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The Great Bank Rush of 2008: What's the Money For?

by: Ronald Pires posted on: September 29, 2008

So many in the media seem to have swallowed the Kool-Aid that this bailout is necessary (or that the economy will self-destruct in mere days), but is it really?

IndyMac (IDMC.PK), Countrywide (CFC), Washington Mutual (WM), Merrill Lynch (MER), Lehman (LEH), AIG (AIG), Bear Stearns (BSC), Fannie (FNM) and Freddie (FRE) have all bitten the bullet, and the economy is still (sort of ... mostly) standing. JPMorgan (JPM) and Bank of America (BAC) seem to have developed voracious new appetites for new subsidiary operations, and Goldman Sachs' (GS) and Morgan Stanley's (MS) (simultaneous) announcements that they are converting to bank holding companies seems to imply that they too have their stomach juices churning for new goodies.

So who's left? Who's hurting? Where is this great self-immolation going to come from? The fact is that it isn't.

A week ago we learned that we had to cough up $700 billion in a few days with no strings attached, when just a week earlier no one knew a thing about this lurking monster. Now, a week later, the world still hasn't ended and, well ..., maybe a third up front, and they won't pay their execs so much, and maybe a little equity stake for the taxpayers, and yeah, we all can watch things real close too. Hmmm. Maybe we'll even get some mortgage renegotiations tossed in? That would be nice.

Stop right there. No way on that last point. No mortgage renegotiations. The banks say it mustn't be done, and that tells us something very important. Since mortgage renegotiations are hands down the best way to put REAL value back into this troubled paper (and would be the most palatable solution for the public), the only reason there is for the banks insisting that this not be in the bailout is that the banks don't want these properties returned to their owners, and they don't want to keep them either. That means that the banks simply want to raise cash quickly. But for what? What's the money for?

Two weeks back on Black Monday, the market jumped off a cliff and Bank of America swallowed Merrill Lynch whole. It was such a big news day with so many stories that a little tiny item, but for a single sentence buried nine paragraphs down in a Financial Times article, went entirely overlooked. The sentence read, "The Fed also suspended rules that prohibit banks from using deposits to fund their investment banking subsidiaries." THAT should have been the day's headline, and everything that has happened since can be explained by that sentence.

The sentence of course refers to our FDIC-insured deposits. The Gramm-Leach-Bliley Act of 1999 ended the strict separation of these deposits from unregulated investment banks, but even after that, only 30% of a bank's deposits could be used to back it's investment subsidiaries, and only 10% could back any individual subsidiary. Any more than that, even in the heydays of deregulation fever, was considered too risky to be backed by FDIC insurance.

All that went out the window on Black Monday. Merrill Lynch needed to be bought quickly and Bank of America was interested, but there was a problem. JPMorgan had gotten billions to back Bear Stearns' bad paper during that takeover, and Bank of America needed a similar deal. Trouble was that back during the Morgan-Bear deal, the government had $900 billion sloshing around in its accounts, but by Black Monday there was only $100 billion left that had not already been promised, and that couldn't be spared. In other words, the Fed had run out of money. That's when the deal was struck. Bank of America could use ALL of its FDIC-insured accounts as backing for Merrill's bad paper. The sale was made. Bank of America had its prize.

Of course, the Treasury couldn't just do this rule change for Bank of America; they had to do it for everyone, and all of a sudden, the entire landscape of banking had changed. Every bank that had FDIC-insured deposits was now worth a lot more money because its insured assets could now be effectively collateralized and used to back investment banking operations. Within days, Goldman Sachs and Morgan Stanley, seeking to stake their claims to the vein of gold that Bank of America had mined, converted from investment banks to bank holding companies. The Great Bank Rush of 2008 had begun.....


full story: http://seekingalpha.com/article/978...#comment-268471



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-> Posted by Auandag @ 12:00 pm on September 29, 2008
September 29th, 2008

How the Bailout Will Work


The scheme is actually pretty simple. Please forgive my primitive graphics abilities.
The fund will buy mortgages from the banks at market value, and then re-sell them back to the banks at a discount.
The fund will then repurchase those mortgages from the banks, who will sell them back to the fund again.
The same product (perhaps an ill-advised mortgage for a half-million dollars taken out on a house in the distant
suburbs of Las Vegas) will be bought, then resold, then re-bought and re-resold in an endless spiral of profit-taking.
The taxpayer will lose on every transaction, the banks robbing the treasury each time each mortgage, or
package of mortgages is swapped.

It is amazing to observe the greatest transfer of wealth in history, from Main Street to Wall Street,
from the many to the few. What is even more amazing is that nobody seems to be stopping it.

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Verfasst am: 29 Sep 2008 17:39 Titel: Spiegel Live-Ticker Wer es noch nicht gesehen hat, hier der Live-Ticker des Spiegels zur Finanzkrise:

http://www.spiegel.de/wirtschaft/0,1518,581087,00.html

Da ist ja heute mächtig was los, sind ca. 7-8 Banken, die da heute Probleme gemeldet haben und irgendwie gerettet worden sind !

Wer hätte noch vor einem Monat gedacht, dass es mal einen Live-Ticker zur Finanzkrise vom Spiegel geben wird

Viele Grüße
Banger

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Disappointment

-> Posted by sckpak @ 12:33 pm on September 29, 2008
How many times have we all had to listen to these politicians in Washington say “they are disappointed - but we have no choice if the financial system is to survive.”

The only thing that really changed since Paulson first came to blackmail the people is the size of the bill … instead of 3 pages giving total dictatorial control to the Treasury, the Congress increased the number of pages to 126 - full of double speak - where are the punitive measures?

If Congress wants to let Americans and the world to know that they are serious about change - pull the Chater of the Federal Reserve and issue US Notes.

****************************

...ich glaube auch - das Volk wird total verschaukelt

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La Dernière Bulle - The Last Bubble

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DOW PLUNGE ON BILL DEFEAT...
205 YEA; 228 NAY...
BUSH DISAPPOINTED...
PUMP: Fed 'significantly expands' availability of cash to squeezed banks; $630 Billion...
CITI EATS WACHOVIA...

HOUSE DEFEATS $700 BILLION BAILOUT

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+++ EILMELDUNG +++

US- Repräsentantenhaus lehnt Rettungspaket ab

Abstimmungskrimi im Repräsentantenhaus: Die erste Kammer des US-Kongresses hat das 700 Milliarden Dollar schwere Rettungspaket für die Finanzmärkte ganz knapp scheitern lassen. Der Dow Jones rauschte in die Tiefe. mehr... [ Forum ]

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FTS - Bill defeated

-> Posted by butters @ 14:25 pm on September 29, 2008
Which means (according to them) we are going into the depression. Guess we skip the recession.

Buying in Swiss Francs

-> Posted by Rhodycb @ 14:39 pm on September 29, 2008
Swiss francs had major buying against the dollar after the bailout was rejected. Swiss francs and gold is what everyone is moving to.



Interesting

-> Posted by ipso_facto @ 14:37 pm on September 29, 2008
Nancy Pelosi’s “partisan” speech right before the vote is being blamed for the failure to pass.

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Silverbay

Hallo Lunar,

hat doch etwas genützt, dass die Leute auf die
Strasse gingen ...

#354 bei salazie

lunar

aknot
Registered User

Quote:
Originally Posted by anywoundedduck
Final Vote:

205 yes

228 NO !!!!!!


WOW !

Check out the live feed:

http://play.rbn.com/play.asx?url=csp...s?mswmext=.asx

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die Reps. habe doch NAY gestimmt, weil ihnen auch die Beschränkungen und dadurch weniger Pfründe nicht gepasst haben (ist aber ausschliesslich meine Meinung :o), und natürlich auch die Wahlaussichten.....

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...ich hab nix gefunden bei NY Times

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*************************BLACK MONDAY************************

* *

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Dow, Compq & S&P 500

-> Posted by Rambus @ 15:17 pm on September 29, 2008

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