Stock Market Pleased By New Phase Of Bailout

Today the Federal Reserve announced the creation of a new special purpose entity that will buy consumer and business debt. Under the new plan, the Treasury will provide $20 billion dollars in of credit protection (from the Troubled Asset Relief Program) — and will absorb most of the losses, should they occur.

The Federal Reserve will provide the money used to purchase the assets. The Fed says (PDF) that the loans in the asset backed securities must be “auto loans, student loans, credit card loans, or small business loans guaranteed by the U.S. Small Business Administration,” though the program may be expanded to include “commercial mortgage-backed securities, non-Agency residential mortgage backed securities, or other asset classes.”

The New York Times explains:

The new fund would, in effect, close the circle in the chaotic evolution of the Treasury rescue effort, officially known as the Troubled Asset Relief Program, or TARP. Under the new version, the government would once again plan to buy assets, including some troubled ones. The Fed would provide most of the money and buy comparatively healthy debt, like bundles of car loans, that private investors have stopped buying in recent weeks.

The Fed further announced that it would purchase up to $100 billion dollars of mortgage-backed securities backed by GSEs (Fannie and Freddie, etc.) The Wall Street Journal says that the stock market is pleased as can be about this new development. Stocks are up again this morning after soaring 12% in two days — the largest jump in stock prices since the crash of 1987.

The Dow Jones Industrial Average was recently up 62 points, or 0.7%, trading at 8505.11. The blue-chip measure is off to a promising start as it attempts to extend a two-day winning streak in which it has soared 12%, the biggest gain since the two days following the 1987 market crash.

U.S. Unveils $800 Billion Credit Program [NYT]
Term Asset-Backed Securities Loan Facility (TALF) Terms and Conditions1 (PDF) [Federal Reserve]
Stocks Continue Rise as Fed Unveils New Program [WSJ]
(Photo: afagen )

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  1. concordia says:

    I’m happy there’s at least one group pleased by all of this.

  2. Oranges w/ Cheese says:

    Isn’t this what they $700 billion was for in the first place? Yes?

  3. BrianDaBrain says:

    Sigh. Next up for handouts: The Big Three. Soon after, maybe they’ll start giving middle-class people bailouts too. Riiiiiiight.

  4. macdude22 says:

    Bailout my student loans. I can afford to bolster the economy then.

  5. aftercancer says:

    Does anyone know how much is actually being spent at this point bailing everyone in the country out?

    So does this mean I can stop paying my auto loan and credit card bill? Seriously, if there’s no risk to lenders than why should I care.

  6. Trai_Dep says:

    I recognize that the Free Market Fundamentalists screwed things up so incredibly badly that we’re forced to nationalize vast swaths of our private sector to stave off global collapse. Moral hazards, and socializing risk while privatizing profits, all while making the tax code favor these bandits over working families. Really, I do. HATE, but okay fine: we’re grownups.
    …But can we extract a pound of flesh – literally, on PPV TV, with no anesthetic – from the top 20 members of the executive team for each $billion in taxpayer funds they require?
    Seems fair to me.

    With red-hot butter knives? Or is that over the line?

    • Bladefist says:

      @Trai_Dep: ZOMG you’re hilarious. Laugh it up while the countries you idolize go bankrupt. Check into European news lately?

      And your perception of what caused this is as about objectionable as you are. Unfortunately, saying things to make you feel validated doesn’t make them true.

      Watch the true definition of a country crumbling as socialist swoops in to save us.

      Someday, you will put your feelings aside and research into what caused all of this. Probably not. But for your sake, I hope you do.

      • WiglyWorm must cease and decist says:

        @Bladefist: What caused this is greed, pure and simple.

        You can blame the democrats (as people love to) for trying to make loans easier to get, but all the law says was that looking at two equally qualified loan candidates, you cannot disqualify one based on geographical location while accepting the other. That doesn’t sound like a bad thing to me, and by itself wouldn’t have done anything aside from ensure than home loans are more fairly given.

        The collapse was in reality caused due to a book keeping rule that allows debt to be sold as a comodity. Companies got greedy and, seeing the dollar signs, tried to sign everyone they could up for a loan and lowering the bar across the board for qualifying these mortgages. Then, they grouped them all together and sold them as less risky than they actually were.

        I invite you to

        • WiglyWorm must cease and decist says:

          @WiglyWorm: errr… try that again. Take a look

          • Bladefist says:

            @WiglyWorm: My main issue with Traidep is he acts as if all of this is to blame is on 1 idea. And idea this country was founded on, and has used for a long time.

            I dare say that this issue is a bit more complex, and was caused by many reasons coming together. Stupid people, greedy corporations, and ignorant politicians.

            He keeps touting as if there was no regulations. There were regulations, they were ignored. It’s on video on youtube of the regulators being called liars.

            I’m just sick of the ignorance. While part of this economic problem is up in the air for what caused it, how it STARTED is known. And yet he refuses to accept that. He wants to blame a system that has been working for hundreds of years.

          • Bladefist says:

            @WiglyWorm: Once more, I’m sick of people who are more concerned about political pride and making sure they land on the right side of the fence, instead of worrying about this country, the people hurting, and wanting to fix this.

            To think one political party is completely guiltless is hilarious. And can anyone see a difference between the republicans the democrats during this crisis? I mean, they aren’t having sleep overs, they are blaming each other for everything, but do they have opposing views?

            The only opposing view I see here is the people vs the government.

        • HIV 2 Elway says:

          @WiglyWorm: Debt has been a commodity for a long long time. Do you know what a bond is?

          • WiglyWorm must cease and decist says:

            @HIV 2 Elway Resurrected: I’m refering specifically to mortgage securitization, which started in the 70s, got popular in the 90′s, and then trippled to $7.3 trillion between 1996 and 2007.

            Specifically specifically, I am refering to loans generated under the CRA being securitized and sold, which started in 1997.

            You can blame the democrats for passing laws trying to help increase home ownership if you like, but that’s really short sighted. The issue comes in when the market is allowed to govern itself and can be made to profit by making risky actions, then selling the risk to someone else. Had this sort of behavior been properly regulated, rather than saying “The banks don’t want to fail! They’ll regulate themselves!”, we would have avoided this whole mess.

            • HIV 2 Elway says:

              @WiglyWorm: I don’t blame the dems (personally, I blame rating agencies). Assessing blame to political parties is trite and inaccurate.

              I still believe that mortgage backed securities are a viable investment option. Unfortunately, most new investment vehicles fail before they prosper, and this one failed big time. They’ll be back with more, much needed, skepticism.

              • Ein2015 says:

                @HIV 2 Elway Resurrected: It’s all because people wanted to make money and they were ignorant about it… and there isn’t a political ideal or group that wasn’t retarded about it.

                But, naturally, our government has some knee-jerk reaction to nationalize all this stuff. Then what?

                Where were the politicians wanting to pass fair reporting laws? I now get a simple letter in the mail that helps to explain loans and such in plain detail. Why wasn’t there regulation in selling debt?

                The sad reality is that, as much as people would LOVE to make some group their scapegoat… everybody is to blame.

                Here’s how:
                - People throw money into investments without knowing squat about them. They pay LOTS fo money for other people to manage their money. They don’t think. They pay others to think for them. How stupid is that?
                - The people who didn’t pay others to think for them didn’t do their research about how debt rating agencies rate debts. No red flags went up when they should have.
                - The politicians did not do a better job of regulating important things like debt rating. Isn’t it like false advertising? Why is it, even NOW, they’re not attacking debt rating like crazy? Instead of letting people pay for making stupid decisions, they’re helping them out!
                - Why isn’t the government letting the companies fail and then helping out those unemployed by it? Aren’t they more innocent than the CEOs and executives that made horrible business decisions in order to prop up their bonuses? Somebody explain that one to me…
                - Who’s going to pay for all this. Are we going to need another couple of digits on the national debt clock (in Times Square I think?) or will China finally own us?
                - The average American (based on my discussions with both Texans that aren’t even highly affected by the economic downfall right now and with various bloggers and commenters in the US) is PISSED. They’re hearing that the government is spending their money like crazy, but they’re not seeing squat!
                - When some banks fail and others don’t… When some auto makers fail and others don’t… Isn’t that what capitalism and what America was founded on? The challenge of making a successful and profitable business?
                - I want to start a business. I have a really good business plan. I can provide 5-10 people with a pretty decent living. When do I get my chance? AIG already failed… and they STILL fail. When’s my chance?

                All in all, I’m pretty damned tired of the bullshit I see going on here with the government’s handling of our money. They trampled us after 9/11 with things like the USA PATRIOT Act… hurting our rights and privileges severely. Now they’re trampling us again… spending our money without care.

                *sighs*

                Oh, and I hope everybody has a Happy Thanksgiving. :P

      • mac-phisto says:

        @Bladefist: trai’s at least partially right, though. the amount of money that company executives have siphoned out of their respective companies while playing with other people’s money is appalling & quite frankly at least partially to blame for this mess.

        there was an interesting piece this morning on npr – an interview with author michael lewis (read the excerpt here: [www.npr.org]) & his discussion on compensation within the industry is quite interesting (read the sections entitled “Diminished Interest In Risk Likely” & “The ‘Distorting Effect’ Of High Earnings”). there’s also an excerpt from the book discussing black-scholes pricing & how a flawed model used by incompetent managers has led us to where we are today.

        i dunno about the whole PPV part though. personally, i wouldn’t pay $3 to watch an executive get axed.

        except maybe ted turner. i’d like to see him carved up solely based on the fact that i have to turn my tv volume up to 45 to hear a show on any of his channels, but then a commercial comes on & blows out my speakers. >:-@ but that’s o/t, so i digress.

        • Bladefist says:

          @mac-phisto: I hate that too. Tried to find something that could moderate my volume on my tv.

        • Trai_Dep says:

          @mac-phisto: The thing is, before the Gramm amendments came in, banks that made loans were stuck with them on their books. There was a systemic mechanism to counterbalance loan fees: bankruptcies savaging the loan originator’s bottom line.
          Free market capitalism at its finest: little gov’t involvement with built-in checks to temper short-sighted greed. What gov’t role existed was to ensure that the loans on their books impacted their ability to make new loans, and to insure transparency.

          This self-regulating mechanism that has worked for generations was torn asunder by Gramm’s “innovations” that legalized what wasn’t before.

          His Free Market Fundamentalists’ Let business regulate itself approach, paired with commercial banks being allowed to merge with investment banks, mixed in with forcefully unregulated shadow banking systems was an innovation. Enabled by Conservatives, it was given a fair chance to work.

          How’d it work out? The results speak for themselves. Reasonable people might suggest it’s time to return to sensible regulation that protects consumers. What a concept!

          And no, it’s not a party thing: it’s an ideology thing.

    • motojen says:

      @Trai_Dep: Make it a rusty butter knife and I’m in.

  7. tande04 says:

    @Oranges w/ Cheese: Yes and no. This seems to be a different type of debit then they orginally looked to buy (credit card, student loans, car loans) though it may expand to the debit they had originally talked about.

    @BrianDaBrain: Nope, same $700 billion, sorry.

  8. Mikestan says:

    Does anyone know the current balance of the $700 billion bailout? Just curious.

  9. Mikestan says:

    Does this mean the government owns people’s debt now and if so do they plan on collecting?

  10. cheesebubble says:

    At this rate, they might as well print off a dozen thousand dollar bills for everyone in the country.

  11. kwsventures says:

    All this bailout madness will create massive hyper inflation in the next few years. Too many dollars flooding the world.

    • B says:

      @kwsventures: Actually, no. The government can’t just print money, every dollar in the bailout is paid for by selling a Treasury bond. Now, the US Government will have a huge problem paying off all those bonds in a few years, but that’s not for a while, right?

  12. billbobbins says:

    The US government doesn’t have to wory about borrowing money from anyone. We just print more! Doesn’t that concern anyone?

  13. Kounji says:

    @undefined: @WiglyWorm: Best Example Ever!

  14. Con Seannery says:

    12% of next to nothing isn’t much.

  15. frodo_35 says:

    3000 is the new million. Things are just the same. Thanks to Bambis mother ( may her cold dead ass be torn apart by the coyotes) I had to buy a new car on friday. I went to the dealership with work info thinking the finance companies might have returned to due diligence and I would have to prove an income. Guess what when they ran our credit scores and saw over 800 they were falling all over themselves to loan us money.With no income proof in this day and age. Same as it ever was.

  16. Anonymous says:

    Quite frankly, it sickens me to see how many of the corporate giants are given a lifeline so quickly to ensure their continued ability to capitalize on the average American consumer. If only the government were as quick to provide assistance to Americans during times of need, i.e. Katrina, homeless folks, senior citizens, those with no healthcare, and list goes on and on. Bottom line is that no matter how much you give to corporate giants, prices cannot continue to climb as they have with wages staying relatively low (unless you are in a corporate union such as UAW, of course). Eventually the system will break down when demand cannot be satisfied because no one can afford the product. I think these past few months have opened all our eyes to a new way of looking at things. I no longer have any desire to own a bright, shiny “new” vehicle that will cost well over 20k to purchase and immediately depreciate when I drive it off the lot. And no more credit cards or loans where I pay an interest rate more than double what I earn on my savings. So, let’s go ahead and bail out any corporate entity that screams for help now, and see just how far the taxpayer’s money will go then. It is going to get worse before it gets better folks.

  17. Anonymous says:

    Quite frankly, it sickens me to see how many of the corporate giants are given a lifeline so quickly to ensure their continued ability to capitalize on the average American consumer. If only the government were as quick to provide assistance to Americans during times of need, i.e. Katrina, homeless folks, senior citizens, those with no healthcare, and list goes on and on. Bottom line is that no matter how much you give to corporate giants, prices cannot continue to climb as they have with wages staying relatively low (unless you are in a corporate union such as UAW, of course). Eventually the system will break down when demand cannot be satisfied because no one can afford the product. I think these past few months have opened all our eyes to a new way of looking at things. I no longer have any desire to own a bright, shiny “new” vehicle that will cost well over 20k to purchase and immediately depreciate when I drive it off the lot. And no more credit cards or loans where I pay an interest rate more than double what I earn on my savings. So, let’s go ahead and bail out any corporate entity that screams for help now, and see just how far the taxpayer’s money will go then. It is going to get worse before it gets better folks.

  18. madmilker says:

    Jus how come a dang private bank(FED) can do like they damn well please with putting the American people in more debt and the nincompoops in D. C. jus sit on their hands with their head up their @ss… can anyone in the media attach a set of ba!!’s to their computer keyboard and type the truth for all to see. Lincoln went around the “my sh!! don’t stink” bankers and printed his own money to finance the union army….and Kennedy put Executive Order 1110 on the books a few months before he got shot…..come to think about it….Lincoln got shot too! Over 300 million people in the USA and jus a hand full of rich dipsticks run the country. America is over $53 trillion in DEBT and not even God wants to separate the water again!…..sad.

  19. billbobbins says:

    The part that reads “The Fed would provide most of the money… ” needs to be corrected to say “The TAXPAYERS would provide most of the money…”

  20. jcargill says:

    Sure, they love it.

    Privatizing profit as much as possible,

    Socializing costs and risks as much as possible,

    God bless the US of friggin’ A!