Spend baby spend

March 2008

The Federal Reserve issues a 28 day emergency loan to Bear Stearns only to have Stearns sell to JP Morgan 2 days later at a steep discount, $2/share when it had traded at $98/share only a month earlier. The Federal Reserve extends a $29 Billion non-recourse loan to JP Morgan and assumes responsibility for Morgan's "troubled" mortgaged based assets. According to the Federal Reserve website, JP Morgan assumed Bear Stearns financial obligations, but it's not clear to me if the original emergency loan was the same as the subsequently reported non-recourse loan to JP Morgan. No Congressional vote was required for this action.

Ben Bernanke is Chairman of the Federal Reserve.

September 2008

The Federal Reserve issued loans up to $85 billion to A.I.G. for a term of 24 months with the right to assume up to 79.9% equity in the financial and insurance giant. No Congressional vote was required for the loan.

September 2008

According to several news reports, a $25 billion loan package is tucked somewhere in H.R. 2638 intended to aid the auto industry. H.R.2638 is an appropriations act extending the US budget into 2009. Just try to find reasonable language that describes the terms of the loan. I can't. Congress passed this bill and President Bush signed it into law.

September 2008

The US Treasury take Fannie Mae and Freddie Mac into conservatorship. Loans of up to $100 million per GSE (Government Sponsored Enterprise) were extended to both GSEs with up to 79.9% equity positions acquired. A total of $200 Billion available. No Congressional vote required for these actions.

September 2008

Emergency Economic Stabilization. The Congress passed and President signed into law an act that commits up to $700 billion to be spent purchasing nearly anything the Assistant Secretary of the Treasury determines that will stabilize the stock markets and keep people in their homes. A combination of an additional $110 billion in tax credits and allocations were added to the original act in order to obtain the votes required to pass the bill.

Several new government offices and positions are created with this act. Secretary Paulson is given a great deal of authority to define the mechanisms and rules for exercising the intent of the act with several agencies acting in an oversight capacity. The cost for administering this program is not specified. There is no timeframe for recapturing the investments made by the Secretary. The act gives the Secretary complete discretion for which assets to buy from whom and under whatever terms he sees fit as long as the terms meet a liberally general set of guidelines. There are mechanisms to adjust individual mortgage interest rates as well as reduce pricipal in conjunction with a new program titled "Hope for Homeowners", announced by Senator Dodd in March of 2008, but included in this bill.

Until the most recent "economic bailout", the Federal Reserve and US Treasuring had been trading in loans and equity. Now that we have given the US Treasury a $700B line of credit, let's hope that Secretary Paulson has the good sense to invest it wisely.