Now it's Citigroup's turn (updated)
Federal regulators approved a radical plan to stabilize Citigroup in an arrangement in which the government could soak up billions of dollars in losses at the struggling bank, the government announced late Sunday night.The complex plan calls for the government to back about $306 billion in loans and securities and directly invest about $20 billion in the company. The plan, emerging after a harrowing week in the financial markets, is the government’s third effort in three months to contain the deepening economic crisis and may set the precedent for other multibillion-dollar financial rescues.
Federal regulators approved a radical plan to stabilize Citigroup in an arrangement in which the government could soak up billions of dollars in losses at the struggling bank, the government announced late Sunday night.
The complex plan calls for the government to back about $306 billion in loans and securities and directly invest about $20 billion in the company. The plan, emerging after a harrowing week in the financial markets, is the government’s third effort in three months to contain the deepening economic crisis and may set the precedent for other multibillion-dollar financial rescues.
Citigroup executives presented a plan to federal officials on Friday evening after a weeklong plunge in the company’s share price threatened to engulf other big banks. In tense, round-the-clock negotiations that stretched until almost midnight on Sunday, it became clear that the crisis of confidence had to be defused now or the financial markets could plunge further.
Whether this latest rescue plan will help calm the markets is uncertain, given the stress in the financial system caused by losses at Citigroup and other banks. Each previous government effort initially seemed to reassure investors, leading to optimism that the banking system had steadied. But those hopes faded as the economic outlook worsened, raising worries that more bank loans were turning sour.
Do you get the feeling that the Treasury Department is like the little Dutch boy sticking his finger in the dyke only to see another leak spring from somewhere else?
The amount of money being thrown at the banks by both the Treasury Department and the Fed is beyond belief. No one really knows how much because the Fed has been pumping trillions into the banking system trying to keep the big boys liquid. The count at the Treasury Department is certainly over $2 trillion and climbing.
And now, not only are the Big Three automakers whining for taxpayer money, here come the home builders. The Wall Street Journal :
But any federal assistance would require policy makers to figure out how to stimulate demand for housing -- the problem at the root of the global financial meltdown -- without artificially propping up home values.
The builders' lobby is ramping up its sales pitch for a $250 billion stimulus package called "Fix Housing First," arguing that financial markets won't recover until home prices stop falling. They are calling for a generous tax credit for home purchases and a federal subsidy that would lower a homeowner's mortgage rate.
Congress resisted a similar effort to pass a larger tax credit earlier this year, instead creating a $7,500 credit for new-home purchases that had to be paid back over 15 years, effectively extending an interest-free loan.
Builders are promoting the campaign with full-page newspaper advertisements, but face an uphill battle, with critics suggesting the proposal is too expensive and that it too heavily promotes home purchases rather than addressing loan modifications for delinquent homeowners.
The effort aims to stop the adverse feedback loop gripping the market. The cycle begins when falling home prices prompt some borrowers to default, leading to foreclosures. That further depresses home prices, hitting the banks that hold mortgage-backed securities, causing them to pull back and freeze credit. That in turn causes the economy to slow.
Where will it end? It won't and that's the problem. Once you bail out non-banking companies, everyone simply gets in line with their hand out. Actual need is secondary to how high powered your lobbyists are or how good you PR people are.
The smell of free money is stinking up Washington and it won't stop until we have bankrupted the government, ruined the economy, and impoverished the people.
Looks like I vastly underestimated the amount of money the Feds are throwing around. Bloomberg totes it all up and comes up with (please take a seat and have a vomit bag handy)...
The U.S. government is prepared to lend more than $7.4 trillion on behalf of American taxpayers, or half the value of everything produced in the nation last year, to rescue the financial system since the credit markets seized up 15 months ago.
The unprecedented pledge of funds includes $2.8 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the only plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.
The nation's wealth is being poured down a black hole.