The Federal Reserve Has Just Taken over AIG

[James H. Bushart]

A sad day for capitalism.

[Christopher Currins]

policy holders, you shouldn't worry, the us government is now in charge.

[Joseph Burkeson, CMI]

The AIG rumors are true, here is the Federal Reserve website, I hope all of the American taxpayers enjoy their new insurance company because it is our tax dollars paying for it.

The cost of borrowing will skyrocket causing all loans including mortgages to be costlier and harder to obtain which will extend and exacerbate the housing crisis and reduce funds available for growth guaranteeing a recession or worse.

[gbeaumont]

Originally Posted by jburkeson1

The AIG rumors are true, here is the Federal Reserve website, I hope all of the American taxpayers enjoy their new insurance company because it is our tax dollars paying for it.

Wow, kinda like Citizens in Florida, but on a national scale, this could get interesting

Regards

Gerry

[Michael Larson]

What a dumb***** move.

Will we never learn?

[Joseph Burkeson, CMI]

Originally Posted by mlarson

What a dumd***** move.

Will we never learn?

It appears they can do whatever they want with your money Mikey!

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JPMorgan Gave Lehman $138 Billion After Bankruptcy

By Tiffany Kary and Chris Scinta

Sept. 16 (Bloomberg) -- JPMorgan Chase & Co. gave $138 billion this week in Federal Reserve-backed advances to the broker dealer unit of Lehman Brothers Holdings Inc. to settle Lehman trades and keep financial markets stable amid the biggest bankruptcy in history, according to a court filing.

One advance of $87 billion was made on Sept. 15 after the pre-dawn bankruptcy filing, and another of $51 billion was made today, Lehman said in court documents. Both advances were made to settle securities transactions with customers of Lehman and its clearance parties, according to the filing.

The advances were necessary ``to avoid a disruption of the financial markets,'' Lehman said in the filing.

The first advance was repaid by the Federal Reserve Bank of New York on the night of Sept. 15, Lehman said. JPMorgan said in a statement that the $51 billion advance was also repaid and the process will zero out the advances at the end of each day.

U.S. Bankruptcy Judge James Peck in Manhattan approved an order confirming that advances JPMorgan is providing are covered by existing collateral agreements with Lehman and its affiliates. JPMorgan holds about $17 billion in collateral to secure the money it advances to clear the trades, Lehman attorney Richard Krasnow said.

`Comfort Order'

``I believe the comfort order for the benefit of JPMorgan Chase under these clearance agreements, while unusual in my experience, is entirely appropriate,'' Peck said. There were no objections to the request.
Requests to obtain a bankruptcy loan and schedule the sale of Lehman assets were postponed until tomorrow.

JPMorgan said in a statement before the hearing that it would ``be unable to continue'' making future advances needed to settle trades unless the court granted its claims special status.

Both advances were ``guaranteed by Lehman'' through collateral of the firm's holding company under an agreement reached in August, according to the filing. The advances were made at the request of Lehman and the Federal Reserve, according to the filing.

Lehman disclosed the advances in a motion seeking court permission to give JPMorgan's claims special status in its bankruptcy and to certify they are guaranteed by Lehman's collateral.

Excerpt: http://www.bloomberg.com/apps/news?p...Vf8&refer=home

[gbeaumont]

It appears they can do whatever they want with your money Mikey!

Don't worry Joe, they'll just print some more

Regards

Gerry

[Michael Larson]

The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.

Whoopi, we all own a peace of a failed insurance company.

Now doesn't that make you fell better?

[Joseph Burkeson, CMI]

Originally Posted by gbeaumont

Don't worry Joe, they'll just print some more

Regards

Gerry

Yeah I understand all that but in the meantime the dollars we currently have in our pocket become worth less because they have been deluted by the $85B the Fed just created out of thin air with no backing but a kiss & a promise from the Federal Government.

Those magic bucks will now compete in a finite pool of goods & services which means that it will take more dollars to purchase the same amount of stuff then it did before the Fed expanded the economy by $85B.

This Is Not Just Madness

[Nick Gromicko]

Joe Burkeson nails it exactly.

I said this a while back about the stimulous checks and was told to spare everyone the economics lesson.

[Michael Larson]

$138 billion

[Joseph Burkeson, CMI]

Originally Posted by mlarson

$138 billion

Sooner or later it's real money!

[Michael Larson]

Originally Posted by jburkeson1

Sooner or later it's real money!

Great clip Joe. Thanks

I wish everyone would watch it.

[Greg Bell]

We are watching history being made.

It will be interesting to see what our country is like under marshall law.

[Joseph Burkeson, CMI]

Sweet dreams!

================================================

Federal bank insurance fund dwindling
Tuesday September 16, 7:49 pm ET
By Marcy Gordon, AP Business Writer

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.


Treasury has already come to the rescue of several corporate victims of the housing and credit crunches. The government took over mortgage finance companies Fannie Mae and Freddie Mac, and helped finance the sale of investment bank Bear Stearns to J.P. Morgan Chase & Co.
Eleven federally insured banks and thrifts have failed this year, including Pasadena, Calif.-based IndyMac Bank, by far the largest shut down by regulators.

Additional failures of large banks or savings and loans companies seem likely, and that could overwhelm the FDIC's insurance fund, said Brian Bethune, U.S. economist at consulting firm Global Insight.
"We've got a ... retail bank run forming in this country," said Christopher Whalen, senior vice president and managing director of Institutional Risk Analytics.

Treasury Secretary Henry Paulson said Monday that the country's commercial banking system "is safe and sound" and that "the American people can be very, very confident about their accounts in our banking system." FDIC officials also have said 98 percent of U.S. banks still meet regulators' standards for adequate capital.

But fear is growing on Main Street as well as Wall Street about the likelihood of multiple bank failures and the strain that would put on the FDIC.

The fund, which is marking its 75th anniversary this year with a "Face Your Finances" campaign, is at $45.2 billion -- the lowest level since 2003. At the same time, the number of troubled banks is at a five-year high.

FDIC Chairman Sheila Bair has not ruled out the possibility of going to the Treasury for a short-term loan at some point. But she has said she does not expect the FDIC to take the more drastic action of using a separate $30 billion credit line with Treasury -- something that has never been done.

The FDIC's fund is currently below the minimum set by Congress in a 2006 law. The failure of IndyMac Bank in July cost $8.9 billion.

Next month, Bair plans to propose increasing the premiums paid by banks and thrifts to replenish the fund. That plan is likely to be approved by the FDIC board, which consists of her, Comptroller of the Currency John Dugan, Thrift Supervision Director John Reich and two other officials.
Bair also is considering a system in which banks with riskier portfolios would be charged higher premiums, raising the possibility those costs could be passed on to consumers.

A Washington Mutual failure would dwarf the largest bank collapse in U.S. history -- Continental Illinois National Bank in 1984, with $33.6 billion in assets.

By comparison, WaMu and its subsidiaries had assets of $309.73 billion as of June 30 and IndyMac had $32 billion when it shut down.

Arthur Murton, director of the FDIC's insurance and research division, said that when large institutions have failed in recent years, the hit to the fund has been about 5 to 10 percent of the company's assets.

Standard & Poor's Ratings Service late Monday cut its counterparty credit rating on WaMu to junk, action that followed downgrades by both Moody's and Fitch last week. Concern about the Seattle-based thrift, which has significant exposure to risky mortgage securities and other assets, has grown in recent weeks, and the company's stock price has plummeted.

WaMu responded Monday by saying that it did not expect the S&P downgrade to have a material impact on its borrowings, collateral or margin requirements. The bank said its capital at the end of the third quarter on Sept. 30 is expected to be "significantly above" required levels and that its outlook for expected credit losses is unchanged.

Some analyst estimates put the cost of a WaMu failure to the FDIC at more than $20 billion, but other experts say it is very difficult to predict.

Unknown, for example, is the amount of advances that institutions may have taken from one of the regional banks in the Federal Home Loan Bank system. Banks and thrifts have significantly increased their requests for advances, or loans, from the 12 regional home loan banks since the mortgage crisis began last year.

These amounts aren't publicly disclosed but must be repaid if a bank or thrift fails, notes Karen Shaw Petrou, managing partner of Federal Financial Analytics.

If the FDIC doesn't have enough cash to cover the initial costs of a bank or thrift failure, one option would be short-term loans from the Treasury. That last happened in 1991-92, during the last part of the savings and loan crisis, when the FDIC borrowed $15.1 billion from the Treasury and repaid it with interest about a year later.

Based on projections of possible scenarios of bank failures, "between the (insurance) fund that we have now and our ability to draw on the resources of the industry ... we do have the resources" needed, Murton said Tuesday.

Though short-term borrowing from Treasury for working capital may be possible, he said, tapping the long-term credit line is unlikely.

But Whalen said the Federal Reserve, the Treasury and Congress should "immediately devise" and announce a plan to backstop the FDIC with up to $500 billion in borrowing authority to meet cash needs for closing or selling failed banks.

"While the FDIC already has a credit line in place and this figure may seem excessive -- and hopefully it is -- the idea here is to overshoot the actual number to reinforce public confidence," Whalen wrote in a note to clients. "Simply having Treasury Secretary Hank Paulson or Ben Bernanke making hopeful statements is inadequate. Like it says in the movies: 'Show us the money.'"

Before Congress passed the law overhauling deposit insurance in 2006, about 90 percent of all insured banks and thrifts -- considered to have adequate capital and to be well managed -- paid no premiums to the FDIC. Today, all of them do.

There were 117 banks and thrifts considered to be in trouble in the second quarter, the highest level since 2003, according to FDIC data released last month. The agency doesn't disclose the names of institutions on its internal list of troubled banks. On average, 13 percent of banks that make the list fail. Total assets of troubled banks tripled in the second quarter to $78 billion, and $32 billion of that coming from IndyMac Bank.

Last month, Bair called those results "pretty dismal," but said they were not surprising given the housing slump, a worsening economy, and disruptions in financial and credit markets. "More banks will come on the (troubled) list as credit problems worsen," he said. "Assets of problem institutions also will continue to rise."

AP Business Writer Christopher S. Rugaber contributed to this report.