"“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” "

Chinese premier Wen Jiabao 12th March 2009

""We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system."

Timothy Geithner US Secretary of the Treasury, previously President of the Federal Reserve Bank of New York.1/3/2009

Saturday, November 15, 2008

Forget TARP .. just spread a little money around...

You have to admire the remarkable combination of chutzpah and financial legerdermain of US Secretary Henry M. Paulson, Jr. AKA Hank the Bank, on the remarks he made during his press conference reviewing ...his er.... "Financial Rescue Package "

First he sends a 3 page bill for US$700 very, very, very , very big ones to Congress without any detail of how he was going to spend it.... but we were assured that this was a Troubled Asset Relief Program which became abbreviated to TARP.

As credit markets froze in mid-September, the Administration asked Congress for broad tools and flexibility to rescue the financial system. We asked for $700 billion to purchase troubled assets from financial institutions. At the time, we believed that would be the most effective means of getting credit flowing again.
From this clear mandate to buy up the so called toxic debts .. it is / was but a small Paulsenian step to ....

It was clear to me by the time the bill was signed on October 3rd that we needed to act quickly and forcefully, and that purchasing troubled assets – our initial focus – would take time to implement and would not be sufficient given the severity of the problem. In consultation with the Federal Reserve, I determined that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks.
Nor was he slow to show how fast he had been in distributing this tax payer largess to the failed banks on Wall Street - many his old friends and cronies, when he was the world's highest paid banker..

We announced a plan on October 14th to purchase up to $250 billion in preferred stock in federally regulated banks and thrifts. By October 26th we had $115 billion out the door to eight large institutions. In Washington that is a land-speed record from announcing a program to getting funds out the door
Fear not anxious tax payer, your Secretary has not forgotten his other friends...

Since announcing the Capital Purchase Program, we have been examining a wide range of ideas that can further strengthen the financial system .... we must continue to stand ready to prevent systemic failures. That is the basis for Monday's action to purchase preferred shares in AIG
Which is a simple way of explaining how AIG have somehow managed to hoover up, burn their way through US$ 155 Bn .. and it seems will soon be back for more ...."Too big to fail "

But there is more ..

First, we are designing further strategies for building capital in financial institutions. Stronger capital positions will enable financial institutions to better manage the illiquid assets on their books and better ensure that they remain healthy.

Second, we are examining strategies to support consumer access to credit outside the banking system.
..and we haven't even got round to shelling out billions to keep the Detroit rust bucket belt in the luxuries which we can afford.

The result of all this ? Well Reuters reports today ..."Short-term interbank lending rates have risen over the past two days because "there has been a change of sentiment since the latest rewrite of the Treasury's asset rescue program," said Lou Crandall, chief economist at Wrightson ICAP, in Jersey City, New Jersey."

Three-month dollar London interbank offered rates rose more than 8 basis points to 2.23625 % , the biggest rise since Oct. 10. Thursday's increase broke a streak of 23 consecutive declines.

The gap between 3 month dollar Libor over T-bill yields, the so-called TED spread, widened slightly to over 200 basis points.

The ECB said on Friday that overnight deposits rose, as banks continued to hoard rather than lend cash. Banks deposited 127.566 billion euros at the ECB, up from 103.318 billion the previous day.

Just to round off a week of exciting news US Retail sales fell by 2.8pc in October – the biggest drop since records began – and the fourth consecutive monthly fall.

Mr Paulsen is 63.

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