We worried some weeks ago about what the FDIC, who’s capitalization is awfully small to look very useful against any serious glut of bank failures, was going to do if things started to fall apart. It appears we have our answer:
The Federal Deposit Insurance Corporation is seeking temporary unlimited borrowing authority from the Treasury Department, according to a copy of the final Senate bailout legislation on Wednesday.
The saving grace here is that FDIC actually seems to know what the hell it is doing. Not only that, but they seem to have a particular affinity for public relations and youth outreach. We badly want to make (more) fun of Chairwoman Bair, but since there are so few heros and heroines in “crisisland,” we can’t bring ourselves to rock the boat. Have your unlimited borrowing authority, Bair. Use it well.
FDIC seeking temporary unlimited Treasury loans [Reuters]
i want unlimited borrowing authority too
The FDIC does not know what it is doing. Why did they agree to insure losses on the Wachovia portfolio above $48bln when Citi manages the portfolio. Citi has no incentive to minimize losses in the tail scenario (which seems where we are headed). They should have attached lower (say $40bln) and agreed to absorb only 50% of the losses above $40bln. They are novices getting their faces ripped off.
Does anyone have a link to that “Wall Street Madness” bracket that was posted here a while back?
please note this has nothing to do with insuring savings account, the FDIC will use the Federal Financing Bank to borrow enough funds in an attempt to resolve this crisis. Be warned… The FFB was not meant for this…
Wasn’t the FDIC just on the tape last week saying they wouldn’t be needing any sort of bail out?
24 millions Americans get bailed out of the AMT tax
http://www.nytimes.com/2008/10/02/business/02bailout.html?ref=politics
carney a day late on the story-
http://www.clusterstock.com/2008/10/layoffs-watch-ubs-to-cut-1900-jobs
http://dealbreaker.com/2008/09/layoffs-watch-08-ubs.php
http://static.seekingalpha.com/uploads/2008/9/30/saupload_bracket.png
5 – where can I put some money on a $1 trillion budget deficit for 2009?
@2
You raise a good point. Citi really has no incentive to minimize damage from its acquisition of WB. They could mark their loans way down, force the FDIC to pay the bill, then make a ton of money down the road at the expense of the US taxpayer.
Paul O’Neil does not heart bailout.
http://www.bloomberg.com/apps/news?pid=20601068&sid=axb_haAIXhYs&refer=home
@10 don’t you think there is some kind of provision in the deal that says if the assets are marked back up citi repays?
I’m making an assumption the FDIC isnt that stupid…
While the house deliberated over a $700 billion giveaway of our money, Bair’s FDIC quietly guaranteed $270 billion of toxic Wachovia paper. I don’t know why Paulson and company even bothered to consult congress when they seem to be able to spend a few hundred billion any time they feel like it.
“(B) OTHER EXCEPTIONS.—The Secretary
shall establish an exception to the requirements of this subsection and appropriate alternative requirements for any participating financial institution that is ***legally prohibited*** from issuing securities and debt instruments, so as not to allow circumvention of the requirements of this section.”
pg 39
Paulson’s shoutout to Sam Israel and Thane Ritchie.
Citi has almost no risk in that deal, writing down $30bn day one against WB bookvalue so no hit to their cap ratios and FDIC prefunding the next 12bn in losses by purchasing below market prefs from Citi. Not only does that prefund Citi losses, they get to count it 100% in their Tier 1 Cap ratios. WB basically given to Citi with FDIC retaining all the risk. Unfortunately FDIC knows what it is doing, which is a backdoor commitment of taxpayer funds without direct Congressional approval.
@2, 10, 12;
The FDIC was granted warrants which it gets to exercise and dilute existing Citi shareholders should the FDIC end up holding the bag.
Shanghai gets billions from Uncle Sam!
http://globaleconomicanalysis.blogspot.com/2008/10/rep-brad-sherman-on-bailing-out-foreign.html
@17: Of course we have to keep our masters in China happy. Who do you think they is expected to fund this “unlimited” borrowing?