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60 Minutes, Credit Default Swaps, Mortgage Crisis, Wall Street, Wall Street bailout, Wall Street Rescue, WAMU700 Billion? "We Just Wanted to Choose a Really Large Number"
Stories“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”
Bad News For The Bailout
FORBES DOT COM 09.23.08, 6:39 PM ET
Lawmakers on Capitol Hill seem determined to work together to pass a bill that will get the credit markets churning again. But will they do it this week, as some had hoped just a few days ago? Don’t count on it.
“Do I expect to pass something this week?” Senate Majority Leader Harry Reid, D-Nev., mused to reporters Tuesday. “I expect to pass something as soon as we can. I think it’s important that we get it done right, not get it done fast.”
Sen. Sherrod Brown, D-Ohio, says his office has gotten “close to zero” calls in support of the $700 billion plan proposed by the administration. He doubts it’ll happen immediately either. “I don’t think it has to be a week” he says. “If we do it right, then we need to take as long as it needs.”
The more Congress examines the Bush administration’s bailout plan, the hazier its outcome gets. At a Senate Banking Committee hearing Tuesday, lawmakers on both sides of the aisle complained of being rushed to pass legislation or else risk financial meltdown.
“The secretary and the administration need to know that what they have sent to us is not acceptable,” says Committee Chairman Chris Dodd, D-Conn. The committee’s top Republican, Alabama Sen. Richard Shelby, says he’s concerned about its cost and whether it will even work.
In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.
“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”
Wow. If it wants to see a bailout bill passed soon, the administration’s going to have to come up with some hard answers to hard questions. Public support for it already seems to be waning. According to a Rasmussen Reports poll released Tuesday, 44% of those surveyed oppose the administration’s plan, up from 37% Monday.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, who testified before the Senate committee Tuesday, will get a chance to fine tune their answers Wednesday afternoon, when they appear before the House Financial Services Committee.
A spokesman for House Speaker Nancy Pelosi, D-Calif., says she is optimistic that the House will pass a bill this week. But that doesn’t mean the Senate, which is by nature more sluggish than its larger counterpart on the other side of Capitol Hill, will be so quick to act.
“They will act first,” says Sen. Minority Leader, Mitch McConnell, R-Ky. “Many of our members today were just beginning to have interaction with Secretary Paulson.”
Dodd proposed his own counter-proposal to Paulson’s plan earlier this week. Among other things, it calls for limits on executive compensation at troubled firms and for the Treasury to take a contingent equity stake in those firms. On Tuesday, Paulson rebuffed both ideas, as it might discourage firms from participating in the bailout program.
Those things aside, lawmakers have plenty of other concerns with Treasury’s proposal. Sen. Charles Schumer, D-N.Y., suggested the bailout be doled out perhaps $150 billion at a time, instead of $700 billion all at once. Sen. Mike Enzi, R-Wyo., says it has an initial cost of $2,300 for every man, woman and child in the country. Sen. Jim Bunning, R-Ky., calls it a “financial socialism and it’s un-American.”
Dodd says that in speaking with his Senate colleagues, all are agreed on three issues: that a bailout bill include some oversight accountability for the Treasury, protection for taxpayers and that it address the continuing foreclosure problem.
He also points to one other concern: Paulson, the bill’s chief architect, is scheduled to leave office in just four months.
“I’m not about to give a $700 billion appropriation to a secretary I don’t know yet,” says Dodd.
–Senior writer Liz Moyer contributed to this article.
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"California Knows How to Party" New Rules From Bill Maher | September 19, 2008
AIG, Andrew Sullivan, Goldman Sachs, Iraq, Morgan Stanley, Naomi Klein, Politics, Real Time, Shock Doctrine, Tullycast, Wall StreetReal Time w/ Bill Maher | Naomi Klein and The Shock Doctrine
AIG, Andrew Sullivan, Goldman Sachs, Iraq, Morgan Stanley, Naomi Klein, Politics, Real Time, Shock Doctrine, Tullycast, Wall Street"The Splurge is Working" | Bill Maher | September 19, 2008
AIG, Andrew Sullivan, Barack Obama, Goldman Sachs, Iraq, Joe Biden, John McCain, Morgan Stanley, Naomi Klein, Politics, Real Time, Sarah Palin, Shock Doctrine, Tullycast, Wall StreetPaul Krugman With Bill Maher : "We Need Better Government"
AIG, Barack Obama, J.P. Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, Mortgage Crisis, Politics, Subprime, Tullycast, Wall StreetThe World Banks Get Together and Pump $180 Billion Into Financial System
StoriesCentral banks pump up the dollars
As banks hoard cash and lending dries up, Fed plus 5 to pump $180 billion into system.
NEW YORK (CNNMoney.com) — The Federal Reserve and five other central banks around the globe announced joint efforts early Thursday to try to pump an additional $180 billion into the battered global financial system.
The Fed joined with the European Central Bank, the Swiss National Bank, the Bank of Japan, Bank of England and Bank of Canada in the coordinated effort.
“These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets,” said the Fed’s statement. “The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures.”
The bankruptcy of Lehman Brothers and the Fed rescue of insurance giant American International Group (AIG, Fortune 500) this week has led to a tightening of credit in global markets.
Major banks have become even more reluctant to lend to each other on an overnight basis because of worries about unknown financial problems with other institutions and a desire to hoard cash to protect themselves.
Even money market managers are reluctant to loan money to banks, preferring to buy short-term Treasurys instead. That demand has driven up the price of Treasurys and driven down the yield, or interest rate, that those government instruments pay.
The yield on the 3-month Treasury bill fell briefly into negative territory for the first time since 1940 and closed Wednesday at 0.04%.
“Liquidity has never been in shorter supply in the credit markets during this painful episode,” said Kevin Giddis, managing director and head of fixed income for investment bank Morgan Keegan.
Bond prices slipped narrowly, lifting yields only slightly. The three-month had a yield of 0.105% in early trading. Giddis said the markets are looking for a more permanent solution than the one announced by the central banks Thursday.
“Based on nearly every metric that’s used in our business, a clear message has emerged over the last couple of days’ of trading activity: those with capital are reluctant to lend until the near term visibility becomes a little more certain,” he added.
The New York Federal Reserve Bank Thursday also pumped $55 billion into the nation’s financial system. That comes on top of $70 billion that it pumped into the system Tuesday.
The announcement of coordinated action Thursday helps provide dollars to foreign banks that needed the U.S. currency to transact business, but had been unable to access the Fed directly the way U.S. banks can. While the Bank of England and European Central had pumped money into their own financial systems earlier this week, that had been in the own currency, not dollars.
The ECB will get a $55 billion increase in the dollars it can loan out, doubling what it had already received under an earlier swap program, while the Swiss National Bank will receive an additional $15 billion on top of an earlier $12 billion program.
The Bank of Japan, Bank of England and Bank of Canada set up new swap programs with the Fed, with Japan getting $60 billion, England getting $50 billion and Canada getting $10 billion.
The swap program provides essentially no risk for the Fed since the U.S. central bank is receiving the same amount of cash back from its foreign counterparts. 
Morgan Stanley and Goldman Sachs Stocks Plummet
StoriesFinancial crisis mounts as stocks fall
REUTERS
By Jack Reerink and Douwe Miedema
NEW YORK/LONDON (Reuters) – Shares of Wall Street firms Morgan Stanley and Goldman Sachs plummeted on Wednesday and Britain’s biggest mortgage lender neared a sale in the latest signs of extreme distress in the financial industry.
Tuesday’s surprise $85 billion (47 billion pound) rescue of insurer American International Group by the U.S. Federal Reserve did little to calm investors’ nerves, and U.S. stocks dropped as much as 4.1 percent.
The White House said it was “concerned about other companies” while the U.S. presidential candidates struck populist tones, with Sen. John McCain blasting Wall Street’s “casino culture” and Sen. Barack Obama stressing protection for mom-and-pop investors.
The Fed move capped a week of bailouts, a bankruptcy on Wall Street, and central banks around the world flooding the financial system with money to prevent it from seizing up.
The result: a seismic shift in the financial industry, with some of Wall Street’s biggest names disappearing overnight.
“The fear is who is next,” said John O’Brien, senior vice president at MKM Partners in Cleveland. “It almost feels like people scour the books and say who is the next likely target that we can put a short on. And that spreads continuous fear.”
Shares of Morgan Stanley and larger rival Goldman fell as much as 43 percent and 27 percent, respectively, even after both reported better-than-expected quarterly earnings on Tuesday.
“I’m assuming that Goldman Sachs and Morgan Stanley are lining up dancing partners. They don’t want to be … this week’s victim,” said William Larkin, fixed income manager at Cabot Money Management in Salem, Massachusetts.
The drama kept traders glued to their screens: In the capital of the hedge fund industry, Greenwich, Connecticut, an industry conference for 500 people had 200 empty seats.
“A lot of people who are seeing massive red ink and are suffering the most are not here,” said Jean de Bolle, the chief investment officer at Byron Advisors.
The cost of protecting Morgan Stanley’s and Goldman’s debt spiked, reflecting investor fears that their debt issues are no safer than junk bonds.
“The credit crunch and credit contraction is intensifying,” said Peter Boockvar, equity strategist at Miller Tabak & Co in New York. “The action in Morgan Stanley in light of what was better-than-expected numbers last night is disconcerting.”
Goldman spokesman Lucas van Praag said: “We think the markets will positively differentiate those financial institutions that have global, diversified business models and that outperformed through this crisis.”
Morgan Stanley spokeswoman Jeanmarie McFadden declined to comment.
PROPPING UP THE SYSTEM
In the latest sign of regulatory anxiety, the U.S. Securities and Exchange Commission curbed short-selling, or investor bets on declining share prices.
“Seems like the SEC is a day late on the rule … Morgan Stanley is clearly in the short-sellers’ sights,” said Andrew Brenner, senior vice president at MF Global in New York.
Other distress signals had popped up earlier: The cost of borrowing overnight dollars spiked above 10 percent, indicating a deep lack of trust spooking the interbank lending market in Europe.
And Bank of Ireland became the latest bank to cut its dividend, causing a sell-off in Irish banking shares.
Lloyds TSB was in advanced talks to buy domestic rival HBOS Plc to create a 28 billion pound mortgage giant.
The talks underscore how quickly authorities around the world are ditching long-held beliefs about free markets and competition as they seek to counter the credit crunch.
Lloyds, for example, was previously blocked from buying a smaller mortgage bank.
Then there was the shocking British government decision in February to take over troubled bank Northern Rock — the first major nationalization in Britain since the 1970s.
U.S. authorities also have moved to prop up the financial system.
The AIG rescue comes just over a week after the bailout of mortgage finance companies Fannie Mae and Freddie Mac, and six months after the Fed brokered the sale of failed investment bank Bear Stearns to JPMorgan Chase.
AIG’s bailout brings to about $900 billion the total of U.S. rescue efforts to stabilize the financial system and housing market. Authorities may get much of that money back — if asset prices do not slide further.
The week has already seen two legendary firms bite the dust: Lehman Brothers Holdings Inc filed for bankruptcy, and Merrill Lynch & Co threw itself into the arms of Bank of America.
Barclays gave Wall Street a small boost on Tuesday by agreeing to buy Lehman’s Manhattan headquarters and investment bank for $1.75 billion and taking aboard 10,000 staff.
YARD SALE AT AIG
AIG’s newly appointed chief, former Allstate CEO Edward Liddy, was poised to hold a big yard sale to pay off the Fed loan. There are plenty of interested bidders, AIG’s main regulator told business television channel CNBC.
AIG, which has businesses ranging from life insurance to airplane leasing in 130 countries, has a big incentive to raise cash: It is currently paying more than 11.4 percent interest on the $85 billion loan.
Japan’s cash-rich insurers and Australia’s top player, QBE Insurance, are seen as potential buyers. And then there is billionaire investor Warren Buffett.
“It wouldn’t surprise me to see him in the fray, though he might not want all the businesses,” said Michael Nix, a portfolio manager at Greenwood Capital Associates in Greenwood, South Carolina.
AIG faced a cash crunch after $18 billion of losses over three quarters, largely because of complex securities that are tied to mortgages, and which plunged in value as the U.S. housing crisis deepened. The rescue kept AIG from surpassing Lehman as the largest corporate failure ever.
If it was meant to prevent a deepening of the credit crisis or sooth investors, it did not work.
“The system will remain unstable and fragile,” the chief executive of top bond fund Pimco, Mohamed El-Erian, told Reuters. “Further action will be required that targets both, and I stress both, institutions and the system as a whole. Otherwise, and as has been repeatedly the case in this crisis, seemingly bold policy actions will turn out to be too little, too late.”
(Additional reporting by Svea Herbst-Bayliss, Jon Stempel, Jennifer Ablan, Joseph Giannone, Jeffrey Hodgson and Kevin Plumberg; Editing by John Wallace and Maureen Bavdek)
FBI Targets Mortgage Industry
FBI, Mortgage, Wall Street 
From The Times Online UK
Shit, meet fan….
America’s Federal Bureau of Investigation is investigating senior banking executives for insider dealing and fraud as part of a criminal inquiry into the sub-prime crisis, the agent leading the inquiry said yesterday.
Neil Power, the head of the FBI’s economic crimes unit, is heading the most far-reaching criminal investigation into the practices of the mortgage industry since it began to melt down last year, after years of increasingly lax lending finally fed through into an increase in defaults on home loans.
The FBI is investigating every level of the conspiracy that it believes perpetuated the housing boom and ultimately resulted in millions of Americans losing their houses, investment banks losing billions of dollars and the chief executives of Citigroup, Merrill Lynch, Bear Stearns and UBS resigning.
Mr Power said: “We’re looking at the accounting fraud that goes through the securitisation of these loans. We’re dealing with the people who securitise them and then the people who hold them, such as the investment banks.”
He said he was also concerned that some banking executives might be guilty of insider trading, offloading collatoralised debt obligations (CDOs), pools of bonds and other securities backed by mortgages, before their true valuations came to light in the wake of the home loan meltdown.
The FBI suspects that the house price boom, once seemingly endless, encouraged mortgage lenders to take increasingly large risks, making loans to people with weaker and weaker credit histories as they sought new customers. These lenders, and the brokers that arranged the mortgages, often encouraged borrowers to lie about their income. They told borrowers that if they could not meet their repayments they could always refinance their property and use the proceeds.
The FBI also suspects that the Wall Street banks may have been complicit in the process, ignoring the risks posed by these home loans because they were making huge fees from packaging them into bonds and other securities and selling them on to investors.
Finally, the FBI is investigating whether the Wall Street firms, which kept many of the mortgage bonds they packaged on their own balance sheets, may have failed to warn their investors of the risks they posed.
The FBI is the main investigative arm of the US Department of Justice, working with the US Attorney General and sometimes state attorneys general to bring criminal cases to the courts. The Bureau will also share some of the information it uncovers during the course of its investigation with the Securities and Exchange Commission, which brings civil cases against alleged corporate criminals.
Adam Compton, an analyst at RCM Global Investors in San Francisco, said: “The fact that the FBI is conducting such a wide-ranging investigation shows just how seriously the is being taken. There are so many angles to pursue.”
Robert Mintz, a former federal prosecutor specialising in white collar crime, added: “Given the level of the losses associated with the sub-prime mortgage crisis, this investigation could turn out to be very significant.”
The FBI launched a mortgage task force in December as it sought to step up its investigation into the home loan industry.
In addition to the sub-prime inquiry covering 14 companies, the Bureau is investigating 1,200 separate cases of mortgage fraud. Many of these involve the sale of a house by one person, for an inflated price, to a “straw” buyer, who disappears from the scene, leaving the bank with a house worth less than the mortgage. The two people then split the proceeds.
In 2003, the FBI investigated 436 mortgage fraud cases, rising to 818 in 2006. Meanwhile, the number of so-called suspicious-activity reports the FBI receives from the banks grew from 35,000 in 2006 to 48,000 last year. The FBI expects the number to rise to about 60,000 this year.
The FBI investigation may be the most significant but it is only the latest in dozens of civil and criminal cases being prepared by the SEC, the attorneys general of various states, and class action law firms such as Coughlin Stoia Geller Rudman & Robbins and Brower Piven.
Many of these cover the same ground as the FBI investigation. Others are investigating the role played by the credit ratings agencies, which frequently granted the top AAA rating to CDOs.
Bond insurers are among the other targets of litigation. These firms, which guarantee the payment of interest and principal of the bonds they underwrite in the event of a default, stand accused of failing to inform their investors of the true extent of the dangers posed by the sub-prime securities they insured.
Sub-plots
— The City of Cleveland is suing 21 Wall Street firms, including Goldman Sachs and
Morgan Stanley, claiming they encouraged mortgage lenders to keep making loans to people who could not afford them by buying even the most suspect and packaging them into bonds. As a result, the number of foreclosures in the city jumped from 120 in 2002 to 7,500 last year
— Andrew Cuomo, New York’s Attorney-General, has issued subpoenas to big banks as he seeks to determine whether they knew more than they let on about the risks posed by the mortgage bonds they underwrote
The New York Herald Sun 