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Global Financial and Economic Crises

Global Economic Collapse in the USA

Project: Global Financial and Economic Crisis 2007-Present
Open-Content project managed by KJF, mtuck

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Libertarian Representative Ron Paul (R-TX), contemplating a run for the 2008 presidential nomination, discusses the many federal programs, agencies, and bureaus he would eliminate if he had the power. He would do away with the CIA, the Federal Reserve, the Food and Drug Administration (FDA), the IRS, and the Department of Education, among others. He would eliminate Social Security, Medicare, and Medicaid. He would abolish the federal income tax (see April 28, 1999). He would zero out federal funding for public education, leaving that to local governments. Paul recently refused to vote for federal funds to aid victims of Hurricane Katrina, explaining that to do so would “rob” other Americans “in order to support the people on the coast.” He routinely votes against federal subsidies for farmers. He supports absolute gun rights, and absolutely opposes abortion, though he thinks regulations supporting or denying abortion should be left up to the states. He wants to repeal federal laws regulating drugs and allow prohibited drugs such as heroin to be sold legally. Paul says the US should withdraw from the United Nations and NATO, and wants the country to stop giving foreign aid to any country for any reason, calling such assistance “foreign welfare.” He even says President Lincoln should never have taken the nation to war to abolish slavery. Referring to the years before the income tax, Paul says: “We had a good run from 1776 to 1913. We didn’t have it; we did pretty well.” As for Social Security, “we didn’t have it until 1935,” Paul says. “I mean, do you read stories about how many people were laying in the streets and dying and didn’t have medical treatment?… Prices were low and the country was productive and families took care of themselves and churches built hospitals and there was no starvation.” Historian Michael Katz describes himself as aghast at Paul’s characterization of American life before Social Security. “Where to begin with this one?” he asks. “The stories just break your heart, the kind of suffering that people endured.… Stories of families that had literally no cash and had to kind of beg to get the most minimal forms of food, who lived in tiny, little rooms that were ill-heated and ill-ventilated, who were sick all the time, who had meager clothing.” Charles Kuffner of the Texas progressive blog Off the Kuff writes, “I can only presume that the Great Depression never occurred in whatever universe Paul inhabits.” [Washington Post, 7/9/2006; Charles Kuffner, 7/10/2006]

Entity Tags: United Nations, US Food and Drug Administration, North Atlantic Treaty Organization, Ron Paul, US Department of Education, US Federal Reserve, Charles Kuffner, Central Intelligence Agency, Internal Revenue Service, Michael Katz

Timeline Tags: Domestic Propaganda, 2008 Elections

Category Tags: USA, Commentaries and Criticisms

George W. Bush.George W. Bush. [Source: Annie Leibovitz / Vanity Fair]In a news conference, President Bush says that because of the nation’s increasing economic difficulties, the year ahead will “require difficult choices and additional sacrifices.” The nation needs economic growth, and thusly he says to the American populace, “I encourage you all to go shopping more.” [Vanity Fair, 2/2009]

Entity Tags: George W. Bush

Category Tags: USA, Bush Policies and Actions, Commentaries and Criticisms

The insurance corporation AIG makes a profit for the second quarter of the year totaling $4.28 billion, a rise of 34 percent. However, when the results are published in August, AIG will not announce any writedowns in the value of subprime housing assets, even though analysts have said the company could lose as much as $3.25 billion in a worst-case scenario, and AIG’s stock closes at $66.48. [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

The profit of the insurance corporation AIG falls by 27 percent in the third quarter of 2007, to $3.09 billion. The decline is due to housing-related costs, including a $352 million fall in credit default swaps, which AIG sold to protect debt investors from losses. Despite the troubles, AIG says it is “highly unlikely” that it will be required to make payments on the derivatives. [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Robert Lewis, the chief risk officer at insurance corporation AIG, says that virtually all of the company’s subprime mortgage holdings are safe unless the US housing market crashes to “depression proportions.” [Bloomberg, 9/16/2008]

Entity Tags: Robert Lewis, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

The insurance giant AIG makes the biggest quarterly loss in its 89-year history, $5.29 billion. This is primarily due to an $11.1 billion writedown of derivatives known as credit default swaps. The loss will be announced on February 28, 2008 (see February 28, 2008). [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Following the announcement of poor results for the third quarter the day before (see July-September 2007), shares in the insurance corporation AIG fall to $56. Despite the problems, in a conference call the company says it is “comfortable” with businesses and investments tied to the US housing market. [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Six days after its shares hit a 52-week low (see November 8, 2007), the insurance corporation AIG announces that it will spend $8 billion on repurchasing stock. However, this program will be halted early next year (see February 28, 2008). [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Martin Sullivan, chief executive officer of insurance giant AIG, says writedowns the company has been forced to make on assets linked to the US housing market are “manageable.” “The effectiveness of our risk management efforts will show through in our results,” he adds, sending shares up more than 4 percent to $58.15. Joseph Cassano, head of the company unit that sells derivatives known as credit default swaps, says the value of such contracts declined by $1.1 billion in the first two months of the fourth quarter. [Bloomberg, 9/16/2008] Cassano’s statement is inaccurate, and AIG will later reveal the loss is close to $5 billion (see February 11, 2008).

Entity Tags: Martin Sullivan, AIG (American International Group, Inc.), Joseph Cassano

Category Tags: Failing Companies, USA, AIG

Temasek Holdings, an arm of Singapore’s government, buys a large stake in the troubled US financial services company Merrill Lynch. It pays $48 per share, 13 percent less than the market value, and spends a total of $4.4bn. It also has an option to purchase a further $600m worth of shares by the end of March 2008, but agrees not to sell for a year. The asset manager Davis Selected Holdings also takes a smaller stake in Merrill Lynch. The shares purchased are newly issued, meaning the existing stockholders’ influence is diluted. However, the company needs the extra cash in order to cope with its losses on the subprime mortgage market. [Reuters, 12/25/2007] However, Merrill Lynch will sell more new shares for a lower price a few months later. This activates a clause in the agreement with Temasek saying it is entitled to a discount, totaling around 50 percent on the price of the shares sold in December 2007. Temasek reinvests this discount in additional Merrill Lynch shares (see July 29, 2008). [Agency France-Presse, 9/15/2008]

Entity Tags: Merrill Lynch, Davis Selected Advisers, Temasek Holdings

Category Tags: Western Purchases by Asians, USA

Insurance giant AIG makes a loss of $7.81 billion for the first quarter of 2008. In the previous quarter, it had lost over $5 billion, which at that time was its worst ever result (see October-December 2007). The loss will be announced in May (see May 8, 2008). [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

The insurance corporation AIG submits a regulatory filing showing that its credit default swaps have declined four times more than previously announced (see December 5, 2007): by $4.88 billion in October and November of 2007. It also shows that AIG’s auditors have found a “material weakness” in the firm’s accounting for the contracts, and AIG does not know what they were worth at the end of 2007. The news means AIG shares suffer the worst one-day decline in two decades, falling 12 percent to $44.74. [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

The Washington Post publishes an editorial by New York Governor Eliot Spitzer, accusing the Bush administration of protecting predatory lenders from state officials through use of the federal Office of the Comptroller of the Currency (OCC). Spitzer notes that since the OCC’s founding in the 1860s, its function was to monitor the records of national banks and ensure they were balanced. Yet as the current crisis in predatory lending became acute, the OCC used a clause from the 1863 National Bank Act to make all state predatory lending laws inert. In addition, Spitzer asserts that the OCC created new rules making it impossible for state officials to employ their own consumer protection laws against national banks. Spitzer continues to note that when he opened an investigation of the mortgage lending practices of several banks, the OCC brought a federal lawsuit to prevent the inquiry from moving forward. “When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners,” Spitzer concludes, “the Bush administration… will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits.” [Washington Post, 2/14/2008]

Entity Tags: Eliot Spitzer, Bush administration (43)

Category Tags: USA, Bush Policies and Actions, Commentaries and Criticisms

Following the announcement of a major loss for the fourth quarter of 2007 (see October-December 2007), the insurance corporation AIG halts a program to buy back shares it announced the previous year (see November 14, 2007). In addition, the loss prompts AIG to say for the first time that realized losses in derivatives known as credit default swaps could affect operations during a quarter. [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Joseph Cassano, head of the financial products unit at troubled insurance giant AIG, will leave the company, Chief Executive Officer Martin Sullivan says in a statement. Cassano’s unit was responsible for a recently announced $11.1 billion writedown due to credit default swaps (see October-December 2007), and he is stepping down with the company’s consent. Cassano had co-founded the unit in 1987 and built it into a business providing guarantees on more than $500 billion of assets at the end of 2007, including $61.4 billion in securities tied to subprime mortgages. At the same time, AIG says it has $14.5 billion to $19.5 billion in “excess capital.” [Bloomberg, 9/16/2008]

Entity Tags: Martin Sullivan, Joseph Cassano, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

To assist in the merger of Bear Stearns Companies, Inc. and JP Morgan Chase & Co., the US Federal Reserve authorizes the New York Fed to form Maiden Lane LLC, a Delaware limited liability company. Once established, Maiden Lane is extended credit by the Fed to acquire certain Bear Stearns assets. Maiden Lane funds the purchase of the Bear Stearns asset portfolio of mortgage related securities, residential and commercial mortgage loans, and associated hedges through senior and subordinate loans of approximately $29 billion from the New York Fed, and a much smaller amount, approximately $1.15 billion, from JP Morgan Chase. As of March 14, 2008, the asset portfolio has an estimated fair value of approximately $30 billion. [Federal Reserve Bank of New York, 3/2008]

Entity Tags: US Federal Reserve, Bear Stearns, Federal Reserve Bank of New York, Maiden Lane, JP Morgan Chase

Category Tags: Bailouts and Other Government Aid, USA

The United States Federal Reserve has lent Wall Street’s largest investment bank billions of dollars, as the credit crisis threatens to spiral into a full-blown banking crisis. In developments currently rocking the world’s financial markets, the Fed and rival Wall Street bank, JP Morgan Chase, are funneling emergency loans to Bear Stearns, whose exposure to battered credit markets has led to a crisis of confidence in its ability to continue trading. In accelerating numbers, clients and trading partners are pulling business from Bear Stearns, after rumors of its solvency began circulating. During a last-minute conference call with investors, management at the investment bank warned that its emergency lending facility with the Federal Reserve has failed to staunch the bleeding. “We have been subject to a significant amount of rumor and innuendo in the past week,” says Bear Stearns chief executive Alan Schwartz. “We attempted to provide some facts but, in the market environment, the rumors intensified and a lot of people wanted to act to protect themselves first from the possibility that the rumors were true, and wait till later for the facts.” Bear Stearns appears most fragile of Wall Street’s major investment banks, since the July 2007 collapse of two internal hedge funds, providing initial clues about the scale of the unfolding credit crisis. Shares across the banking sector plunge as analysts fear that the Fed’s willingness to intervene suggests that Bear’s future is pivotal to the banking system, and that its failure precipitates losses that may cascade through its trading partners. Bear Stearns stocks are in freefall, closing down 47 percent. Pierre Ellis at New York’s Decision Economics said, “Clearly the Fed is addressing what they feel is a systemic risk very aggressively.” [Belfast Telegraph, 3/15/2008]

Entity Tags: US Federal Reserve, Alan Schwartz, Bear Stearns, JP Morgan Chase, Pierre Ellis

Category Tags: Bailouts and Other Government Aid, USA

AIG makes a quarterly loss of $5.36 billion. This is its third such loss in a row, but is lower than the previous quarter’s loss (see January-March 2008). The loss will be announced on August 6. [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

May 2008: Jobless Rate Rises in 48 States

Unemployment rates in several states rise to their highest levels since 1976. The states are California, Nevada, North Carolina, Oregon, Rhode Island, South Carolina, Florida, and Georgia. There is also a year-on-year increase in unemployment in all 50 states and the District of Columbia. As in all prior months, Michigan leads the nation with 14.1 percent, up from 12.9 percent in April; Oregon is second with 12.4 percent, up four-tenths of a percent from the previous month. Thirteen other states post rates above 10 percent. In recent months, the manufacturing sectors in Michigan and Rhode Island have been decimated, and Chrysler and GM plant closings in early May are particularly devastating to Michigan. Only Vermont has no change in its rate, while Nebraska’s rate decreases 0.1 of a percentage point to 4.4 percent. Both Nebraska and North Dakota tie for lowest unemployment rates while, nationally, the unemployment rate hits a 26-year high as it rises to 9.4 percent, from 8.9 percent in April. The highest regional jobless rate of 10.1 percent is reported in the West, followed by the Midwest at 9.8 percent. Not since September 1983, when the Midwest posted a 10.1 percent rate, has any region recorded a rate of 10 percent or more. The Pacific and South Atlantic regions also post record highs in May. [CNN News, 6/19/2009]

Category Tags: USA, Bush Policies and Actions

After announcing another record loss for the first quarter of 2008 (see January-March 2008), insurance giant AIG says it needs to raise $12.5 billion to protect against further possible writedowns due to problematic investments related to the US housing market. In addition, Standard and Poor’s and Fitch Ratings cut AIG’s credit rating after it announces the loss and the fact that it made more than $15 billion in first-quarter writedowns tied to credit default swaps and mortgage-backed securities. [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Maurice Greenberg, a former long-time chief executive officer of insurance giant AIG, says in a regulatory filing that the insurer is in “crisis.” This is because its shareholders have lost about $80 billion in the past year. [Bloomberg, 9/16/2008]

Entity Tags: Maurice Greenberg, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

At the annual shareholder meeting of the insurance giant AIG, Chief Executive Officer Martin Sullivan says he is “not discouraged,” despite the fact that the company has posted successive losses (see October-December 2007 and January-March 2008). Company chairman Robert Willumstad says the directors support the management, adding, “We think Martin’s the right guy.” Shares close at $39.44, a 46 percent drop over the past year. [Bloomberg, 9/16/2008]

Entity Tags: Robert Willumstad, Martin Sullivan, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Martin Sullivan, chief executive officer of insurance giant AIG, says the company needs to raise a total of $20 billion to cover potential losses related to credit default swaps. Sullivan made a similar announcement two weeks earlier, but the potential problem was substantially lower then (see May 8, 2008). Shares fall to their lowest level since 1998, closing at $38.12. [Bloomberg, 9/16/2008]

Entity Tags: Martin Sullivan, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Conservative radio host Michael Savage says that homeless Americans should be put in “work camps.” As documented by progressive media watchdog organization Media Matters, Savage, answering a caller’s question about how he would address the “problem with the homelessness in this country,” says: “Why not put them in work camps? Most of them are able-bodied.” When the caller asks, “How much do you plan on paying them in these work camps, sir?” Savage responds, “Well, since they’re already receiving public assistance, I’d pay them nothing.” He continues: “Why do you have to pay a man who’s right now living off the fat of the land? And he’s sucking the fat of the land for, you know, a fairly small check—it is true—but he is a leech. He is not a productive member of society. Where is the money supposed to come from? No, I’ve studied the homeless problem for many years, Ed, because I live in one of the most infested cities in the United States—San Francisco—and I’ve observed the bums for many years. And the good—the largest portion of them are able-bodied. They’re drug addicts or alcoholics. There’s no reason they could not be put into work camps and do much of the labor that our illegal aliens are doing. Now, who do you think did this labor in previous generations? It was ne’er-do-wells, who today are basically able to live on the fat of the land and then drink or use drugs because they’re getting a check for nothing. In the old days, they’d pick the crops and they would spend their money on alcohol.” [Media Matters, 6/9/2008]

Entity Tags: Michael Savage, Media Matters

Timeline Tags: Domestic Propaganda

Category Tags: USA, Commentaries and Criticisms

June 6, 2008: AIG Announces Regulatory Probe

Insurance corporation AIG says the US Securities and Exchange Commission and the Justice Department are probing the way it valued derivatives known as credit default swaps. AIG recently announced that it was having problems valuing the derivatives (see February 11, 2008). The company says it is cooperating with regulators, but shares in it fall 6.8 percent to $33.93. [Bloomberg, 9/16/2008]

Entity Tags: US Department of Justice, US Securities and Exchange Commission, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

June 15, 2008: AIG Boss Replaced

Martin Sullivan, chief executive officer of troubled insurance giant AIG, is fired and replaced by Robert Willumstad, formerly chairman of the company’s board of directors. Board member Stephen Bollenbach is also named lead independent director. The next day, Willumstad says “there will be no sacred cows” as he launches a companywide review of AIG’s operations. [Bloomberg, 9/16/2008] However, he will only remain in the position for three months (see September 18, 2008).

Entity Tags: AIG (American International Group, Inc.), Martin Sullivan, Robert Willumstad, Stephen Bollenbach

Category Tags: Failing Companies, USA, AIG

Troubled insurance giant AIG makes a record quarterly loss of $24.47 billion. The loss is caused by writedowns on assets linked to subprime mortgages and capital losses. This is the worst loss it has ever made, coming hard on the heels of losses in the previous three quarters (see October-December 2007, January-March 2008, and April-June 2008). Over the four quarters, the combined loss totals $42.5 billion. The company will be in such bad shape that the government has to take it over by the end of the quarter (see September 16, 2008). The loss will be announced on November 10 (see November 10, 2008). [Reuters, 4/17/2009]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Temasek, an arm of the government of Singapore, increases its stake in troubled US financial services company Merrill Lynch. It had previously paid $5bn for new shares in the company (see December 25, 2007), but is now entitled to a discount on this totaling $2.5bn. It spends the discount returned to it by Merrill Lynch and an additional $900m on more shares in the company. Temasek pays around $24 per share, half of what it paid in December 2007. [Agency France-Presse, 9/15/2008; Bloomberg, 9/15/2008]

Entity Tags: Merrill Lynch, Temasek Holdings

Category Tags: Western Purchases by Asians, USA

The stock price of troubled insurer AIG falls 18 percent, closing at $23.84, following the announcement of a third straight quarterly loss the previous day (see April-June 2008). This is the largest fall since the company’s 1969 initial public offering, although this record will be broken next month (see September 9, 2008). In addition, Chief Executive Officer Robert Willumstad refuses to rule out raising more capital to supplement the $112.2 billion AIG held as of June 30. [Bloomberg, 9/16/2008]

Entity Tags: Robert Willumstad, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Talks between Lehman Brothers and the Korea Development Bank end. The Koreans had been thinking about investing in the bank, enabling it to raise needed capital. However, they decide not to go through with the investment. [Bloomberg, 9/16/2008] Lehman Brothers files for liquidation five days later (see September 14, 2008).

Entity Tags: Lehman Brothers, Korea Development Bank

Category Tags: Failing Companies, Western Purchases by Asians, USA

Shares in the insurance giant AIG fall 19 percent to $18.37. This is the company’s worst day of trading ever, beating the previous record set only a few weeks ago (see August 7, 2008). [Bloomberg, 9/16/2008; Bloomberg, 3/5/2009] The fall is caused by the news that the Korea Development Bank has backed away from a deal to purchase the ailing bank Lehman Brothers (see September 9, 2008), as this causes investors to become nervous about AIG’s ability to raise capital. [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Lehman Brothers, the fourth largest investment bank in the US, files for liquidation after huge losses in the mortgage market, a crippling loss of investor confidence, and its inability to find a buyer. Lehman’s collapse began as the mortgage market crisis unfolded in summer 2007, when its stock began a steady fall from a peak of $82 a share. Fears were based on the fact that the firm was a major player in the market for subprime and prime mortgages, and that as the smallest of the major Wall Street firms, it faced a larger risk that large losses could be fatal. As its crisis deepened in 2007 and early 2008, the investment bank defied expectations more than once, as it had many times before, such as in 1998, when it teetered after a worldwide currency crisis, only to strongly rebound. Lehman managed to avoid the fate of fellow investment bank Bear Stearns, which was bought by JP Morgan Chase at a bargain basement price under the threat of bankruptcy in March 2008 (see March 15, 2008). By summer, however, Lehman’s roller-coaster ride began to have more downs than ups. A series of write-offs accompanied new offerings to seek capital to bolster its finances. [New York Times, 9/16/2008]

Entity Tags: Bear Stearns, Lehman Brothers

Category Tags: Failing Companies, USA

Bank of America concludes an agreement to buy the troubled financial services company Merrill Lynch. Bank of America will pay Merrill Lynch’s shareholders in shares, offering stock worth $29 per one share in Merrill Lynch, which is 70 percent more than Merrill Lynch’s current market price. The sale follows a 68 percent decline in Merrill Lynch’s share price during the year amid writedowns and credit losses of $52bn. [Agency France-Presse, 9/15/2008; Bloomberg, 9/15/2008]

Entity Tags: Bank of America, Merrill Lynch

Category Tags: Other, USA

US taxpayers express their lack of support of the Troubled Asset Relief Program (TARP—see October 3, 2008) bailout bill to members of Congress, including Speaker of the House Nancy Pelosi (D-CA), Senate majority Leader Harry Reid (D-NV), and the Senate and House budget committee chairs—Chris Dodd (D-CT) and Barney Frank (D-NY), respectively—with phone calls, emails, and faxes, initially rallying the power and the numbers to defeat the bill that some call “a historic swindle.” [The Nation, 9/19/2008] According to the Congressional Quarterly, “[Senator Lindsey] Graham (R-FL) said that the deluge of public e-mails and telephone calls was comparable to several of the most contentious issues of the last decade.” Graham adds: “It’s somewhere between impeachment and immigration.… This is intense, but I’ve seen worse.” [Congressional Quarterly, 9/28/2008]

Entity Tags: Harry Reid, Lindsey Graham, Nancy Pelosi, Troubled Asset Relief Program, Barney Frank, Christopher Dodd

Category Tags: Bailouts and Other Government Aid, USA

The share price in the insurance giant AIG collapses to $4.76 amid fears over the company’s credit rating, which is subsequently cut by Standard & Poor’s and Moody’s. This means that the company needs additional capital, and it is given permission by New York State to access $20 billion in its subsidiaries. In addition, Goldman Sachs and JPMorgan Chase work to prepare a potential $75 billion lifeline. [Bloomberg, 9/16/2008; Bloomberg, 3/5/2009] However, this is not enough, and the US government will be forced to seize control of AIG the next day (see September 16, 2008).

Entity Tags: AIG (American International Group, Inc.), Goldman Sachs, JP Morgan Chase

Category Tags: Failing Companies, USA, AIG

AIG logo.AIG logo. [Source: American International Group (AIG)]In an historic move, the federal government bails out insurance corporation AIG with an $85 billion loan, giving control of the firm to the US government. After resisting AIG’s overtures for an emergency loan or other intervention to prevent the insurer from falling into bankruptcy, the government decided AIG, like the now-defunct investment bank, Bear Stearns, was “too big to fail” (see March 15, 2008). The US government will lend up to $85 billion to AIG. In return, the government gets a 79.9 percent equity stake in warrants, called equity participation notes. The two-year loan will carry a LIBOR interest rate plus 8.5 percentage points. LIBOR, the London InterBank Offered Rate, is a common short-term lending benchmark. The bailout comes less than a week after the government allowed a large investment bank, Lehman Brothers Holdings Inc., to fold (see September 14, 2008). As part of the loan agreement, Treasury Secretary Henry Paulson insists that AIG’s chief executive, Robert Willumstad, steps aside. Willumstad will be succeeded by Edward Liddy, the former head of insurer Allstate Corp (see September 18, 2008). [Wall Street Journal, 9/16/2008] Shares in AIG drop to $3.75 on the news. [Bloomberg, 3/5/2009]

Entity Tags: Henry Paulson, AIG (American International Group, Inc.), Edward Liddy, Robert Willumstad, US Federal Reserve

Category Tags: Bailouts and Other Government Aid, Failing Companies, USA, AIG

The insurance corporation AIG, which was recently bailed out by the US government (see September 16, 2008), makes $18.7 billion in payments to other world banks. The payments are related to credit default swaps, and are made in the three weeks after the bailout to institutions such as Goldman Sachs and Société Générale. [Bloomberg, 3/5/2009]

Entity Tags: Société Générale, Goldman Sachs, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

September 18, 2008: AIG Boss Replaced Again

Edward Liddy is approved by the board of insurance giant AIG as its chief executive officer. Liddy replaces former boss Robert Willumstad, who had only been in the job for a few months (see June 15, 2008). [Bloomberg, 3/5/2009; Reuters, 4/17/2009] Liddy tells employees he intends to repay a two-year Federal Reserve loan that recently bailed the company out (see September 16, 2008) sooner than scheduled. [Bloomberg, 3/5/2009]

Entity Tags: AIG (American International Group, Inc.), Edward Liddy, Robert Willumstad

Category Tags: Failing Companies, USA, AIG

The recently bailed-out insurance company AIG makes the largest quarterly loss ever in the history of business. The $61.7 billion loss follows four other extremely high losses and is more than double what the insurer lost in the previous quarter (see October-December 2007, January-March 2008, April-June 2008, and July-September 2008). The result will be announced in March 2009 (see March 2, 2009). [Bloomberg, 3/5/2009; Reuters, 4/17/2009]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

House of Representatives bill 1424, known as the Troubled Asset Relief Program (TARP), passes by a slim margin in both Congressional houses, and is immediately signed into law by President Bush. [White House, 10/3/2008]

Entity Tags: George W. Bush, Troubled Asset Relief Program

Category Tags: Bailouts and Other Government Aid, USA

Edward Liddy, the recently installed chief executive officer of troubled insurer AIG, says the company soon plans to repay the bailout loan it received from the US Federal Reserve (see September 16, 2008). To do this, it intends to sell life insurance operations in the United States, Europe, Latin America, South Asia, and Japan. Liddy says AIG has been contacted by “numerous” potential bidders, adding, “The values that we will receive from the assets we intend to dispose will be more than enough to repay the Fed facility.” [Bloomberg, 3/5/2009; Reuters, 4/17/2009]

Entity Tags: Edward Liddy, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

October 8, 2008: Size of AIG Bailout Increased

The troubled insurer AIG, which was recently bailed out by the US government (see September 16, 2008), is given more money. In the additional bailout, the government enables AIG to borrow an extra $37.8 billion, on top of the originally provided $85 billion. This addition is provided after customers pull out of AIG’s securities-lending program. [Bloomberg, 3/5/2009]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Bailouts and Other Government Aid, Failing Companies, USA, AIG

October 10, 2008: AIG Criticized over Spending

The insurance giant AIG, which was recently bailed out by the US government (see September 16, 2008), is criticized over post-bailout spending, on news it spent $200,000 on hotel rooms and $23,000 on spa services after it got the government loan. In addition, AIG says that, as of two days previously, it had borrowed $70.3 billion from the government. [Reuters, 4/17/2009]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Samuel Wurzelbacher, a.k.a. ‘Joe the Plumber.’Samuel Wurzelbacher, a.k.a. ‘Joe the Plumber.’ [Source: Orlando Sun-Sentinel]Republican presidential candidate John McCain (R-AZ)‘s running mate, Sarah Palin (R-AK), accuses Democratic presidential candidate Barack Obama (D-IL) of advocating socialism as an economic plan. “[N]ow is no time to experiment with socialism,” Palin says, referring to Obama’s proposal to offer tax credits to those paying no income taxes. Palin echoes comments made by Pennsylvania resident Samuel Wurzelbacher, known to the media as “Joe the Plumber,” in which he said Obama’s tax plan sounded like socialism to him. Palin tells a crowd in New Mexico: “Senator Obama said he wants to quote ‘spread the wealth.’ What that means is he wants government to take your money and dole it out however a politician sees fit.” Referring to a man in the crowd holding up a sign identifying himself as “Ed the Dairy Man,” Palin adds, “But Joe the Plumber and Ed the Dairy Man, I believe that they think that it sounds more like socialism.” She continues: “Friends, now is no time to experiment with socialism. To me, our opponent plans sounds more like big government, which is the problem. Bigger government is not the solution.” She calls Obama’s tax plan “a government giveaway,” and says the plan will raise taxes on those who already pay taxes: “He claims that he’ll cut income taxes for 95 percent of Americans, but the problem is, more than 40 percent of Americans pay no income taxes at all,” she says. “Since he can’t reduce taxes on those who pay zero, he wants the government to send them a check that’s called a tax credit. And where is he gonna get the money for all those checks that he will cut? By raising taxes on America’s hard-working families and our small businesses.” Later, at an airport in Colorado Springs, Palin tells a reporter, “There are socialist principles to [Obama’s tax plans], yes.” She continues, “Taking more from a small business or small business owners or from a hard-working families and then redistributing that money according to a politician’s priorities—there are hints of socialism in there and that’s why I don’t fault or discredit Joe the Plumber for bringing that up, asking if that is socialism.” Palin says that the $700 billion White House bailout of failing banks and other financial institutions is not socialism: “I believe that there are those measures that had to be taken by Congress to shore up not only the housing market but the credit markets, also to make sure that that’s not frozen, so that our small businesses have opportunities to borrow and that was the purpose, of course, of that part of the bailout and the shoring of the banks.” [ABC News, 10/20/2008]

Entity Tags: Barack Obama, Samuel Wurzelbacher, Sarah Palin, John McCain

Timeline Tags: Domestic Propaganda, 2008 Elections

Category Tags: USA, Commentaries and Criticisms, Obama Policies and Actions

New York Attorney General Andrew Cuomo says he is investigating what he calls “unwarranted and outrageous” spending by insurance giant AIG, which was recently bailed out by the US government (see September 16, 2008). Cuomo says he is seeking a full accounting of bonuses, stock options, and other perks. He wants AIG to either recover or rescind the payments. [Reuters, 4/17/2009]

Entity Tags: Andrew Cuomo, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Edward Liddy, chief executive officer of the recently bailed-out insurance corporation AIG (see September 16, 2008), says that the $122.8 billion already offered by the government “may not be enough” to stabilize the company. The size of the bailout and favorability of the terms will be increased the next month (see November 10, 2008). [Bloomberg, 3/5/2009]

Entity Tags: Edward Liddy, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

The US’s two most popular conservative radio hosts, Rush Limbaugh and Sean Hannity, are repeatedly labeling the current economic collapse the “Obama recession,” even though the recession has started already, and President-elect Barack Obama was only elected on November 4 and will not assume the presidency until January 20, 2009.
Blaming Obama for Wall Street Plunge - According to reports by progressive media watchdog site Media Matters, Hannity’s guest Dick Morris, a conservative political operative, tells a Fox News audience on November 6 that the stock market plunge is directly attributable to Obama’s election and his intention to “raise the capital gains tax.” Hannity calls the stock market plunge “the Obama tanking.” On the same day, Limbaugh says on his show: “We have the largest market plunge after an election in history. Thank you, man-child Barack Obama.” [Media Matters, 11/7/2008] Hannity says on November 11 that Obama’s election is directly responsible for plunging stock market performances, telling his listeners: “Wall Street keeps sinking. Could it be the Obama recession: The fear that taxes are gonna go up, forcing people to pull out of the market?” On November 12, Limbaugh echoes Hannity’s characterization, telling his listeners that, as reported by MSNBC’s Chris Matthews, “the recession isn’t President Bush’s fault. It’s the fault, catch this, of the president who hasn’t yet taken office. It’s an ‘Obama recession’; that’s what he’s calling it.” Matthews, clearly impatient with Limbaugh’s characterization, calls the host’s statement an example of “the bitter sore loser’s rhetoric we are hearing from the right these days.” [Media Matters, 11/12/2008]
Experts Credit Obama with Wall Street Stabilization - Experts refute Limbaugh’s and Hannity’s attribution of the nation’s economic calamity to Obama, with the Wall Street Journal giving Obama credit for a post-election upturn in the stock market and blaming “lame economic data” and the continuing “drumbeat of bailouts, potential bailouts, and worries about other bailouts” for the stock market’s poor performance. [Wall Street Journal, 11/12/2008] Fox News business commentator Eric Bolling credits Obama’s election with stabilizing the stock market until a dismal national employment report caused the market to drop again. And Fox Business Channel’s vice president, Alexis Glick, tells her audience on November 7: “I so did not believe that the market reaction over the past two days was about Obama. Wednesday morning we walked in, we saw the Challenger and Gray [planned layoff] numbers, we saw the ADP numbers, the weekly jobless claim numbers—yeah, well, they were basically in line, but we knew two days ago that this was going to be a bloody number. Frankly, we probably knew several months ago that it was going to be a bloody number.” The Wall Street Journal and New York Times both agree with Glick’s assessment. [Media Matters, 11/7/2008; New York Times, 11/7/2008]

Entity Tags: Alexis Glick, Media Matters, Barack Obama, Fox Business Channel, Eric Bolling, Dick Morris, New York Times, Chris Matthews, Fox News, Rush Limbaugh, Sean Hannity, Wall Street Journal

Timeline Tags: Domestic Propaganda, 2008 Elections, 2010 Elections

Category Tags: Commentaries on Economic Issues, USA, Commentaries and Criticisms, Bush Policies and Actions, Obama Policies and Actions

The troubled insurance giant AIG seeks a modification of a bailout it received from the US government in September (see September 16, 2008), according to reports. An additional loan following the initial bailout has already been made (see October 8, 2008). However, AIG now wants to alter the terms of the bailout, extending the duration and lowering the interest rate. Shares in the company close at $2.11. [Bloomberg, 3/5/2009] AIG will obtain the modification within a few days (see November 10, 2008).

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

The terms of the bailout given to troubled insurance giant AIG are modified, following calls from the insurer (see October 22, 2008 and November 7, 2008). The conditions of the government bailout were set in September (see September 16, 2008), but the interest rate is now lowered and the term is extended from two years to three. In addition, the rescue package grows to $150 billion, including a $60 billion loan, a $40 billion capital investment, and about $50 billion to buy mortgage-linked assets owned by AIG or guaranteed by it through credit default swaps. AIG also announces a record loss (see July-September 2008). [Bloomberg, 3/5/2009]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

To facilitate AIG’s ability to complete its corporate restructuring, the New York Federal Reserve, as authorized by the US Federal Reserve, creates Maiden Lane II LLC and Maiden Lane III LLC to fund the purchase of certain multi-sector collateralized debt obligations (CDOs) from certain AIG Financial Products Corporation (AIGFP) counterparts. The Asset Portfolio purchase will be made in two stages, with Maiden Lane II LLC lending AIG $26.8 billion on November 25, 2008, and Maiden Lane III LLC lending AIGFP and its counterparties $2.5 billion on December 18, 2008 (see March, 2008). [Federal Reserve Bank of New York, 11/10/2008]

Entity Tags: Federal Reserve Bank of New York, AIG (American International Group, Inc.), US Federal Reserve, Maiden Lane II, Maiden Lane III

Category Tags: Bailouts and Other Government Aid, USA, AIG, Failing Companies

After President Bush and US Treasury Secretary Henry Paulson push through a long-sought change in how bank mergers are taxed, Bloomberg News sues the Federal Reserve for failing to reveal loan recipients. The change will deprive US taxpayers of as much as $140 billion in tax revenue. As the economy continues its downward spiral into what is called the worse economic crisis since the Great Depression, sources say that a late September $700 billion bailout is “a quiet windfall for US banks.” [Washington Post, 11/10/2008] The legality of Treasury-negotiated equity deals for many US banks is questioned by tax attorneys, as well as nearly $2 trillion that Ben Bernanke of the Federal Reserve handed out in emergency loans before the $700 billion Troubled Asset Relief Program, or TARP, was enacted (see October 3, 2008). The Fed refuses to reveal which corporations received loans, or what collateral has been presented. Sources say that this secrecy is a legal violation. The Federal Reserve’s lending is significant because the central bank has stepped into a rescue role that was also the purpose of the TARP bailout plan, although without safeguards put into the TARP legislation by Congress. Total Fed lending topped $2 trillion for the first time and has risen by 140 percent, or $1.172 trillion, in the weeks since Fed governors relaxed the collateral standards on September 14. The difference includes a $788 billion increase in loans to banks through the Fed and $474 billion in other lending, mostly through the central bank’s purchase of Fannie Mae and Freddie Mac bonds. [Bloomberg News, 11/10/2008; AlterNet, 11/14/2008]

Entity Tags: Henry Paulson, Troubled Asset Relief Program, Bloomberg News, Ben Bernanke, US Department of the Treasury, US Federal Reserve, George W. Bush

Category Tags: Bailouts and Other Government Aid, USA

Detroit’s Big Three CEOs testify for more than two hours in a hearing before the Senate Banking Committee, using dire language to describe the financial straits that are threatening to bankrupt their companies. Chrysler LLC CEO Robert Nardelli says that without immediate help, his company could be forced into bankruptcy. “We cannot be confident that we will be able to successfully emerge,” he says. General Motors (GM) Corporation’s CEO, Rick Wagoner, adds that the failure of the industry would be “catastrophic,” causing the loss of 3 million jobs. Ford Motor Company CEO Alan Mulally tells the committee that if one of the automakers failed, the whole industry could be disrupted. “You’re here to get life support,” says ranking minority member Richard Shelby (R-AL). “Why aren’t you making money? How would you pay this money back?”
Financial Losses Worse than Originally Believed - The automakers say that their financial losses were worse than they at first thought, with Nardelli testifying that his company ran through $5 billion this year, including $3.3 billion in the third quarter, with only $6.1 billion on hand to last through the end of the year. Wagoner says that his firm would spend $15 billion by the end of 2008, and another $10 billion in 2009. Wagoner wants $10-$12 billion for GM, while Mulally and Nardelli want $7 billion for their respective corporations. Both Wagoner and Nardelli say that their companies will run out of money in a matter of months. One senator asks if the automakers would be willing to make monthly status reports on cash flow if the Senate agrees to the loan. Nardelli offers to take $1 a year as salary compensation; neither Mulally nor Wagoner did not make the same commitment. Nardelli also committed to Chrysler’s agreeing to consider new fuel efficiency standards. “We’d be open to any requirements,” he says.
Already Cut Costs, Moved to Restructure - The automakers testify how aggressively they have moved to cut costs, restructure, and revamp their product lines to be more competitive with foreign rivals, and say their companies were making progress until they were derailed by the credit crisis that has stalled the global economy and dried up consumer confidence. Auto sales are at their lowest level in at least 15 years, they say, dropping nearly 32 percent in October. As a testament to the seriousness of their financial crisis, the three automakers assure the committee that they would spend the requested $25 billion in the United States; however, they refuse to say that they would not come back for further bailout funding. Wagoner testifies that GM has cut $9 billion in costs since 2005. He touts labor agreements with the United Auto Workers that will further cut wage and health care expenses, and says that improvements in designing and manufacturing vehicles as well as developing fuel-saving technologies will also assist in reining in manufacturing costs. “As a result of these and other actions, we are now matching—or besting—foreign automakers in terms of productivity, quality and fuel economy,” he says. Wagoner assures the committee that the company was moving quickly to right its business. “We have more work to do in all aspects of our business,” Wagoner said. “This is hard stuff.” He said that GM would use some of the money to pay suppliers and pay for part of the Chevrolet Volt program.
UAW President Grilled - In his own testimony, United Auto Workers President Ron Gettelfinger ranks the relative financial health of the Big Three as Ford being the most solvent, with Chrysler at number two, while General Motors may be at or near insolvency by the end of 2008. The UAW chief faces tough questions as well, as Senator Bob Corker (R-TN) pushes back on union work rules and the jobs bank. “I understand Mr. Gettelfinger has done a good job on behalf of all workers not working and being paid,” Corker says, calling the practice unacceptable in other businesses.
Disagreement among Democrats, Republicans - Democrats support a plan to subtract $25 billion from the $700 billion Wall Street bailout package, known as the Troubled Asset Recovery Program (TARP), while Mitch McConnell (R-KY) has joined the White House call to speed up money previously authorized for the automakers through an Energy Department loan program. “To basically change the qualifications of the money that we have already appropriated is a sound way to go forward,” said McConnell. House Democrats and many environmentalists oppose the use of the Energy Department loan, since it is approved only for projects that lead to significant fuel efficiency improvements. Carl Levin (D-MI) says that in order to get a bill, Republicans must write language that explains how they would quickly get $25 billion from the Energy Department program to automakers. But Levin is realistic about the long road they face. “Progress: No. Effort: Hell, yes. Big-time effort,” he says. “We haven’t seen progress and won’t see progress until we see the language from those who want to see the [Energy Department] funds.” Debbie Stabenow (D-MI) says she will “very reluctantly” agree to reworking the retooling loans if that was the only way to get help now. Other Senate allies of the auto industry, including Claire McCaskill (D-MO) and Ken Salazar (D-CO), opposed the proposal to shift $25 billion from TARP. “I’m not sure we want to throw good money after bad,” Salazar says. Max Baucus (D-MT), chairman of the Senate Finance Committee, says it will be nearly impossible to make a deal before Congress adjourns for the year later this week. “Reading the tea leaves, I just don’t think it’s going to happen,” Baucus says. “There’s not enough time given the opposition of the White House and opposition of the other side of the aisle.” Corker echoes the belief that nothing would get done this year, calling the hearings “the first step in a loan application.”
Further Hearings Slated - The CEOs will return to Capitol Hill for a hearing before the House Financial Services Committee on Tuesday, November 25. [Detroit News, 11/19/2008]

Entity Tags: United Auto Workers, Ford Motor Company, Debbie Stabenow, Chrysler, Carl Levin, Alan Mulally, General Motors, Senate Banking Committee, Max Baucus, Rick Wagoner, Robert Nardelli

Category Tags: Bailouts and Other Government Aid, USA

Recently bailed-out insurance giant AIG sets the salary of its Chief Executive Officer Edward Liddy at $1 for 2008/9. It also freezes pay and scraps bonuses for its seven most senior executives. [Bloomberg, 3/5/2009] In addition, 50 more AIG executives will be locked out of pay rises in 2009. [Reuters, 4/17/2009]

Entity Tags: Edward Liddy, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

US government-seized mortgage finance companies Fannie Mae and Freddie Mac suspend foreclosures from November 26, 2008 until January 9, 2009. The six-week suspension on both foreclosures and evictions will give loan servicers time to implement streamlined loan modifications for struggling borrowers. Since September 6, 2008, Fannie and Freddie have been federal government-controlled and sponsored entities that own or guarantee $5.2 billion of the $12 billion US home mortgage market. They offer borrowers who are 90 days or more delinquent with high loan-to-income ratios a chance to modify their mortgage terms to decrease their monthly mortgage payments by roughly 38 percent of the homeowner’s monthly pretax salary. The companies say they plan to reduce interest rates for up to 5 years while lengthening repayment terms as much as 40 years to trim monthly payments. [Bloomberg, 11/20/2008]

Entity Tags: Federal Home Loan Mortgage Corporation, Federal National Mortgage Association

Category Tags: Other, USA

Recently bailed-out insurer AIG agrees to sell a bank unit serving clients in Asia and the Middle East for about $250 million. [Bloomberg, 3/5/2009] This is part of a program to sell business units in order to repay the government (see September 18, 2008).

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

The financial industry may cut as much as $2 trillion in credit card account lines over the next 18 months, according to Oppenheimer & Co analyst Meredith Whitney. This is in an effort to reduce damage risks from increasing customer delinquencies and defaults. “[W]e expect available consumer liquidity in the form of credit-card lines to decline by 45 percent,” she adds. According to Whitney, all three remaining major banks—Bank of America, Citigroup, and JP Morgan Chase—are planning or considering reducing credit lines across the board. Credit cards are the second source of liquidity available to consumers, behind wages from work. She criticizes the banking industry for offering ever fewer choices at a time when consumers need credit more than ever: “Pulling credit when job losses are increasing by over 50 percent year-over-year in most key states is a dangerous and unprecedented combination, in our view.” [Consumer Affairs.com, 12/1/2008; Reuters, 12/1/2008]

Entity Tags: Meredith Whitney, Oppenheimer & Co.

Category Tags: Commentaries on Economic Issues, USA

The recently bailed-out insurer AIG and the US government say they have reached an agreement on toxic mortgage debt held by the company. The agreement will clear AIG of its obligations on about $53.5 billion in such debt. [Reuters, 4/17/2009]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Fox News pundit Bill O’Reilly and former Bush administration political director Karl Rove tell listeners that media journalists are “overstating” the current economic problems in order to help the incoming Obama administration. O’Reilly asks Rove, “All right, so you are agreeing with me then that there is a conscious effort on the part of the New York Times and other liberal media to basically paint as drastic a picture as possible, so that when Barack Obama takes office that anything is better than what we have now?” Rove’s response: “Yes.” O’Reilly says that the “plot” is to “blame everything on Bush for quite a long period of time.” Rove calls the economic reporting little more than “scare tactics.” O’Reilly concludes: “All I want is an honest press. I’m not hoping one way or the other.” Amanda Terkel of the Center for American Progress observes: “For years, in fact, the Bush administration has tried Rove and O’Reilly’s strategy of insisting that nothing is wrong. Although the United States has been in a recession since December 2007, the Bush administration has continued to insist that the economy was strong. The result? A government unprepared to deal with ‘the worst financial crisis since the Great Depression.’” [Think Progress (.org), 12/9/2008]

Entity Tags: Karl C. Rove, Center for American Progress, Fox News, Amanda Terkel, Bill O’Reilly

Timeline Tags: Domestic Propaganda, 2010 Elections

Category Tags: USA, Bush Policies and Actions, Obama Policies and Actions, Commentaries and Criticisms

Edward Liddy, chief executive officer of recently bailed-out insurer AIG, pledges to repay taxpayers “every single penny we owe them.” The company currently has around $150 billion of the taxpayers’ money (see November 10, 2008). However, Liddy adds that the company will get the money by selling business units, and the timetable of such sales could change. AIG shares close at $1.73. [Bloomberg, 3/5/2009]

Entity Tags: Edward Liddy, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

According to Jim Rogers, the co-founder of the Quantum Fund along with billionaire financier George Soros, the federal government’s efforts to fix the sector are “wrongheaded.” During a teleconference at the Reuters Investment Outlook 2009 Summit, Rogers says that the government’s $700 billion rescue package for the sector doesn’t address how banks manage their balance sheets, and rewards weaker lenders with new capital. More than two dozen banks have received infusions from the Troubled Asset Relief Program (TARP), and some TARP funds are being used for acquisitions. [White House, 10/3/2008] “Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt,” says Rogers, now a private investor. “What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent,” he continues. “What’s happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics.” [Reuters, 12/11/2008]

Entity Tags: Jim Rogers, Quantum Fund, George Soros

Category Tags: Commentaries on Economic Issues, USA

Recently bailed-out insurer AIG agrees to sell one of its insurance subsidiaries, Hartford Steam Boiler, for $742 million. However, this is about a third less than it paid for the unit eight years ago. [Bloomberg, 3/5/2009] The unit is purchased by the German reinsurer Munich Re, which wants to expand its US business. [Reuters, 4/17/2009] This sale is part of a program to sell business units in order to repay AIG’s bailout loans to the government (see September 18, 2008).

Entity Tags: AIG (American International Group, Inc.), Hartford Steam Boiler, Munich Re

Category Tags: Failing Companies, USA, AIG

January 2009: New Home Sales Plunge in US

According to a Commerce Department report, in January, new home purchases drop 10 percent to an annual pace of 309,000, the lowest level since data tracking began in 1963. The report, published in February 2009, will attribute the fall to high unemployment and foreclosures. In addition, at 13.5 percent, the median home price falls the most in almost four decades. [Bloomberg, 2/26/2009]

Entity Tags: US Department of Commerce

Category Tags: Other, USA, Bush Policies and Actions

Washington Post economics columnist Steven Pearlstein criticizes Mary Schapiro, President-Elect Barack Obama’s pick to chair the Securities and Exchange Commission (SEC), a financial market regulator. Pearlstein says that the selection of Schapiro, who has a long background in regulating the industry, is “as safe and predictable as it is disappointing.” He adds that Schapiro has some good qualities and would be a sound pick at another time. However, “The problem is that there is nothing in her record to suggest that she is likely to clean house at the agency and launch a brutal and sustained assault on Wall Street culture.”
Unethical Practices - Pearlstein adds: “Remember the good old days when corporations would routinely manipulate earnings so that they came out just as the analysts expected? Or when analysts used to issue buy recommendations for stocks they knew were lousy just because it helped their firms win investment-banking business? Or when brokerage firms would routinely put clueless customers in mutual funds that offered high commissions, not the best results? Or when investment banks would put aside shares in the hottest IPOs for the personal accounts of corporate chief executives who steered underwriting business their way? These practices weren’t secrets—to anyone even vaguely familiar with the industry, they were hidden in plain view. And yet for years, no regulator, including Schapiro, was willing to risk being demonized by the industry, criticized by Congress and overturned by the courts to do what was necessary to stop these practices.”
'Show Trials' - He then sets out his vision for what the new chairman should do, what he thinks Schapiro will not do: “We need an SEC chairman who is willing to move beyond narrow enforcement actions and no-fault consent decrees to stage a series of regulatory show trials that will expose in graphic detail how people think and behave at all levels of Wall Street firms. We need a chairman who will use the commission’s broad powers to fine and debar from the industry big-name directors, top executives, ratings agency officials and other gatekeepers whose nonfeasance resulted in significant losses for investors, customers and taxpayers. We need a chairman who will make effective use of the bully pulpit to expose other well-known industry practices that put the interests of Wall Street ahead of those of its customers.” [Washington Post, 1/7/2009]

Entity Tags: Barack Obama, Steven Pearlstein, Mary Schapiro, US Securities and Exchange Commission

Category Tags: Commentaries on Economic Issues, USA, Commentaries and Criticisms

Temasek Holdings, an arm of the government of Singapore, acquires shares in Bank of America. It does this by converting shares it had purchased in Merrill Lynch (see December 25, 2007 and July 29, 2008) into shares in Bank of America, which had recently purchased Merrill Lynch (see September 14, 2008). Temasek now owns 3.8 percent of Bank of America. [Reuters, 1/11/2009]

Entity Tags: Bank of America, Temasek Holdings

Category Tags: Western Purchases by Asians, USA

NYU Economics Professor Nouriel Roubini tells Bloomberg News that, following the $350 billion injection by the Bush Administration, President Barack Obama will have to use as much as $1 trillion of taxpayer funds to shore up capitalization of the banking sector. “The problems of Citi, Bank of America and others suggest the system is bankrupt,” Roubini said. “In Europe, it’s the same thing.” Roubini also predicts that oil prices will continue to trade between $30 to $40 a barrel all year. Regarding commodities, Roubini said, “I see commodities falling overall another 15-20%. This outlook for commodity prices is beneficial for oil importers, it’s going to imply that economic recovery might occur faster, but from the point of view of oil exporters, this will be very negative.” [Street Insider.com, 1/20/2009; Bloomberg, 1/20/2009]

Entity Tags: Barack Obama, Citibank, Nouriel Roubini, Bank of America

Category Tags: Bailouts and Other Government Aid, USA, Bush Policies and Actions, Obama Policies and Actions

The rating of a plane leasing unit owned by recently bailed-out insurer AIG is downgraded by Standard & Poor’s. This prompts the US government to cut lending to the business through a bailout program for commercial paper. [Bloomberg, 3/5/2009]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Bailouts and Other Government Aid, Failing Companies, USA, AIG

Amid reports of a $15.4 billion loss, $1.2 million in office redecorations and earlier-than-usual million-dollar bonuses using TARP funds, John Thain resigns as CEO of troubled firm Merrill Lynch, recently purchased by Bank of America.
Investigating Bonuses - While Thain forgoes a 2008 bonus, New York Attorney General Andrew Cuomo is investigating bonuses paid to Merrill executives in late December, right before the deal closed. Merrill normally pays bonuses in January or February. Cuomo is investigating performance bonuses for Merrill’s CEO and other top executives, calling the bonuses an “oxymoron” during such an “abysmal year.” According to Merrill’s securities filings, Thain’s salary was $750,000 last year.
$837,000 for Redecoration - “Spending company money on a lavish redo at a time when Merrill’s finances were rocky sends the wrong message,” said Amy Borrus, deputy director at the Council of Institutional Investors in Washington. “Given the dire straits that so many financial institutions are in, redecorating the corner office should be way down on their to-do lists.” Someone familiar with Thain’s New York office redecoration claims that the CEO paid decorator Michael Smith $837,000 and his purchases included $87,000 for area rugs, $25,000 for a pedestal table and $68,000 for a 19th century credenza. Smith, a Santa Monica, California-based decorator, was recently commissioned by Michelle Obama to decorate the White House.
35,000 Job Losses - Thain, a former executive for Goldman Sachs Group Inc. and the New York Stock Exchange, joins about 35,000 employees that Bank of America CEO Kenneth Lewis plans to eliminate over the next few years from the combined firms’ total of over 260,000 employees.
Abysmal Performance - Lewis’s credibility was undercut after Merrill reported a record fourth-quarter deficit. Lewis considered backing out of the deal after learning the extent of Merrill’s losses in December 2008, but went ahead with the buyout at the insistence of US regulators who provided a new $138 billion aid package. “There was a certain surprise that the Merrill losses were as steep as they were,” says James Post, a professor of corporate governance and business ethics at Boston University School of Management. “On top of that, I think Lewis didn’t think Thain was doing as much as he could to control the expenses and minimize the losses.” Shares in Bank of America, down 53 percent so far in 2008, slide another 14 percent to $5.71 by the close of New York Stock Exchange composite trading. Thain bought 84,600 shares in Bank of America, at $5.71 each, the day before his ouster, a filing showed. [Bloomberg, 1/22/2009]

Entity Tags: Andrew Cuomo, John Thain, Amy Borrus, Kenneth Lewis, Bank of America, Merrill Lynch

Category Tags: Bailouts and Other Government Aid, USA

New York University economist Nouriel “Dr. Doom” Roubini and Western Europe Finance and Banking analyst Elisa Parisi-Capone of RGE Monitor release new estimates for expected loan losses and writedowns on US originated securitizations:
bullet Loan losses on a total of $12.37 trillion unsecuritized loans are expected to reach $1.6 trillion. Of these, US banks and brokers are expected to incur $1.1 trillion.
bullet Mark-to-market writedowns based on derivatives prices and cash bond indices on a further $10.84 trillion in securities reached $1.92 trillion. According to flow-of-funds data, about 40% of these securities (and losses) are foreign-held. US banks and broker dealers are assumed to incur a share of 30-35%, or $600-700 billion in securities writedowns.
bullet US-originated assets’ total loan losses and securities writedowns are expected to reach about $3.6 trillion. The US banking sector is exposed to half of this figure, or about $1.8 trillion (i.e. $1.1 trillion loan losses + $700bn writedowns).
bullet As of the third quarter of 2008, Federal Deposit Insurance Corporation-insured banks’ capitalization is $1.3 trillion; as of the same period, investment banks had $110bn in equity capital. Roubini and Parisi-Capone say that past recapitalization through the first release of the TARP funds for $230bn, and private capital of $200bn leaves the US banking system very nearly insolvent, should loss estimates materialize.
bullet In order to restore safe lending, additional private and/or public capital of approximately $1 to 1.4 trillion is needed, thus calling for a comprehensive solution along the lines of a “bad bank” proposed by policymakers, or an outright restructuring through a new resolution trust corporation (RTC).
bullet In September 2008, Roubini proposed a solution for the banking crisis that also addresses the root causes of the financial turmoil in the housing and the household sectors. The HOME (Home Owners’ Mortgage Enterprise) program combines an RTC to deal with toxic assets, a homeowners loan corporation to reduce homeowners’ debt, and a reconstruction finance corporation to recapitalize viable banks.
They concluded that total financial system losses will likely hit $3.6 trillion, half of which, according to Roubini, “will be borne by US firms,” and that the losses will overwhelm the US financial system which, in the third quarter of 2008, had a capitalization of $1.3 trillion in commercial banks and $110 billion in investment banks. [Bloomberg, 1/20/2009; AFP Reporter, 1/22/2009] Since September 7, 2006, Dr. Roubini, an economics professor at New York University, has been known as “Dr. Doom” after telling an audience of economists at the International Monetary Fund that an economic crisis was brewing in the coming months and years. He warned that the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession, and laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he said, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac. [New York Times Magazine, 8/15/2008]

Entity Tags: Nouriel Roubini, Elisa Parisi-Capone, RGE Monitor

Category Tags: USA, Commentaries on Economic Issues

“The worst economic turmoil since the Great Depression is not a natural phenomenon but a man-made disaster in which we all played a part,” says Guardian City editor Julia Finch, who lists individuals who led the world into its current economic crisis (see June 2008). These individuals include:
bullet Alan Greenspan, US Federal Reserve chairman, 1987-2006: “[B]lamed for allowing the housing bubble to develop as a result of his low interest rates and lack of regulation in mortgage lending. Backed sub-prime lending; urged homebuyers to swap fixed-rate mortgages for variable rate deals, leaving borrowers unable to pay when interest rates rose. Defended the booming derivatives business, which barely existed when he took over the Fed, but which mushroomed from $100tn in 2002 to more than $500tn five years later.”
bullet Mervyn King, governor of the Bank of England: “His ambition was that monetary policy decision-making should become ‘boring.’”
bullet Bill Clinton, former US president: “Beefed up the 1977 Community Reinvestment Act to force mortgage lenders to relax their rules to allow more socially disadvantaged borrowers to qualify for home loans. Repealed the 1999 Glass-Steagall Act, prompting the era of the superbank; the year before the repeal, sub-prime loans were just 5 percent of all mortgage lending. By the time the credit crunch blew up it was approaching 30 percent.” [Guardian, 1/26/2009]

Entity Tags: Mervyn King, William Jefferson (“Bill”) Clinton, Alan Greenspan, The Guardian, Julia Finch

Category Tags: Commentaries on Economic Issues, Britain, USA, Pre-2001 Policies and Actions, Bush Policies and Actions

Recently bailed-out insurer AIG says that it is looking for a buyer for a fund management unit. This is part of a program to sell business units in order to repay the government (see September 18, 2008). The fund manager operates 15 funds that had more than $12.4 billion in assets under management as of September 30, 2008. Bank of America and Merrill Lynch are helping AIG to find a buyer. [Reuters, 4/17/2009]

Entity Tags: Merrill Lynch, Bank of America, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Henry Paulson, the former secretary of the treasury, explains how the recession and market destruction came about on his watch. Part of his problem was his admitted lack of knowledge about regulation and regulatory authorities. “I easily could imagine and expected there to be financial turmoil,” he says. “But the extent of it, okay, I was naive in terms of—I knew a lot about regulation but not nearly as much as I needed to know, and I knew very little about regulatory powers and authorities. I just had not gone into it in that kind of detail. This’ll be the longest we’ve gone in recent history without there being turmoil, and given all the innovation in the private pools of capital and the over-the-counter derivatives and the excesses around the world, we figured that when there was turmoil, and these things were tested for the first time by stress, it would be more significant than anything else. I said at the time, I have a concern that every rally we’re going to have in the financial markets will be a false rally until we break the back of the price correction in real estate. And these things are never over until you have a couple of institutions go that surprise everyone. Bear Stearns can hardly be a shock (see March 15, 2008). But having said that, it’s one thing to see it intellectually and it’s another to see where we are.” [Vanity Fair, 2/2009]

Entity Tags: Bear Stearns, Henry Paulson, US Department of the Treasury, Bush administration (43)

Category Tags: Commentaries on Economic Issues, USA, Bush Policies and Actions

Wall Street Journal editorial board member Stephen Moore, appearing as a guest on Fox News host Glenn Beck’s show, compares Social Security to “a big Ponzi scheme.” Moore and Beck are discussing the issue of the US debt, and Moore compares the cycle of different government agencies buying and selling portions of the debt to one another to Social Security, saying: “It’s very much like the way Social Security works. It’s a big Ponzi scheme. It’s like a big vault of IOUs.” [Media Matters, 2/2/2009; Media Matters, 9/7/2010] Beck will later call Social Security a “Stalinist” program designed to forcibly redistribute wealth to poorer citizens (see January 27, 2010).

Entity Tags: Glenn Beck, Stephen Moore, Fox News

Timeline Tags: Domestic Propaganda

Category Tags: USA, Commentaries and Criticisms

Pete Sessions.Pete Sessions. [Source: Washington Post]Representative Pete Sessions (R-TX), the chairman of the National Republican Congressional Committee, says that House Republicans should become political “insurgents” to oppose and undermine the Obama administration, specifically its economic proposals, and says the GOP can learn from the example of the Taliban. “Insurgency, we understand perhaps a little bit more because of the Taliban,” he tells editors of the conservative National Journal. “And that is that they went about systematically understanding how to disrupt and change a person’s entire processes. And these Taliban—I’m not trying to say the Republican Party is the Taliban. No, that’s not what we’re saying. I’m saying an example of how you go about [sic] is to change a person from their messaging to their operations to their frontline message. And we need to understand that insurgency may be required when the other side, the House leadership, does not follow the same commands, which we entered the game with.” Sessions complains that neither President Obama nor House Democrats have attempted to work with Republicans in a truly bipartisan fashion. “If they do not give us those options or opportunities then we will then become insurgency of a nature to where we do those things that are necessary to making sure the American public knows what we think the correct answer is. So we either work together, or we’re going to find a way to get our message out.” Sessions says he is not comparing House Republicans to the Taliban: “I simply said one can see that there’s a model out there for insurgency.” Sessions is interrupted by an aide, who explains that Sessions is merely trying to express the need for Republicans to start thinking about how to act strategically as the minority party. Sessions blames House Speaker Nancy Pelosi (D-CA) for the Republicans’ new approach: “I think insurgency is a mindset and an attitude that we’re going to have to search for and find ways to get our message out and to be prepared to see things for what they are, rather than trying to do something about them. I think what’s happened is that the line was drawn in the sand” by Pelosi. [National Journal, 2/5/2009] At a House Republicans’ retreat the week before, Sessions told fellow Republicans that they “need to get over the idea that they’re participating in legislation and ought to start thinking of themselves as ‘an insurgency’ instead.” [Think Progress, 2/5/2009]

Entity Tags: Obama administration, Barack Obama, National Republican Congressional Committee, Pete Sessions, Nancy Pelosi

Category Tags: USA, Commentaries and Criticisms

US Treasury Secretary Timothy Geithner announces a much bigger plan to rescue the US financial system than previously predicted or envisioned, including a much greater government role in markets and banks since the 1930s (see March 15, 2008). Although the administration provides few details, one central portion of the plan that investors most desired to learn about creates bad banks that rely on taxpayer and private investor funds to purchase and hold bad assets racked up by the banks from subprime mortgages, derivatives, and credit defaults. An additional focal point of the plan stretches the final $350 billion that the Treasury may use for the bailout, relying on the Fed’s capability to create money. This last tranche of funding allows the government to be involved in the management of markets and banks. For example, with the credit markets, the administration and the Fed propose to expand a lending program that spends as much as $1 trillion as a replacement for the $1.2 trillion decline between 2006 and 2008 for the issuance of securities backed primarily by consumer loans. The third component of the plan gives banks new capital to lend, but banks that receive new government assistance will have to cut the salaries and perks of their executives and limit dividends and corporate acquisitions. Banks must also publicly declare more information about their lending practices. With the newly proposed Treasury requirements, banks will have to give monthly statements on how many new loans they make, yet the plan stops short of ordering banks to issue new loans or requiring them to account in detail for the federal money. The Obama administration’s commitment to flood the banking system with funds will combine the $350 billion left in the bailout fund; the rest of the money will be from private investors and the Federal Reserve. Some market observers, along with some federal legislators and economists, criticize the plan for its lack of details. [New York Times, 2/10/2009]

Entity Tags: Obama administration, US Federal Reserve, US Department of the Treasury, Timothy Geithner

Category Tags: Bailouts and Other Government Aid, USA, Obama Policies and Actions

The new Director of National Intelligence (DNI), Dennis Blair, tells the Senate Intelligence Committee that the economic crisis, not global terrorism, is the biggest national security issue facing the US today. “The primary near-term security concern of the United States is the global economic crisis and its geopolitical implications,” Blair says. If the crisis continues for more than two years, Blair says, governments could topple, with all the unrest that would entail. About 25 percent of the world’s governments, mostly in Europe and among former Soviet Union client states, have already experienced “low-level instability,” including government changes, because of the economic climate (see February 1, 2009). Blair also warns of “high levels of violent extremism” as seen during the downturn in the 1920s and 1930s, along with “regime-threatening instability.” He explains, “Besides increased economic nationalism, the most likely political fallout for US interests will involve allies and friends not being able to fully meet their defense and humanitarian obligations.” US allies in Europe are angry over the Obama stimulus bill’s provision to “Buy American,” Blair notes, and says the provision is being used to question the US’s leadership in shoring up the global economy and international financial structure. The biggest beneficiary of this global chaos, Blair says, could be China, if that nation’s government can “exert a stabilizing influence by maintaining strong import growth and not letting its currency slide.” Global coordination is essential to rebuild trust in the financial system and to ensure that the crisis does “not spiral into broader geopolitical tensions,” Blair recommends. [EUObserver, 2/13/2009]

Entity Tags: Dennis C. Blair, Senate Intelligence Committee

Category Tags: Commentaries on Economic Issues, USA

According to economists and other finance experts, most of the major US banks are broke, awash in losses from bad bets that overwhelm the banks’ assets. [Link TV, 2/10/2009; Financial Times, 2/10/2009] None of the experts focus on individual banks, and there are exceptions among the 50 largest banks in the country. Consumers and businesses do not need to fret about their federally insured deposits, and even banks that are technically insolvent can continue operating, and could recover their financial health once the economy improves. Until there is a cure for banks’ bad assets, the credit crisis that is dragging down the economy will linger, since banks cannot resume the lending needed to restart commerce.
Suggested Response - Economists and experts say that the answer is a larger, more direct government role than the recently-unveiled Treasury Department plan. The Obama-Geithner plan leans heavily on sketchy public-private investment funding to buy up the banks’ troubled mortgage-backed securities. Experts say that the government needs to delve in, weed out the weakest banks, inject capital into surviving banks and sell off bad assets. “The historical record shows that you have to do it eventually,” said Adam Posen, a senior fellow at the Peterson Institute for International Economics. “Putting it off only brings more troubles and higher costs in the long run.” The Obama administration’s recovery plan could help spur a timely economic spurt, and the value of the banks’ assets could begin to rise. Absent that, the prescription would not be easy or cheap. Estimates of the capital injection needed range from $1 trillion and beyond. By contrast, the commitment of taxpayer money is the $350 billion remaining in the financial bailout approved by Congress last fall.
Pessimism - In a new report Nouriel Roubini, professor of economics at the Stern School of Business at New York University, estimates that total losses on loans by American financial firms and the fall in the market value of the assets they hold will reach $3.6 trillion, up from his previous estimate of $2 trillion. [Global Economic Monitor, 2/10/2009] Of the total, he calculates that American banks face half that risk, or $1.8 trillion, with the rest borne by other financial institutions in the United States and abroad. “The United States banking system is effectively insolvent,” Roubini says. [International Herald Tribune, 2/13/2009]

Entity Tags: Peterson Institute for International Economics, James K. Galbraith, Nouriel Roubini

Category Tags: Bailouts and Other Government Aid, USA, Commentaries on Economic Issues

Recently bailed-out insurer AIG says that it has sold interests in two contracts tied to natural gas and oil for $60.5 million. This brings the total amount raised through a program of sales to repay the bailout money to the government (see September 18, 2008) to $2.4 billion. AIG shares close at 85 cents. [Bloomberg, 3/5/2009]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Less than one month after his inauguration, President Barack Obama signs into law a $787 billion recovery package, stating that this will “set our economy on a firmer foundation.” However, Obama reiterates during the bill’s signing ceremony at the Denver Museum of Nature and Science that he will not pretend “that today marks the end of our economic problems, nor does it constitute all of what we have to do to turn our economy around. Today marks the beginning of the end, the beginning of what we need to do to create jobs for Americans scrambling in the wake of layoffs.” The legislative battle on the bill ended with only three Republican votes in the Senate and none in the House. As president-elect, Obama initially expected to spend between $675 billion and $775 billion on the recovery package, and the final number is almost exactly that. However, Congress included $70 billion worth of tax cuts in the bill they approved, although more than a few economists say $70 billion in tax cuts won’t create as many new jobs as $70 billion in spending would. According to the government’s Recovery (.gov) Web site, the 2009 American Recovery and Reinvestment Act:
bullet Saves and creates more than 3.5 million jobs over the next two years;
bullet Takes a big step toward computerizing Americans’ health records, reducing medical errors, and saving billions in health care costs;
bullet Revives the renewable energy industry and provides the capital over the next three years to eventually double domestic renewable energy capacity;
bullet Undertakes the largest weatherization program in history by modernizing 75 percent of federal building space and more than one million homes;
bullet Increases college affordability for seven million students by funding the shortfall in Pell Grants, increasing the maximum award level by $500, and providing a new higher education tax cut to nearly four million students;
bullet Enacts the largest increase in funding of the nation’s roads, bridges, and mass transit systems since the creation of the national highway system in the 1950s;
bullet Provides an $800 “Making Work Pay” tax credit for 129 million working households, and cuts taxes for the families of millions of children through an expansion of the Child Tax Credit;
bullet Requires unprecedented levels of transparency, oversight, and accountability.
White House press secretary Robert Gibbs says Obama will seek additional stimulus/recovery funding if needed. [New York Times, 2/17/2009; recovery.gov, 2/17/2009]

Entity Tags: Obama administration, Barack Obama, Robert Gibbs

Category Tags: Bailouts and Other Government Aid, Commentaries on Economic Issues, USA, Obama Policies and Actions

Conservative syndicated columnist Cal Thomas uses a recent editorial by health care industry lobbyist Betsy McCaughey (see February 9, 2009) to accuse the Obama administration of planning a “euthanasia” program to exterminate hapless Americans. President Obama’s economic stimulus plan, Thomas writes, “means the government will decide who gets life-saving treatment and who doesn’t. It is survival of the fittest in practice.” Thomas then writes that the Obama administration’s support of legal abortions will inevitably lead to “euthanasia” of older and less productive citizens. He quotes a 1979 book by theologian Francis Schaeffer and future Surgeon General C. Everett Koop, Whatever Happened to the Human Race? as saying, “Will a society which has assumed the right to kill infants in the womb—because they are unwanted, imperfect, or merely inconvenient—have difficulty in assuming the right to kill other human beings, especially older adults who are judged unwanted, deemed imperfect physically or mentally, or considered a possible social nuisance?” Thomas then writes, “No one should be surprised at the coming embrace of euthanasia.” Schaeffer and Koop’s prediction that “the next candidates for arbitrary reclassification as nonpersons are the elderly” now “seems to be coming true,” Thomas writes. He also repeats a claim from the 92-year-old Koop that in 1988, he had suffered from an ailment that temporarily paralyzed him. Under Britain’s government-run health care, Koop claims, “I would have been nine years too old to have the surgery that saved my life and gave me another 21 years.” Soon, Thomas writes, “dying will become a patriotic duty when the patient’s balance sheet shows a deficit.” [Tribune Media Services, 2/18/2009]

Entity Tags: Obama administration, Elizabeth (“Betsy”) McCaughey, Francis Schaeffer, C. Everett Koop, Cal Thomas

Timeline Tags: US Health Care, Domestic Propaganda, 2010 Elections

Category Tags: USA, Commentaries and Criticisms

Citigroup CEO Vikram Pandit is in talks with the US government to increase the amount of public ownership of the bank in a move both politicians and bank bosses hope will avert the need for the ailing corporation to be taken into FDIC receivership (see March 15, 2008). Talks commenced after Citigroup shares dropped more than 20 percent in late trading on Friday, leaving the business with a share value of $10.6 billion, with balance sheet assets of $1.95 trillion. Government receivership of Citigroup is seen as politically unpalatable, and US taxpayers could conceivably own up to 40 percent of Citigroup. Economists see government takeover of the corporation as evidence of other major banks struggling with insolvency. The failure of major banks will have calamitous repercussions. The US treasury says it remains committed to helping the banking industry recover without taking complete control. “Because our economy functions better when financial institutions are well managed in the private ­sector, the strong presumption… is that banks should remain in private hands,” the Treasury Department said in a joint statement with the Federal Reserve. Speculation that a major Wall Street institution could be taken into public ownership toppled the market on Friday, February 20; likely targets were heavily rumored to be Citigroup and Bank of America. Bank of America lost nearly half its share value in three days before rallying late Friday afternoon. The latest talks center on a Treasury Department proposal to convert preference shares in Citigroup into new ordinary shares. This move would not involve additional taxpayer funds, but taxpayers would surrender the guaranteed dividends that come with preference stock, as well as some degree of protection in the event of a corporate collapse. Serious questions remain, such as the price at which new shares are issued. Estimates of the size of the government’s eventual stake range from 25 percent to 40 percent. With this move, Barack Obama’s administration would become a major presence on Citigroup’s ordinary share register, thus diluting the interests of existing investors, and heightening fears of political pressure being brought on US banks. Some analysts suggest that banks relying on taxpayer bail-outs are being encouraged to focus lending and liquidity on the national US market. [Guardian, 2/23/2009]

Entity Tags: Obama administration, Citigroup, Vikram Pandit, US Department of the Treasury, US Federal Reserve

Category Tags: Bailouts and Other Government Aid, USA, Obama Policies and Actions

Global recession fears deepen as uncertainty regarding bank bailout plans drives negative investor sentiment on Wall Street. The Dow Jones index closes down 196.01 points, or 2.7% at 7169.66, the lowest since October 1997. The S&P 500 index loses 2.9% to 747.94, below its lowest close since April 1997. Investors initially welcomed reports that the Feds would convert an earlier investment in Citigroup into a large common stock holding, but enthusiasm faded as long-standing uncertainty about the government’s ultimate plan for banks resurfaced to pull indexes lower. European stocks also retreat, sending the Dow Jones Stoxx 600 Index to a new six-year low. It slides 0.9% to 175.29, dropping for a second straight day and closing at its lowest level since March 13, 2008. National benchmark indexes dropped in 15 of the 18 western European markets. [National Business Review, 2/23/2009]

Category Tags: USA

According to the Federal Deposit Insurance Corporation (FDIC), banks and thrifts issued reports of a fourth quarter 2008 net loss totaling $26.2 billion as well as a $27.8 billion decline from the $575 million earned in fourth quarter 2007; it is the first quarterly loss since 1990. Rising loan-loss provisions, losses from trading activities, and goodwill write-downs also contributed to the loss as banks continue to repair their balance sheets in order to return to future profitability. While more than two-thirds of all insured institutions were profitable, earnings were diluted by large losses at a number of big banks. “Public confidence in the banking system and deposit insurance is demonstrated by the increase in domestic deposits during the fourth quarter,” FDIC Chairman Sheila Bair says. “Clearly, people see an FDIC-insured account as a safe haven for their money in difficult times.” FDIC-insured lenders reported net income of $16.1 billion in 2008, down from $100 billion in 2007 and the lowest since the $11.3 billion reported in 1990, the agency says. Regulators shuttered 25 banks last year, including Washington Mutual Inc., the biggest bank failure in US history. Regulators have so far seized 14 lenders this year, including eight in February. [Bloomberg, 2/26/2009; Federal Deposit Insurance Corporation, 2/26/2009; FDIC News and Events, 2/26/2009, pp. Press Releases]

Entity Tags: Federal Deposit Insurance Corporation, Sheila Bair

Category Tags: USA

Official numbers released today show that the US economy fell by 6.2 percent during the fourth quarter of 2008. The decline was much worse than analysts initially predicted, sending US stocks spiraling lower. “Plunging exports and the biggest fall in consumer spending in 28 years dragged the annualized figure down from the preliminary estimate of 3.8 percent,” the BBC reports. As a whole, in 2008, the economy grew at its slowest pace since 2001, posting a mere 1.1 percent growth. The blue-chip Dow Jones industrial average dropped 119.15 points, or 1.66 percent, to 7,062.93. The broader Standard & Poor’s 500 Index fell 2.36 percent to 735.09, a 12-year low. US consumer spending accounts for nearly two-thirds of domestic economic activity, but fell by a rate of 4.3 percent in the final quarter—the biggest fall since the second quarter of 1980. This was a revision of the earlier figure of 3.5 percent. Rising unemployment, sliding home values, increasing numbers of repossessions, and the slumping value of investments indicate that many US consumers are hanging on to disposable cash. US exports fell at the sharpest rate since 1970 at an annual rate of 23.6 percent, down from 19.7 percent. Prior to the current economic crunch, exports supported the economy. “It shows the weak state of the world’s largest economy,” says Matt Esteve, a currency trader at Tempus Consulting. “Latest GDP figures are just awful and illustrates the weak state of the world’s largest economy.” Boris Schlossberg, director of currency research at GFT Forex, adds, “There is doom all over,” but predicts that the dollar would not weaken too much against the euro since “there’s no good news on the other side of the Atlantic, either.” [BBC, 2/27/2009]

Entity Tags: GFT Forex, Dow Jones Industrial Average, Matt Esteve, Standard & Poor’s, Tempus Consulting, Boris Schlossberg

Category Tags: USA, Bush Policies and Actions

Representative Mary Bono Mack (R-CA) expresses her outrage over the so-called “Disneyland to Las Vegas” train (see February 13, 2009 and After), saying she cannot believe President Obama’s economic stimulus plan has ”$1 billion wasted on a magnetic-levitation train from LA to Sin City.” When challenged by reporter Dick Spotswood over the disproven claim, Mack sends a staff member to “get him the bill, it’s right there, show him.” As Spotswood later reports, “A few minutes later, a staffer emerges with a copy and quietly says ‘it’s not in the bill.’” [Marin Independent Journal, 3/1/2009]

Entity Tags: Mary Bono Mack, Dick Spotswood

Category Tags: USA, Commentaries and Criticisms, Obama Policies and Actions

Citigroup logo.Citigroup logo. [Source: Citigroup]The latest government bailout gives Citigroup bond holders excellent terms and doesn’t provide the bank with new money. Instead, Citigroup cut expenses with the elimination of preferred stock dividends, and also converted shares into common equity at an above-market-value of $3.25, positioning itself to take the first hit if it encounters additional losses. Analysts are predicting that the company’s losses will continue to increase. Since the beginning of 2009, Citigroup’s stock has fallen 78 percent. “Debt holders could eventually be required to participate in further government-led restructuring actions,” Standard and Poor’s says. [Bloomberg, 3/2/2009] Citigroup CEO Vikram Pandit tells investors that increasing the bank’s “tangible” common equity from $29.7 billion to as much as $81 billion should “take confidence issues off the table,” about the bank’s loss absorption ability. The bank lost $27.7 billion in 2008, and is predicted to lose $1.24 billion during the first six months of 2009. “There’s no difference here,” says Christopher Whalen, co-founder of Institutional Risk Analytics, a Torrance, California risk-advisory firm. “It won’t fix revenue, and you’re still going to see loss rates.” Whalen says that the government’s efforts are mainly protecting other financial institutions and foreign goverments that are Citigroup bonds holders. “The taxpayer is funding the operating loss and protecting the bondholders,” Whalen notes. “The subsidy for the banks will become one of the biggest lines in Washington’s budget.”
Government Should Organize Citigroup, AIG Bondholders - Whalen also says it would be better if the government organized Citigroup and insurer American International Group Inc. bondholders, since the insurer received a $150 billion US bailout, and also made a deal with the government to convert some of its debt to equity. US government investment fell by more than 50 percent, and the government plans to convert up to $25 billion of its preferred stock to common shares, gaining a 36 percent stake in the bank. At Friday’s closing price of $1.50, government investment is worth approximately $11.5 billion. The bank itself has a stock market value of $8.2 billion as of market closing on February 27.
Analyst: Investors Should Avoid Citigroup Shares - Richard Ramsden, head of a group of analysts at Goldman Sachs Group, recommends that investors avoid investing in Citigroup shares: “It is unclear whether this is the last round of capital restructuring, which means that existing equity may be further diluted in the future.” The bank’s move to convert preferred shares to common equity led Moody’s Investors Service to adjust its senior debt rating for the bank from A3 to A2. Standard and Poor’s also changed its outlook on the bank’s debt from negative to stable. “Citi will face a tough credit cycle in the next two years, which will likely result in weak and volatile earnings,” S&P analyst Scott Sprinzen says. “We cannot rule out the possibility that further government support may prove necessary.” With the first two Citigroup rescue bailouts, the US Treasury bought $45 billion of preferred stock, and the Federal Reserve and FDIC guaranteed the bank against all but $29 billion of losses on a $301 billion portfolio of assets. With the third bailout, the Treasury, the Government of Singapore Investment Corporation, Saudi Prince Alwaleed bin Talal, and other preferred stockholders, agreed to take common stock at $3.25 a share, giving up dividends. The chairman of the House Ways and Means Committee, Charles Rangel (D-NY), says: “The administration and the past administration have tried so many different ways that we can only hope and pray that this time they get it right. It seems like with the banks it is a never-ending thing.” [Bloomberg, 2/28/2009]
Third US Rescue Forces Citigroup Board Changes - The Obama administration demonstrated its willingness to force changes on executives at top banks that receive taxpayer-funded rescue packages by pressing Citigroup to reorganize its 15-member board with new, more independent members. The move sends a message to Wall Street that there are consequences when taxpayer dollars are used to save them. “The government is the new boss, and the new executive committee is no longer on Park Avenue,” says Michael Holland who, as chairman and founder of New York’s Holland & Co., manages nearly $4 billion in investments. [Bloomberg, 3/2/2009]

Entity Tags: Government of Singapore Investment Corporation, Christopher Whalen, Charles Rangel, Alwaleed bin Talal, AIG (American International Group, Inc.), Federal Deposit Insurance Corporation, Vikram Pandit, US Department of the Treasury, Citigroup, Richard Ramsden, Moody’s Investors Service, Standard & Poor’s, Michael Holland, Institutional Risk Analytics, Scott Sprinzen, US Federal Reserve

Category Tags: Bailouts and Other Government Aid, USA, AIG, Failing Companies, Obama Policies and Actions

On the same day AIG announces the biggest loss ever in corporate history (see October-November 2008), the bailout of the troubled insurer is again increased and its terms eased. First, the US Treasury and Federal Reserve announce a plan to spend up to $30 billion more on preferred shares. However, the Treasury says the dividend on preferred stock, previously 10 percent, might fall. In addition, the bailout’s terms and conditions are altered to give the insurer a billion-dollar-a-year break on interest and dividend payments. [Bloomberg, 3/5/2009; Reuters, 4/17/2009] The size of the bailout, initially $85 billion, has now more than doubled, and the terms have been eased repeatedly (see September 16, 2008, October 8, 2008, and November 10, 2008).

Entity Tags: US Federal Reserve, AIG (American International Group, Inc.), US Department of the Treasury

Category Tags: Bailouts and Other Government Aid, Failing Companies, USA, AIG

US Federal Reserve Chairman Ben Bernanke tells a Senate committee that having to rescue the insurer AIG made him “more angry” than any other episode during the financial crisis. “AIG exploited a huge gap in the regulatory system, there was no oversight of the financial products division,” Bernanke says. “This was a hedge fund basically that was attached to a large and stable insurance company.” In addition, on this day stock in AIG closes at 43 cents. [Bloomberg, 3/5/2009]

Entity Tags: US Federal Reserve, Ben Bernanke, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Having received over $170 billion in taxpayer bailout funds in the last five months, troubled insurance giant American International Group (AIG) pays executives nearly $200 million in bonuses. The largest are bonus payouts that cover AIG Financial Products executives who sold risky credit default swap contracts that caused huge losses for the insurer (see September 16, 2008). Despite a request by US Treasury Secretary Timothy Geithner for the insurance conglomerate to curtail future bonus pay—and AIG’s agreement to do so—the global insurer cuts bonus checks on Sunday, March 15, 2009, in order to meet a bonus payment agreement deadline. The Treasury Department has publicly acknowledged that the government does not have the legal authority to block current bonus payments, although AIG stated in early March that it suffered its largest corporate loss in history, when it reported fourth quarter 2008 losses of $61.7 billion.
Treasury Tried to Prevent Payments - An anonymous Obama administration official says that on March 11 Geithner called AIG Chairman Edward Liddy demanding that the CEO renegotiate the insurer’s present bonus structure. In a letter, Liddy informed Geithner that outside lawyers had advised AIG that the company could face lawsuits, should they not make the contractually obligated payments. “AIG’s hands are tied,” Liddy wrote, although acknowledging that, with the company’s fiduciary situation, he found it “distasteful and difficult” to approve and pay the bonuses. He wrote that the early 2008 bonus payments agreement was entered into prior to the company being forced last fall to obtain the first taxpayer bailout because of the company’s severe financial distress.
Some Monies Already Paid Out - A white paper generated by AIG asserted that the firm had already distributed $55 million in “retention pay” to nearly 400 AIG Financial Products employees. According to the white paper, the global entity “will labor to reduce 2009 bonus payment amounts,” trimming payouts by at least 30 percent this year. [Associated Press, 3/15/2009]

Entity Tags: Edward Liddy, AIG (American International Group, Inc.), Timothy Geithner, US Department of the Treasury

Category Tags: Bailouts and Other Government Aid, USA, AIG, Failing Companies

Troubled insurer AIG discloses that several US and European banks have been beneficiaries of the government’s bailout of the insurance company (see September 17-October 7, 2008). It announces that more than $90 billion was paid to various banks between the September bailout and the end of 2008. The banks include Goldman Sachs, Société Générale, Deutsche Bank, Barclays, Merrill Lynch, and Bank of America. Goldman Sachs, which received $12.9 billion between mid-September and the end of December—making it the largest beneficiary, will later say it did nothing wrong by accepting payments to close out trades before and after the insurer was rescued. [Reuters, 4/17/2009]

Entity Tags: Barclays Bank, Bank of America, Société Générale, Goldman Sachs, AIG (American International Group, Inc.), Deutsche Bank, Merrill Lynch

Category Tags: Failing Companies, USA, AIG

US President Barack Obama attacks the payment of over $200 million in bonuses to top AIG employees (see March 15, 2009). As the company is being propped up by the government using public money (see September 16, 2008, October 8, 2008, and November 10, 2008), Obama calls the bonuses an “inappropriate use of taxpayer funds.” [Reuters, 4/17/2009]

Entity Tags: Barack Obama, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG, Obama Policies and Actions

The US House of Representatives passes a bill imposing a 90 percent tax on bonuses paid to AIG executives. The bonuses were set to be paid in December 2008 and earlier in the month, but there has been a public outcry against them, as the company had to be bailed out by the taxpayer six months ago (see September 16, 2008 and March 15, 2009). [Reuters, 4/17/2009] However, President Obama soon challenges the bill’s legality, saying: “I think that as a general proposition, you don’t wanna be passing laws that are just targeting a handful of individuals. You wanna pass laws that have some broad applicability. And as a general proposition, I think you certainly don’t wanna use the tax code to punish people.” The Democratic leadership in the Senate then says that it will wait and see what happens, instead of immediately acting on the bill forwarded by the House of Representatives. This effectively shelves the bill, although several of the executives give their bonuses back anyway (see March 24, 2009). [Politics Daily, 3/24/2009]

Entity Tags: Barack Obama, US Congress, AIG (American International Group, Inc.)

Category Tags: AIG, Failing Companies, USA, Obama Policies and Actions

Edward Liddy, chief executive officer of troubled insurer AIG, asks employees to repay part of their bonuses. The bonuses were to be paid out in late 2008 and earlier this month, but there has been a public outcry over them, due to the billions of dollars taxpayers have spent rescuing the company (see September 16, 2008 and March 15, 2009). According to Liddy, employees receiving more than $100,000 in bonuses should repay at least half. [Reuters, 4/17/2009]

Entity Tags: Edward Liddy, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Fifteen of the top 20 beneficiaries of bonuses at troubled insurer AIG have given the payments back, says New York Attorney General Andrew Cuomo. The bonuses were to be paid out at the end of 2008 and earlier this month, but there was a public outcry over them as the taxpayer had spent about $180 bailing the company out (see September 16, 2008, March 15, 2009, March 18, 2009, and March 19, 2009). [Reuters, 4/17/2009]

Entity Tags: Andrew Cuomo, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Arguing against taxing corporate bonuses, Fox Business Network anchor Dagen McDowell compares such taxation to sexual abuse: “You don’t want to think if you get in bed with Uncle Sam he’s going to strip you naked, chain you to the bed, leave you there, and then take nasty pictures of you and then put them on the Internet. Because that’s what’s been happening.” Fox News correspondent Bill Hemmer calls McDowell’s remarks “well stated.” [Think Progress, 3/24/2009]

Entity Tags: Bill Hemmer, Fox Business Network, Dagen McDowell

Category Tags: USA, Commentaries and Criticisms

House Minority Leader John Boehner (R-OH) produces a Republican alternative to the Obama administration’s $3.6 trillion budget proposal. Calling President Obama’s budget “completely irresponsible,” Boehner holds up a booklet on the floor of the House and says: “Two nights ago the president said, ‘We haven’t seen a budget yet out of Republicans.’ Well, it’s just not true because—Here it is, Mr. President.” Boehner calls the booklet a “blueprint for where we’re going.” However, the booklet contains almost no details and no actual numbers; the Associated Press calls it “a glossy pamphlet short on detail.” Boehner’s House colleague Paul Ryan (R-WI) says more details will be revealed next week. “We’re going to show a leaner budget, a budget with lower taxes, lower spending, and lower borrowing,” Ryan says. “Our plan curbs spending, creates jobs, and cuts taxes, while reducing the deficit,” says Boehner. When asked about specifics, including where the cuts would come from, Boehner tells a reporter, “We’ll wait and see next week.” [CNN, 3/26/2009; Associated Press, 3/27/2009]
Cutting Deficits, Lowering Taxes for Wealthy Americans and Working Class - The proposal does not specify how it would reduce the federal deficit. It does advocate heavy cuts in domestic spending and lowering tax rates: the Republicans propose reducing the 35 percent, 33 percent, and 28 percent tax brackets to 25 percent, which would result in significant tax cuts for wealthier Americans. The proposal would also reduce the tax rate for those making below $100,000 to 10 percent. Liberal analyst Matthew Yglesias notes, “It’s strange that the Republicans railing about long-term deficits seem to love long-term deficits when the point of the deficits is to further enrich the rich.” [Think Progress, 3/26/2009]
No Actual Numbers - Representative Mike Pence (R-IN) says “[i]t’s not likely” that the GOP budget will be adopted. However, Pence says he believes “that a minority in Congress plus the American people equals the majority.” Pence adds, “We intend to take our case for fiscal discipline, growth, and tax relief to the American people from sea to shining sea and if the American people will rise up, anything is possible on Capitol Hill.” White House press secretary Robert Gibbs laughs at the Republicans’ budget proposal, noting that the blueprint contains more pictures of windmills than charts. “It’s interesting to have a budget that doesn’t contain any numbers,” he says. “I think the ‘party of no’ has become the ‘party of no new ideas.‘… The administration is glad that the Republicans heard the president’s call to submit an alternative,” he says. “We just hope that next time it will contain actual numbers so somebody can evaluate what it means.” Obama’s proposal is likely to be modified by more conservative Democrats in the upcoming days. Senate Republicans later say that they do not intend to submit a specific alternate proposal to Obama’s budget, a decision that the Associated Press notes “spares them the need to make politically difficult choices.” [CNN, 3/26/2009; Associated Press, 3/27/2009] Asked about the proposal’s effect on the federal deficit by MSNBC correspondent Norah O’Donnell, Pence is unable to answer the question. O’Donnell asks: “So you don’t have the numbers now? About what your plan would be in terms of how it would cut the deficit or add to the deficit? You don’t have any numbers on that?” Pence attempts to duck the question: “Well, it’s really a broad—when the White House a few minutes ago was attacking the numbers in this bill, the tax cut numbers. There’s plenty of numbers in the Republican recovery plan. And we just really believe the president’s plan to raise taxes by nearly 2 trillion dollars on almost every American… deserves a debate on Capitol Hill.” O’Donnell responds, “[H]ow is your plan credible?” Pence replies: “Well, I thought through this morning, we didn’t have a plan, so it may be progress our plan is being attacked.… This is the broad outline.” [Think Progress, 3/26/2009]
'Marketing Document' - Five days later, Ryan will admit that the “budget proposal” being offered by Boehner is nothing more than a “marketing document” (see April 1, 2009).

Entity Tags: Paul Ryan, Mike Pence, Matthew Yglesias, Norah O’Donnell, John Boehner, Obama administration, Robert Gibbs

Category Tags: USA, Commentaries and Criticisms

A proposal by two Senators, Jon Kyl (R-AZ) and Blanche Lincoln (D-AR), to cut $250 billion in estate taxes for the children of multi-millionaires, garners what progressive think tank the Center for American Progress calls “a disturbing amount of support.” The New York Times writes that for Kyl and Lincoln: “[T]he most pressing [economic] issue is clear: America’s wealthiest families need help. Now.” The Kyl-Lincoln proposal would raise the estate tax exemption from $7 million to $10 million per couple and lower the top rate from 45 percent to 35 percent. Kyl, Lincoln, and other supporters say the estate tax cuts would protect small farms and businesses. This claim is refuted by the Center on Budget and Policy Priorities, which notes that “only 0.2 percent of the additional cost of the proposal, relative to [the Obama proposal for estate taxes], would go toward tax cuts for small businesses and farms.” Around $249.5 billion of that money would go to the inheritors of estates worth over $7 million. According to both the Times and the Center for American Progress, less than 0.3 percent of Americans would pay estate taxes under Obama’s proposal; only those households worth over $7 million. The Times observes: “In addition to creating the false impression that the estate tax eventually hits everyone—by mislabeling it a ‘death tax’—opponents routinely denounce the 45 percent top tax rate as confiscatory. In fact, the rate applies only to the portion of the estate that exceeds the exemption. As a result, even estates worth more than $20 million end up paying only about 20 percent in taxes. Another misleading argument is that the estate tax represents double taxation. In truth, much of the wealth that is taxed at death has never been taxed before. That’s because such wealth is often accrued in the form of capital gains on stocks, real estate, and other investments. Capital gains are not taxed until an asset is sold. Obviously, if someone dies owning an asset, he or she never sold it and thus never paid tax on the gain. If those arguments aren’t enough to stop the Lincoln-Kyl show, lawmakers should consider this: The estate tax creates a big incentive for high-end philanthropy, because charitable bequests are exempt.” [New York Times, 4/1/2009; Think Progress, 4/1/2009]

Entity Tags: New York Times, Blanche Lincoln, Center for American Progress, Obama administration, Center on Budget and Policy Priorities, Jon Kyl

Category Tags: USA

The insurer AIG, bailed out by the US government the previous year (see September 16, 2008), is in talks with the US Federal Reserve over extra credit, according to the Financial Times. The negotiations concern a $5 billion credit line that could be used to facilitate the sale of the company’s aircraft leasing business. [Reuters, 4/17/2009]

Entity Tags: US Federal Reserve, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

President Barack Obama implements a home mortgage rescue plan that he says will prevent as many as 9 million Americans from losing their homes to foreclosure. Obama says that turning around the battered economy requires stemming the continuing tide of foreclosures. He says that the housing crisis that began last year set many other factors in motion and helped lead to the current, widening recession. “In the end, all of us are paying a price for this home mortgage crisis,” Obama says. “All of us will pay an even steeper price if we allow this crisis to deepen. The American dream is being tested by a home mortgage crisis that not only threatens the stability of our economy but also the stability of families and neighborhoods. While this crisis is vast, it begins just one house and one family at a time.” Of the nearly 52 million US homeowners with a mortgage, about 13.8 million, or nearly 27 percent, owe more on their mortgage than their home is currently worth. Obama’s plan contains three initiatives:
bullet Fannie Mae and Freddie Mac homeowners owing between 80 and 105 percent of what their homes are worth can refinance their mortgage. Prior to implementation of the rescue plan, only those borrowers with at least 20 percent home equity could refinance. Refinancing at a lower rate may save borrowers thousands of dollars yearly on their mortgage payments.
bullet Banks will be encouraged to work with homeowners to modify existing mortgages, which is different from refinancing. The Bush administration plan, “Hope for Homeowners,” passed late in 2008, tried to do what Obama has now accomplished, but, since banks were not eager to modify terms to help people stay in their houses, the Bush plan is considered a failure. Under Obama’s plan, banks who received TARP funding will have to participate and, if they do not, Obama may request that the Congress allow bankruptcy judges to modify mortgage terms. Before Obama’s new plan, judges already had the power to modify mortgage terms on a homeowner’s second and third homes, although not on their primary residences.
bullet Interest rates will be kept low by having the Treasury Department buy up mortgage-backed securities from Fannie Mae and Freddie Mac, in the hope of re-inflating the market for mortgage-related products, even if Treasury may be overpaying for toxic assets in a market with few, if any, other buyers. [Mother Jones, 2/18/2009; CNN, 4/16/2009]

Entity Tags: US Department of the Treasury, Barack Obama, Fannie Mae, Freddie Mac, George W. Bush, Troubled Asset Relief Program

Category Tags: Bailouts and Other Government Aid, USA, Obama Policies and Actions

The insurance company AIG sells its US auto insurance unit to Zurich Financial Services AG for $1.9 billion. This will make the Swiss company the third largest US personal line insurer. [Reuters, 4/17/2009] This sale is part of an AIG program to sell business units in order to repay bailout loans to the government (see September 18, 2008).

Entity Tags: Zurich Financial Services AG, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

The US Senate rejects an amendment to the US Bankruptcy Code supported by President Barack Obama that would have saved nearly 2 million homeowners facing foreclosure. Sponsored for the second time in as many years by Senate Majority Whip Richard Durbin (D-IL), the controversial amendment would have given judges the power to modify home mortgages, but strong opposition from the banking industry—as well as 39 Republicans and 12 Democrats—prevents passage. The House version of the controversial measure passed in March 2009. Called the ‘cramdown,’ the provision was supported by Obama as a final recourse for people to keep their homes. The amendment was a major priority of congressional Democrats and the Obama administration in a drive to tackle the housing crisis. “[H]ard to believe in a time when we’re facing a banking crisis that many of the banks created—[that the banks] are still the most powerful lobby on Capitol Hill. And they frankly own the place,” Durbin said earlier in the week during an interview with Illinois radio. [ProgressIllinois.com, 4/29/2009; MinnPost.com, 4/30/2009]

Entity Tags: Barack Obama, Richard (“Dick”) Durbin

Category Tags: Bailouts and Other Government Aid, USA, Obama Policies and Actions

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