NATIONAL AND INTERNATIONAL VERSION WITH TRANSLATION

Monday, September 22, 2008

NewsWatch

Important News Events to Follow This Week...

BIDEN RUMORED TO QUIT THE RACE, INSERT HILLARY!?

Joe Biden has in the past already sent up a trial balloon saying Hillary would have been a better choice for VP (http://www.cnn.com/video/#/video/politics/2008/09/10/bts.biden.hillary.better.vp.cnn). 360 Degrees recently learned that indeed may just be the case. Senator Biden may FAKE a medical condition to BACK OUT gracefully from the race, thus Hillary will be appointed. A condition that could be documented but would NOT preclude him from being VP. AND this will happen AFTER the VP debate so Hillary will not face Sarah Palin in a VP debate. If this actually happens, the people of this country should DEMAND a debate between Hillary & Sarah.......

It also seems Senator Biden would endorse Senator McCain if it came down to it: video

WHERE THINGS STAND IN THE
EFFORT TO FIX FINANCIAL MESS

Treasury Secretary Henry Paulson is asking Congress for unprecedented authority to buy from financial firms the troubled assets at the "root" of the worst financial crisis since the 1930s. While many details remain unresolved, here's a rundown of how things stand.

Why is Treasury asking for authority to do this?

With credit markets frozen, the engines of the U.S. economy are essentially stuck. Companies are having trouble financing operations and lending for everything from homes to automobiles has slowed. Treasury argues the root of the problem is rotten assets sitting on the balance sheets of financial institutions. Buying these assets will help jump-start the economy by allowing financial institutions to raise more capital and begin lending and investing.

How much will it cost?

Treasury has asked Congress for $700 billion to buy assets but the cost could exceed that depending on how the assets are priced and how many assets are purchased.

Is it possible Congress won't approve this?

There seems to be broad agreement that something needs to be done to prevent the U.S. economy sliding into a deep and prolonged recession. With an election just eight weeks away, few expect Congress to let that happen.

Who is eligible to sell their assets to Treasury?

Treasury says any financial institution with "significant operations" in the U.S. will be eligible to participate in the program. Treasury is asking Congress for broad discretion here, saying that the Treasury secretary, in consultation with the chairman of the Federal Reserve, should have the authority to expand the eligibility if necessary "to effectively stabilize financial markets."

Who will manage the assets?

Treasury plans to hire "asset managers," financial intermediaries who will manage the assets, including buying and selling loans and securities. Treasury will use a competitive bidding process to hire the managers.

Will the government own my mortgage?

Possibly. Treasury has asked for authority to buy residential and commercial mortgages, along with mortgage-backed securities. So if a financial institution that holds your mortgage wants to dispose of it, it may sell it to Treasury.

Will this program help me refinance my loan or prevent foreclosure?

It could. If Treasury winds up owning mortgage-backed securities, as well as whole mortgages, it will have new leverage over the mortgage servicers and might be able to demand changes to certain loans. Congress is also looking to include additional provisions to help troubled borrowers stay out of foreclosure.

How long will the government hold the assets?

The government can hold the assets until maturity, meaning they could hold a 30-year mortgage for the entire 30 years or they can sell the assets at their discretion.

What will Treasury pay for the assets?

This is one of the biggest and thorniest questions. For the plan to succeed, financial institutions must be able to get these assets off their books at a high enough price so that their balance sheets aren't further pinched. But the market turmoil has complicated efforts to determine their "real" value. One reason financial institutions are in trouble is because they keep having to write-down the value of the assets as they fall in price. For the program to work, Treasury needs to pay enough that the institutions are able to record a price that doesn't exacerbate their woes.

The mechanics are expected to be worked out between the asset managers and Treasury. One option is a reverse auction. In that case, Treasury could determine a class of assets it wants to buy-such as all AAA-rated mortgage-backed securities-and would then purchase securities from financial institutions that offer to sell at the lowest price.

What will the government get in return?

This is another big open question. Some in Congress want the government to extract something from the companies that participate, such as restrictions on executive compensation or agreements that companies will modify loans on other mortgage assets. Treasury doesn't want the program to be punitive because it wants firms to participate.

What's the risk to taxpayers?

Taxpayers will ultimately foot the bill to buy the assets and could wind up on the hook if they continue to fall in price or can't be sold. Treasury has asked for authority to increase the debt ceiling, since it will have to borrow money to buy these assets. That's going to increase the federal deficit and increase interest payments on the federal debt. Treasury says the government could make money off the assets it buys if the housing market turns around and it's able to sell these at a profit.

How long will this program last?

Treasury has asked for authority to purchase assets for two years from the date the program begins.

How will this help homeowners?

In addition to potentially revising terms of some troubled mortgages, the plan could eventually make more mortgages available. If it helps revive firms, they should restart making loans for homes, small business and other matters. The aim is broader than helping just homeowners. Treasury says that without the program, the economy will stall, costing jobs, increasing costs for goods and services and sending the U.S. into a steep decline.

Additionally, The Federal Reserve has taken the extraordinary step of agreeing to convert the last two major investment banks, Morgan Stanley and Goldman Sachs, into traditional bank holding companies. With the move, Wall Street as it has long been known will cease to exist.

THE WORSE IS YET TO BE

Why spending hundreds of billions of dollars won't help the financial crisis....

THE Pamplona bull run - made famous by American writer Ernest Hemingway in his novel The Sun Also Rises - starts promptly at 8am over eight days each year.

And so it did - on the dot - this year, just two months ago.

Every morning, from 7 to 14 Jul, runners dressed in white, each with a red handkerchief around their necks, were chased by six presumably fierce fighting bulls as well as two herds of relatively harmless bullocks.

Given the short distance - from the corral at Santo Domingo (where the bulls are kept) to the town's bullring (where they will fight that same afternoon) - the average time of this bull run, from start to finish, is about three minutes.

The Pamplona bull run, a part of Spain's famed Festival of San Fermin, is what you might call 'good clean fun'. Most times, no human runner ever really gets hurt (not in any serious manner, anyway), despite the adrenaline rush of its 'thundering herd'.

Not so for the bull run of another kind, in a city that never sleeps, across an ocean, six time zones away.

At precisely 9.30am on 7 Jul, in downtown New York City, a 'thundering herd' of wild and panicky investors started dumping shares of Fannie Mae and Freddie Mac on Wall Street - after a report suggested a change in accounting rules could require the two companies to raise more capital.

Thus began a topsy-turvy bull run that has gone astern - one that now threatens to stomp out the very foundations of the global financial system.

Over the past 77 days, what we have witnessed is the toppling of one Wall Street titan after another. Fannie Mae and Freddie Mac. Merrill Lynch. Lehman Brothers. The American International Group (AIG).

Who might be next?

But the US is not alone. The way things are going, 'The Nightmare on Wall Street' has now caught up with 'Greed in the City'.

In a commentary in The Guardian, rogue trader Nick Leeson who brought down Barings Bank in 1995 wrote: 'Quite simply, the banks have traded recklessly over the past 10 years and have put everybody's wellbeing at risk. Anybody and everybody could get whatever credit they wanted as recently as three years ago.'

More weak spots

And that's not all. Events took an ominous turn on Wednesday when it became clear that even US money market funds - supposedly safe repositories for some $3.5 trillion in savings (roughly half of the US' M2 money supply) - were scaling back.

Yet another weak spot is the $62 trillion market for credit default swaps (CDS). This has given US regulators nightmares after Bear Stearns went kaput in March. Any collapse of this CDS market could lead to an even bigger mess than the fallout from the subprime mortgage debt. That collapse almost happened last week when CDS trading volumes reached unprecedented levels as hedge funds and dealers tried to unwind their positions.

This panic prompted the US government to save AIG, a key player in the CDS market. AIG's collapse could have nuked other banks and ushered in the unthinkable.

But, you know, the US has seen worse before.

When President Franklin D Roosevelt took office in 1933 - right in the midst of the Great Depression - about 4,000 banks had closed in just two months. It took him 100 days to roll out his New Deal program for rescuing American capitalism from the depths of the Depression.

Now, in response to what economists call the greatest financial crisis since the 1930s, the US government rolled out, in less than a day, a sweeping series of actions aimed at preventing the global financial system from grinding to a total halt. Not surprisingly, stock markets around the world rallied in relief, hoping that the US government's moves might finally address the roots of the problem.

What else needs to be done?

Leeson said: "For my role in the collapse of Barings I was pursued around the world, and ended up being sentenced to six and half years in a Singaporean jail. Who is going to go after the reckless individuals responsible for this financial catastrophe? Apparently no one."

Sad but true. the US financial mess - even if it has already taken down a few Wall Street giants - is far from over. After all, that 'thundering herd', first let loose on Wall Street 77 days ago, is still out there. Still frightened, still confused and still dangerously directionless.

Walter

Sources: WSJR, SEC sources, Wachovia Securities, AP, Fox News

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