Financial-Rescue Legislation

Senate May Try to Revive Financial-Rescue Legislation
By Alison Fitzgerald and Matthew Benjamin

Sept. 30 (Bloomberg) -- The U.S. Senate will try to salvage a $700 billion financial-rescue package after the measure was defeated in the House of Representatives. The lawmakers won't have a lot of room to negotiate.

While the legislation will need to be tweaked enough to win over reluctant House Republicans, the lawmakers will risk losing votes from Democrats if they veer too far from the delicate compromise that congressional leaders hammered out with the U.S. Treasury.


They're not going to totally revamp the bill,'' said Pete Davis, president of Davis Capital Investment Ideas in Washington, who spoke to House and Senate leaders yesterday. They'll make some minor changes and pass it. This is all about political cover.''
The House rejected the legislation yesterday in a 228 to 205 vote, sending the Dow Jones Industrial Average tumbling 778
points for its biggest point drop ever and erasing more than $1 trillion in market value. The Standard & Poor's 500 Index fell 8.4 percent, the most since Oct. 26, 1987. The S&P 500 today rose 40.09 points, or 3.6 percent, at 11:51 a.m. in New York. The Dow Jones Industrial Average gained 291.27 or 2.81 percent to 10,656.72.



A Different Result
Senators say they have no choice but to revive the measure, which is designed to restore confidence in the nation's banking system.
We don't intend to leave here without the job being done,'' said Banking Committee Chairman Christopher Dodd, a Connecticut Democrat. He said lawmakers will hopefully come back Wednesday and get a different result.''
Senate Minority Leader Mitch McConnell, a Kentucky Republican, vowed that the lawmakers would take action soon. We intend to pass this legislation this week and we will pass it on a broad bipartisan basis,'' he said today on the chamber floor. Senate Majority Leader Harry Reid, a Nevada Democrat, said approving the legislation is the top priority.
Money-market rates jumped in Europe today, with lenders hoarding cash as the third quarter ends. Rates on three-month loans in dollars were as high as 10 percent as of 10:50 a.m. in London, said Ronald Tharun, a money-market trader at Landesbank Baden-Wuerttemberg in Stuttgart.
To pick up the 12 votes needed to pass the bill in the House, the bill will need cosmetic changes, lawmakers and analysts say. Ninety-five Democrats joined the 133 Republicans who voted against the bill. Both sides are looking for changes.



Expanded FDIC Role?
House Republican conservatives are likely to keep pressing for a mandatory insurance program they initially proposed for mortgage-backed securities. They may also try to force the Securities and Exchange Commission to suspend mark-to-market accounting and require bank regulators to assess the real value of the troubled assets, lawmakers say.
Either measure could drive away Democratic votes.
The Senate may also consider expanding the authority of the Federal Deposit Insurance Corp., Dodd said today.
Under one plan, pushed by House Republicans, the FDIC would issue lenders certificates they could use as capital, which the banks would have to pay back with interest. The proposal would give the FDIC more say in how the institutions are run.
Democrats say they may also seek stronger oversight on the rescue plan, tougher limits on executive compensation and more relief for homeowners facing foreclosure.



Bankruptcy Provision
Some Democrats want a provision that would allow bankruptcy judges to alter the terms of a home mortgage for individuals in bankruptcy, even reducing the principal balance. That would be a deal-killer for many Republicans, a danger that presidential nominee Barack Obama recognized: He opposed including that in the original bill, angering fellow Democrats.
The Senate won't hold any roll-call votes today because several lawmakers will be celebrating Rosh Hashanah, the Jewish New Year. Gregg and Dodd urged investors not to view that pause as inaction.
We can certainly work,'' said Dodd.
House Majority Leader Steny Hoyer said he expects his chamber to be ready to take up the plan again after a Senate vote. We're not out of business until this is addressed,'' Hoyer said.
Hoyer said he has spoken with Republican Whip Roy Blunt and both are committed to working together on a compromise.
Some lawmakers are proving tough to sell on the plan.



Better Bill
We can craft a much better bill,'' said Representative Brad Sherman, a California Democrat who voted against the bill. He objected to the ``tens of billions of dollars'' that could go to foreign companies and said the oversight board the plan would create would be powerless.
Sherman wants more relief for homeowners and stronger restrictions on executive compensation, among other measures.
Representative Jeb Hensarling, a Texas Republican, said most Republican conservatives oppose the idea of Treasury purchasing troubled assets, because it puts too much of the expense on taxpayers.
That is a model that House conservatives feel is fundamentally flawed,'' said Hensarling, the chairman of a group of more than 100 House Republican conservatives called the Republican Study Committee.
Still, the markets may dictate that Congress act now.
It's just not acceptable for Congress to essentially tell Main Street or Wall Street to drop dead,'' said Chris Lehane, a Democratic consultant who was former Vice President Al Gore's communications director. The Dow dropping 777 points is a pretty powerful force to find another 12 votes.''

To contact the reporter on this story: Alison Fitzgerald in Washington at Afitzgerald2@bloomberg.netMatthew Benjamin in Washington at Mbenjamin2@bloomberg.net

Bailout by Stealth

Bailout by Stealth
While the public is distracted by the “bailout bill” and its rejection, trillions are pumped in to keep financial balloon inflated

James Corbett
The Corbett Report

The media is falling all over itself to report on every minutiae of the so-called Wall Street “bailout bill” and its rejection by Congress yesterday (just a few of the thousands of examples can be seen here and here and here and here). And why not? The media’s breathless coverage of the bill has produced a furious backlash by the public and hysteria on Wall Street in a self-justifying feedback loop that makes the media attention seem merited.

The startling truth which the controlled corporate media is not reporting, however, is that a bailout is actually taking place right now, completely out of the public spotlight. This program has already pumped trillions of dollars into Wall Street (compared to the mere $700 billion proposed in the legislation that the media is focusing on) to help prop up the faltering investment banks and promises to pump in even more, every dime of it to the detriment of the taxpayer though the public will have no stake in its success. Why, then, is this program not being talked about in the media?

Slipping under the radar last week amidst the hullabaloo in Washington over the bailout bill was this story noting that in the past week alone, the Federal Reserve had pumped an astonishing $188 billion per day into the system in the form of emergency credit. This means that in just four days, the Fed injected as much money into the system as the entire $700 billion bailout proposal. After the proposal was rejected, the Fed responded by immediately announcing it would pour another $630 billion into the global financial system.

The Federal Reserve, of course, is America’s central bank and although the above story conjures the reassuring image of a national bank lending out some of its vast reserves to help Wall Street weather the storm, the fact is that the Federal Reserve is not Federal and has doubtful reserves. In fact, the trillions of dollars that have been lent to the banks in the last few weeks were created out of nothing by the privately-owned Federal Reserve. When the Federal Reserve “lends” money to a bank through repurchase agreements (repos), credit auction or other method, it is not actually lending out money from its vaults. It is simply creating the money it “lends” out as electronic credits created in the recipient banks account. It is literally money out of thin air.

That the general public is on the hook for this money created out of nothing is not an exaggeration. It is paid for in a dimly-understood mechanism often known as the “inflation tax.”

Inflation is nothing more than an indication that the ratio of money to products that can be purchased with that money has been increased. Since the overall number of dollars has gone up without any corresponding increase in economic production (as happens when the Federal Reserve creates money out of thin air), the value of each individual dollar goes down. That means that the value of the money in each individuals’ bank account (not to mention their pension and social security dividends) can be reduced simply by the flick of a pen of a Federal Reserve paper-pusher. (Unless of course that individual just happens to be a billionaire investment mogul or a Vice President who can divest themselves of U.S. dollars in time for this inflation not to affect them.) This is sometimes known as an inflation tax because its overall effect is the same as if the government came in and took that value out of the individuals’ bank account.

The most insidious part of this inflation tax is that the inflation does not begin until the new money begins to circulate in the system. In other words, the first person (or, more likely, giant corporate conglomerate) to use the money receives its full value, while those at the bottom of the pyramid retrieve the diminished returns of a devaluing dollar.

Why, then, is the public not furious about this stealth bailout, now taking place at the blistering pace of nearly $1 trillion a week, and all to the taxpayer’s detriment? The obvious answer is that the media is not whipping the public into a frenzy about it, instead focusing its attention on a $700 billion program and allowing the public to feel like they scored a blow against Wall Street when the program gets rejected. If so, it’s time the public got wise to how the system is really being run by and for the benefit of private bankers and at the expense of the average taxpayer. Otherwise, the fleecing of the public will continue unabated even as the public thinks they’ve won the battle.

Fed Pumps $630 Billion Into Global Banking System

Fed Pumps $630 Billion Into Global Banking System

Sept. 29 (Bloomberg) -- The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.
The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

The Fed's expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, causing stocks to plunge and forcing European governments to rescue four banks over the past two days alone.

Today's blast of term liquidity will settle the funding markets down, and allow trust to slowly be restored between borrowers and lenders,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. On the other hand, ``the Fed's balance sheet is about to explode.''
The MSCI World Index of stocks in 23 developed markets sank 6 percent, the most since its creation in 1970. Credit markets deteriorated further as authorities tried to save more financial institutions from collapse.

European Rescue

European governments have rescued four banks in two days and the Federal Deposit Insurance Corp. said today it helped Citigroup Inc. buy the banking operations of Wachovia Corp. after its shares collapsed. The Standard & Poor's 500 Index fell 3.8 percent and the cost of borrowing dollars for three months rose to the highest since January. The rate for euros hit a record.

If people think the authorities may give in to fears, they are wrong,'' Financial Stability Forum Chairman Mario Draghi said today in Amsterdam, where the international group of regulators and finance officials is meeting. There is willingness and determination on winning the battle to restore confidence and stability.''
Banks and brokers have slowed lending as they struggle to restore their capital after $586 billion in credit losses and writedowns since the mortgage crisis began a year ago. The bankruptcy of Lehman Brothers Holdings Inc. also sparked fears among banks they wouldn't be repaid by counterparties, driving up the cost of short-term loans between banks.

Funding Risk
By committing to provide a very large quantity of term funding, the Federal Reserve actions should reassure financial market participants that financing will be available against good collateral, lessening concerns about funding and rollover risk,'' the central bank said.
The Bank of England and the ECB will each double the size of their dollar swap facilities with the Fed to as much as $80 billion and $240 billion, respectively. The Swiss National Bank and the Bank of Japan will also double their dollar swap lines, while the central banks in Australia, Norway, Sweden, Denmark and Canada tripled theirs.
All the banks extended their facilities until the end of April 2009.
The Fed is also increasing the size of its three 84-day TAF sales to $75 billion apiece, from $25 billion. That means the Fed will make a total of $225 billion available in 84-day loans. The central bank will keep the sales of 28-day credit at $75 billion.

Special Sales
In addition, the Fed will hold two special TAF sales in November totaling $150 billion so banks can have funding available for one or two weeks over year-end. The exact timing and terms will be determined later, the Fed said. The TAF program began in December, totaling $40 billion.
The bank-rescue plan being debated by Congress today would give the Fed more power over short-term interest rates by providing authority as of Oct. 1 to pay interest on reserves held at the central bank by financial institutions. That would make it easier for the Fed to pump funds into the banking system.
Paying interest on reserves puts a ``floor'' under the traded overnight rate, which would allow a central bank ``to provide liquidity during times of stress'' without affecting the rate, New York Fed economists said in a paper last month.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.netCraig Torres in Washington at ctorres3@bloomberg.net.

Banks borrowed $940 Billion

Banks borrowed $940 Billion Last Week Bank Borrowing From Fed Already Exceeded Bailout Total in Last Week

U.S. banks borrowed $188 billion per day on average in the latest week from the Federal Reserve, meaning that the Fed loaned out more money than the Treasury’s proposed bailout in just one week, still barely managing to keep the economy afloat.

Federal Reserve data showed on Thursday the total amount banks borrowed nearly quadrupled the previous record of $47.97 billion per day notched just the week before, Reuters reports.
$188 billion per day on average over the course of five days means that the total amount borrowed from the Fed in the week ending the 24th September stood at $940 billion - a figure that easily eclipses the proposed $700 billion bailout.

As we have already reported, the $700 billion number was simply pulled out of thin air by the Treasury.
The Treasury’s fact sheet about the bailout states, “The Secretary will have the discretion, in consultation with the Chairman of the Federal Reserve, to purchase other assets, as deemed necessary to effectively stabilize financial markets.”

This gives the government and the Federal Reserve carte blanche to do whatever they want to long as it is done in the name of stabilizing financial markets, they can nationalize any company or industry and use taxpayer money, above and beyond the initial $700 billion, for whatever purpose is deemed necessary, without any oversight. Paulson’s bailout plan is also unreviewable by any court, it will remain in perpetuity.
Paulson’s draft bailout plans says: “The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time.”

As Chris Martenson writes, “This means that $700 billion is NOT the cost of this dangerous legislation, it is only the amount that can be outstanding at any one time. After, say, $100 billion of bad mortgages are disposed of, another $100 billion can be bought. In short, these four little words assure that there is NO LIMIT to the potential size of this bailout. This means that $700 billion is a rolling amount, not a ceiling.”

If the bailout bill passes it is just the beginning of something much larger. $700 billion is a meaningless figure that will do nothing to shore up the economy. It is not a bailout, it is a giveaway that will allow insiders to purge themselves of bad bets and free to continue where they left off. The real reason for the bill is the unprecedented transfer of power to the Executive Branch and into the hands of the global corporate elite.

Asian marketsStock exchanges are down

US Senate vote unconvincing for Asian marketsStock exchanges are down.

Uncertainty persists over vote in US House of Representatives. Economists view plan as trivial compared to the enormity of the crisis, a temporary panacea that will not solve the underlying problems.




Hong Kong (AsiaNews/Agencies) – Asia stock exchanges are still in negative territory despite US Senate approval of the US government financial rescue plan last night. Japan's main Nikkei index ended the day trading down 1.9 per cent, whilst Hong Kong's Hang Seng slipped 1.4 percent. Australian shares also declined, losing 0.9 per cent on Thursday. In Singapore shares ended lower by 0.9 per cent and in Seoul they fell by 1.4 per cent.
Despite Senate approval the US financial rescue plan faces hurdles in the lower house which rejected a first version of the proposal last Monday.
The plan was slightly changed with the addition of tax breaks for the middle class and small and medium size business as well as a provision to increase bank deposit insurance to US$250,000 from US$100,000.
The core of the plan—which would see the government buy toxic debt from financial institutions to get banks lending again—is unchanged.
Public opinion in the United States remains hostile to a proposal that would save Wall Street and have US taxpayers foot the bill. What is more for hundreds of economists the plan is only a short-term solution, useless to tackled the financial bubble.
“There is little room for optimism. Even if the bill is passed, worries remain over the global economic outlook so financial markets are unlikely to stabilise,” said Masamichi Adachi, a senior economist at JPMorgan Securities in Japan.
“It's a completely different world now. All the things US authorities are doing now are simply aimed at preventing a global meltdown. They might trigger a short rally in markets but won't offer a fundamental solution,” he said.