is no doubt that we are teetering on a potential crisis on Wall Street that could have ramifications all across the country,” Mr. Obama said at a news conference after meeting with voters during a campaign stop in Monaca, Pa., a town near the Ohio border. “We have a credit market that is locked up.” Mrs. Clinton said that Main Street was as important as Wall Street, but like many Democrats, she did not directly criticize the government’s intervention in the sale of Bear Stearns. In a statement, she noted that she had spoken with Mr. Paulson and the president of the New York Federal Reserve Bank, Timothy F. Geithner. She urged that the administration do more. “We have blown it,” she said at a news conference in Washington in which she linked the economic turmoil in part to Iraq. “And one of the reasons why we must end the war in Iraq is we cannot afford it. We have got to get control of our economic destiny. There are so many danger signs on the horizon.” http://www.nytimes.com/2008/03/18/business/18bush.html?hp=&pagewanted=print Mr. Bush is indeed delusional. He praises the Treasury Secretary for working over the weekend. (WOW! He worked over the weekend!!!) He praises the takeover of Bear/Sterns by JP Morgan, with a big assist from the Fed, for $2 a share. Praises it? A business that was worth $8 billion on Thursday is worth only $236 million today. There are several large share holders of Bear/Sterns (as well as thousands of smaller investors) who have suddenly suffered a huge lose on their investment. What impact this will have we'll see, but it won't be a good one. Meanwhile, Bush babbles his inane nonsense (all we need is Brownie as the topper of this disaster), thrilled that billions are thrown at Bear/Sterns, while millions are on the verge of losing their homes and the destruction of their financial security. No bailout for them! Nothing for the Middle Class but meaningless words from a man who's incompetence becomes even more plain, something I didn't think was possible. Impeach Bush.
The Fed is doubling down with the new tresaury securities injection... USA economy: Keep the cash coming Another day, another $100bn from the Federal Reserve. Actually, make that $200bn. Investors should no longer be surprised at the US central bank's determination to stabilise financial markets at almost any cost. Yet, markets continue to be jolted by the Fed's ever bolder steps to lubricate the petrified financial system. The latest move, a pledge to lend up to US$200bn in Treasury securities to so-called primary dealers--big investment banks that buy bonds directly from the government--was both welcome and dangerous. It was welcome because the Fed was doing what it was created to do: provide liquidity to markets in times of financial disruption. But it was dangerous because the Fed was engaging in a de facto nationalisation of risk, agreeing to place on its books mortgage-backed securities that most other investors were shunning. The Fed has taken an extraordinary series of steps to help financial markets weighed down by the falling value of mortgage-backed securities. The biggest moves, and the most conventional, have been a series of cuts in the Fed's benchmark interest rate, slashing it from 5.25% to 3%. But the Fed has also found more creative ways to get money to those who need it most. In December, it began auctioning funds directly to deposit-taking banks, accepting a wide range of assets as collateral. After several successful sales, the Fed on March 8th increased the amount of its next two auctions, aiming to pump US$100bn into the banks. It also announced plans for a series of repurchase agreements with primary dealers, with the goal of providing a further US$100bn to the markets. Not convinced that this was enough, the Fed launched yet another auction facility on March 11th. This one again was aimed at primary dealers but with a pledge to accept normal AAA-rated mortgage-backed securities as collateral. Previously, the Fed was only willing to accept as collateral securities guaranteed by Fannie Mae and Freddie Mac, the two government-sponsored mortgage corporations. Bail-out? The Fed's decision to hold mortgage-backed securities on its balance sheet in exchange for loans doesn't amount to a real bank bail-out: the term of the loans is only 28 days, and it is only accepting top-rated debt. That said, the Fed is taking on credit risk, and is helping institutions get debt off their books that few others will touch. Even if this isn't quite a bail-out, the Fed is temporarily rescuing investors who made foolish decisions and have been stuck with the results. In so doing, it creates a classic moral hazard that may well encourage more reckless risk-taking. Fed governors have made a reasonably convincing case for their actions over the last seven months. In a series of surprisingly candid speeches, Fed Chairman Ben Bernanke, Vice Chairman Donald Kohn and Governor Frederic Mishkin have made it clear they are alarmed by the state of financial markets. Disruptions to the financial system don't simply hurt investors; they damage the wider economy and make monetary policy--that is, interest-rate cuts--less effective than it otherwise would be. For this reason, the Fed has taken a "risk management" approach to the markets, responding early and often to head off trouble before it becomes too engrained. Mr Mishkin was clear about this in January. "Timely" and "decisive" action are essential to "reduce the risk of particularly adverse outcomes", he said. Waiting too long is dangerous and may well increase the need for even more interest-rate cuts. As for the argument that such steps rescue heedless investors, Mr Kohn, in remarks last year, was unmoved. "When decisions go poorly," he said, "innocent bystanders should not have to bear the cost." This amounts to a policy of act now and consider the consequences later. In that regard, the Fed seems anxious to avoid the fate of the Bank of Japan, which was slow to react to the country's collapsing property bubble in the early 1990s, contributing to a decade of stagnation and recession. Credit squeeze The Fed is right to be concerned about the availability of credit. The interbank markets, where banks routinely exchange funds, have again been tightening. The difference between the 3-month US dollar London Interbank Offered Rate (LIBOR) and the 3-month US Treasury note--the so-called TED spread--is above 140 basis points, even after the Fed's actions this week. Admittedly, this is well below spreads of more than 200bp late last year, but the gap in recent months had retreated to below 100bp. Once it began to soar again--signalling that banks were reluctant to lend to one another--the Fed responded. For perspective, consider that the TED spread was below 40bp for most of the first half of 2007. It is far from clear if the Fed's actions will have the desired effect. One reason is that financial markets are now concerned more about solvency than liquidity. Banks and financial firms have had to take well over US$100bn in write-downs in the last six months, with more to come. Many institutions are also now engaged in a furious bout of deleveraging as they seek to purge their balance sheets of doubtful debt. As borrowers respond to margin calls, they may be forced to sell even better-quality assets, which tends to drive their prices down as well. Carried to its nastiest conclusion, this could lead to a far greater calamity in the credit markets than anything seen to date. This is what the Fed is trying to prevent by taking on added risk. Were conditions to deteriorate to this extent, the Fed might well choose to buy mortgage-backed securities directly. This would be the ultimate intervention in financial markets. The other fear is that the Fed's liquidity binge is coming at the expense of faster inflation. Prices have been rising steadily in the US as the cost of commodities soars. The Fed has all but ignored inflation of late, content, apparently, that longer-term inflation expectations remain well contained. But it is increasingly difficult to make that case. Consumers can now plainly see that the price of oil is above US$100 a barrel, and the cost of food is rising sharply as grain prices climb. In such an environment, inflation expectations probably cannot stay anchored for long. The Federal Reserve is battling three distinct but related problems: a slowing economy, a financial market crisis and an inflationary spike. Any one of these would be enough to test central bankers. Coming together, they are a virtual guarantee of a recession--one that the Fed will be powerless to stop. ________==___________ The consequences are dire, but if these securities that the Fed is taking on are insolvent and poison inside, the tax payers will be left holding the bag.
http://www.cnbc.com/id/23704055/site/14081545/page/3/ "Many economists, on the right and the left, now argue that the only solution is for the federal government to step in and buy some of the unwanted debt, as the Fed began doing last weekend. This is called a bailout, and there is no doubt that giving a handout to Wall Street lenders or foolish home buyers — as opposed to, say, laid-off factory workers — is deeply distasteful. At this point, though, the alternative may be worse." so here we are, on the brink of the federal governement socializing the losses in the financial markets. to think that it has come to this is crazy... a bailout of epic proportions.
