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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Comments:
Isn't this what they $700 billion was for in the first place? Yes?
Sigh. Next up for handouts: The Big Three. Soon after, maybe they'll start giving middle-class people bailouts too. Riiiiiiight.
Bailout my student loans. I can afford to bolster the economy then.
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.
@aftercancer: I always wonder this too, is anyone keeping a running account of how much the government is giving out? Although, this seems more like the original intent of the huge bailout.
@aftercancer: Why should you care? Well, there's always that, you know, _risk to you_. Risks like foreclosure, repossession, bankruptcy, wage garnishing, etc.
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?
@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.
Seriously, if there's no risk to lenders than why should I care.
@aftercancer: Won't you still owe them the money even if the government bails them out?
@macdude22: x2...
My life would be just a little easier without having to worry about paying back ~$30k of student loan debt.
Does anyone know the current balance of the $700 billion bailout? Just curious.
Does this mean the government owns people's debt now and if so do they plan on collecting?
@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.
@Rectilinear Propagation: Technically, you will owe the government money. And if having a bank mad at you is bad, try pissing off the US Government.
At this rate, they might as well print off a dozen thousand dollar bills for everyone in the country.
@cheesebubble: just the original 700 bill was enough to make every adult in the united states a millionaire.
@m4ximusprim3: Well that depends on how you look at it I guess. I would say that the balance of the $700 billion bailout is $350 billion.
@JohnDeere: How do you figure? $700B divided amoungst 217.8M american adults (per the US census info) is $3214 per adult. I know fact checking isn't required on blogs but how about some basic math?
@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
@HIV 2 Elway Resurrected: A new bailout plan!
Since I keep seeing people doing what you noticed, I advise a new addition to the bailout, a calculator for every man, woman, and child!
@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.
@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.
@m4ximusprim3: Make it 8.5 trillion after todays announcement for a new 800 billion lending facility
@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.
@Bladefist: Ok. I can see your point here. I just wanted to shine a little light on the issue, rather than just say "do some research", because that made you sound fiarly partisan yourself.
@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.
Agreed! I wish I could take the $500 a month I'm sending to Sallie Mae and spend it on...well...anything but student loan payments!
All this bailout madness will create massive hyper inflation in the next few years. Too many dollars flooding the world.
The US government doesn't have to wory about borrowing money from anyone. We just print more! Doesn't that concern anyone?
@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?
@HIV 2 Elway Resurrected: Hey, $3000 would've gone a long way in my household. I could've paid off the rest of my car instead of wiping out my savings to do so.
@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.
I'm happy there's at least one group pleased by all of this.