In our last post, dated Monday, September 15, we reported that of the 5 major investment banks -- Bear Stearns, Lehman Brothers, Merrill Lynch, Goldman Sachs, Morgan Guaranty -- only two, Goldman Sachs and Morgan Guaranty remained operating independently. All others had either gone bankrupt or bailed out and absorbed by large commercial banks.
On Sunday night, September 21, the Federal Reserve allowed Morgan Guaranty and Goldman Sachs to change their status from independent investment banks to commercial bank holding companies. In exchange for this status Morgan Guaranty and Goldman Sachs lost their independent status and must submit to Federal Reserve oversight and regulation. What these two former Investment Banks gained was direct access to the Federal Reserve Discount Window and to loans giving them immediate credit. What this means to the economy remains to be seen. What this means to these giant investment firms is reorganization of their structures and submitting to oversight and government audits.
Hence our title for this post "And Then There Were None" cribbed from the Agatha Christie novel of the same name.
In that last post we also reported on the possible failure of Insurance giant AIG. On Tuesday the Federal Reserve bailed out AIG to the tune of 85 bilion dollars. AIG at that point was taken over and policies protected for the time being. Numerous small businesses and state pension funds were invested in AIG as well as home mortgages. It is the mortgage crisis, known as the subprime mortgage crisis that has precipitated the current crisis.
Then at the end of last week, former Goldman Sachs CEO, Secretary of Treasury Henry Paulson, submitted a 700 billion plan, backed by President Bush, to bailout the financial sector of the United States economy! The bailout would allow the Department of the Treasury to purchase all the bad housing debt, mortgage backed securities, that commercial and investment banks hold, take this debt off their balance sheets, and allow them to continue investing and trading. Congress is currently debating this proposal with a self imposed deadline of Friday, September 26, for voting on and passing legislation. Executive pay is at issue as is what stake or benefit, if any, the government would earn from bailing out Wall Street firms and banks who request the assist of this bailout. How taxpayers would benefit from these large infusions of money propping up credit risks.
Is there a reason to panic? Businesses, large and small, depend on credit (loans) to start and continue their businesses, often putting up their properties (homes, etc) as collatoral. Farmers do the same. As Banks limit their lending because of squeezes on their own capital, credit becomes less available to small businesses. So the housing mortgage crisis affects all -- individuals, businesses, local and state governments. As companies and invidividuals fail, fewer taxes are collected by states, forcing budget cutbacks, layoffs, and elimination of programs.
Will the bailout stabilize the economy? Or will it simply bailout Wall Street, if that. That what's being debated right now. Inc Magazine looks at the effects on small business in an article by Patrick Sauer, "Wall Street vs Main Street". Is it sending good money after bad as economic columnist of the New York Times, Paul Krugman, suggests in his September 21 article, "Cash For Trash", The Times also polled the impressions of three economists, one from Duke University, another from the Brookings Institute, the third from the American Enterprise Institute, for their September 22 article, "How Three Economists View a Financial Rescue Plan".
Meanwhile, stock markets are volatile as ever, one day up with great gains, another day down with great losses. So economic balance does not appear on the horizon as yet.
Looking for a book on subprimes. Robert J. Shiller, author of Irrational Exuberance, has just published The Subprime Solution: How Today's Global Financial Crisis Happened and What To Do About It available in public libraries. On the previous bailout of Savings and Loans in the 1980s, see Michael A. Robinson's Overdrawn: The Bailout of American Savings, and Bailout: An Insider's Account of Bank Failures and Rescues, also available at public libraries.
The future? To be continued!
On Sunday night, September 21, the Federal Reserve allowed Morgan Guaranty and Goldman Sachs to change their status from independent investment banks to commercial bank holding companies. In exchange for this status Morgan Guaranty and Goldman Sachs lost their independent status and must submit to Federal Reserve oversight and regulation. What these two former Investment Banks gained was direct access to the Federal Reserve Discount Window and to loans giving them immediate credit. What this means to the economy remains to be seen. What this means to these giant investment firms is reorganization of their structures and submitting to oversight and government audits.
Hence our title for this post "And Then There Were None" cribbed from the Agatha Christie novel of the same name.
In that last post we also reported on the possible failure of Insurance giant AIG. On Tuesday the Federal Reserve bailed out AIG to the tune of 85 bilion dollars. AIG at that point was taken over and policies protected for the time being. Numerous small businesses and state pension funds were invested in AIG as well as home mortgages. It is the mortgage crisis, known as the subprime mortgage crisis that has precipitated the current crisis.
Then at the end of last week, former Goldman Sachs CEO, Secretary of Treasury Henry Paulson, submitted a 700 billion plan, backed by President Bush, to bailout the financial sector of the United States economy! The bailout would allow the Department of the Treasury to purchase all the bad housing debt, mortgage backed securities, that commercial and investment banks hold, take this debt off their balance sheets, and allow them to continue investing and trading. Congress is currently debating this proposal with a self imposed deadline of Friday, September 26, for voting on and passing legislation. Executive pay is at issue as is what stake or benefit, if any, the government would earn from bailing out Wall Street firms and banks who request the assist of this bailout. How taxpayers would benefit from these large infusions of money propping up credit risks.
Is there a reason to panic? Businesses, large and small, depend on credit (loans) to start and continue their businesses, often putting up their properties (homes, etc) as collatoral. Farmers do the same. As Banks limit their lending because of squeezes on their own capital, credit becomes less available to small businesses. So the housing mortgage crisis affects all -- individuals, businesses, local and state governments. As companies and invidividuals fail, fewer taxes are collected by states, forcing budget cutbacks, layoffs, and elimination of programs.
Will the bailout stabilize the economy? Or will it simply bailout Wall Street, if that. That what's being debated right now. Inc Magazine looks at the effects on small business in an article by Patrick Sauer, "Wall Street vs Main Street". Is it sending good money after bad as economic columnist of the New York Times, Paul Krugman, suggests in his September 21 article, "Cash For Trash", The Times also polled the impressions of three economists, one from Duke University, another from the Brookings Institute, the third from the American Enterprise Institute, for their September 22 article, "How Three Economists View a Financial Rescue Plan".
Meanwhile, stock markets are volatile as ever, one day up with great gains, another day down with great losses. So economic balance does not appear on the horizon as yet.
Looking for a book on subprimes. Robert J. Shiller, author of Irrational Exuberance, has just published The Subprime Solution: How Today's Global Financial Crisis Happened and What To Do About It available in public libraries. On the previous bailout of Savings and Loans in the 1980s, see Michael A. Robinson's Overdrawn: The Bailout of American Savings, and Bailout: An Insider's Account of Bank Failures and Rescues, also available at public libraries.
The future? To be continued!
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