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Top Secret Credit Crisis Bailouts

Politics / Credit Crisis Bailouts Mar 05, 2009 - 03:17 AM GMT

By: Mike_Shedlock

Politics Best Financial Markets Analysis ArticleInteresting stories are stacking up again so it's time for some economic potpourri starting with secret dealings by the Fed.

Fed Refuses to Release Bank Lending Data, Insists on Secrecy The Fed refused yesterday to disclose the names of the borrowers and the loans, alleging that it would cast “a stigma” on recipients of more than $1.9 trillion of emergency credit from U.S. taxpayers and the assets the central bank is accepting as collateral.


Bloomberg sued Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs.

On Oct. 25, Bloomberg filed another request, expanding the range of when the collateral was posted. It sued Nov. 7.

In response to Bloomberg's request, the Fed said the U.S. is facing “an unprecedented crisis” in which “loss in confidence in and between financial institutions can occur with lightning speed and devastating effects.”

Fed Chairman Ben S. Bernanke and then Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system.

In plain English: Bernanke Lied.

Japan clears cash hand-out bill

Japan's parliament has passed legislation to give a cash hand-out to every resident in attempt to boost the recession-hit economy. Most people will get at least 12,000 yen ($121; £86) under the $20bn plan.

China Considering New Stimulus Measures

Chinese Premier Wen Jiabao is considering new stimulus measures, adding to a 4 trillion yuan ($585 billion) spending plan as the government tries to revive growth in the world's third-biggest economy.

Wen will announce “a new stimulus package” in his annual address to the nation's legislature tomorrow, former statistics bureau head Li Deshui told reporters in Beijing today. He didn't say whether spending would increase or give further details.

“The existing stimulus package may not be adequate considering the total collapse of global trade,” said Isaac Meng, a senior economist at BNP Paribas SA in Beijing. “There should be more spending, especially on the social side to cushion unemployment. This is quite urgent.”

Doting On Animals In Hard Times

When markets drip tears and For Rent signs appear over products in shops that were once For Sale, people still spend almost as much resources, time and energy as ever on a completely wasteful economic category: pets.

I once did some consulting for the chairman's office of A&P and assumed that surely, in tough times, poor people would choose the generic cat food rather than Hill's Science Diet Culinary Creations cat food. But I was wrong. Consumers would rather buy plain-label generic creamed corn or tomato soup for themselves than subject their four-footed treasures to what they fear will be second-rate grub.

Ellen DeGeneres promotes her Halo line, with "holistic foods for pets' total well-being. Highest quality meats, grain and fresh vegetables." She could be joined by the producers of Haute Canine, the Natural Gourmet Dog Snack and Dandy Doggy Bowser Brittle (with rain-forest nuts).

Of course there are countless miserable stories of pets abandoned in foreclosed homes, left off from cars in parks and simply ignored once a summer vacation is over. The story is not wholly pretty and contains abundant cruelty, exploitation and heartlessness.

Nevertheless, for a sense of proportion about broad economic forces, go to a supermarket and watch the purchasers of pet food. Observe elemental mammalian life at work, for it has been around for an endlessly long time and will be present in the future.

Brown Will Urge World to ‘Seize Moment,' Unite on Stimulus Plan

U.K. Prime Minister Gordon Brown will use a speech to both houses of the U.S. Congress today to urge countries to “seize the moment” following President Barack Obama's election and agree on new global financial regulations.

“Now, more than ever, the rest of the world wants to work with you,” Brown, the fifth British prime minister to address Congress, will say, according to extracts of his speech released in advance. “Never before have I seen a world so willing to come together. Never before has that been more needed. And never before have the benefits of cooperation been so far-reaching.”

Never before has there been so much meaningless political sap.

Australian Economy Grinds To A Halt

THE global recession has caught up with Australia's economy, forcing the first fall in output in eight years and making the Rudd Government revise lower the budget forecasts it made only four weeks ago.

Wayne Swan said the downturn made it unlikely the economy would achieve the optimistic 1 per cent growth this year forecast by Treasury just four weeks ago.

The Treasurer said it was likely that revenue would also fall short of the latest forecast, which was itself a $115 billion downward revision from budget. This will push the deficit out from Treasury's estimate of $22.5 billion.

However, Mr Swan defended the Government's actions in launching its first economic stimulus package last October, in the face of criticism from the Opposition that it was spending too much, too soon.

"There is absolutely no doubt that things in this country would have been far worse had the Government not acted when we did with the economic security strategy announced last October," he said.

"If we pull together, if we keep doing whatever is necessary, we can come out of this stronger than ever," he said.

Swan needs to get together with Brown, Obama, and Bernanke to sing Kumbaya.

Hawaii: Teachers union unit files for bankruptcy

The union that represents Hawaii's public schoolteachers says the activities and finances of a subsidiary corporation had been ``grossly mismanaged.''

Member Benefits Corp., which filed for bankruptcy Monday, has been shut down. It had managed the Hawaii State Teachers Association's Voluntary Employees Benefits Association.

The HSTA decided to dissolve the corporation last year after determining the for-profit subsidiary didn't fit within the union's mission.

The union has told it members the mismanagement was discovered by an outside team of attorneys and accountants that was brought in as part of the process of closing the corporation.

Bernanke grilled on latest $30B bailout of AIG

Irritated lawmakers grilled Federal Reserve Chairman Ben Bernanke Tuesday over the latest bailout of American International Group, even as the Fed chief warned that an economic recovery hinges on the government's success in stabilizing shaky financial markets and their major players.

"I share your concern, I share your anger," Bernanke told the Senate Budget Committee. "It's a terrible situation, but we're not doing this to bail out AIG or their shareholders. We're doing this to protect our financial system and to avoid a much more severe crisis in our global economy."

Bernanke defended the government's repeated rescue attempts on AIG, saying "the failure of major financial firms in a financial crisis can be disastrous for the economy."

Sen. Ron Wyden, D-Ore., and others said the identities of banks and other so-called counterparties that do business with AIG and other bailed-out institutions should be made public. Those companies also should have to make some concessions, he added.

"They ought to ... have some kind of consequence," Wyden said. "The American people are in the dark on this issue, and I think it's time for some sunlight. I think that the public really wants to know why are these people so important."

Sunlight is illegal. Bernanke wants us in the dark. It's Top Secret.

Pressure to reveal major AIG counterparties grows

Calls increased Tuesday to reveal the financial institutions that got almost $40 billion in collateral from American International Group shortly after the government first bailed out the insurer last year.

AIG almost collapsed in September after ratings agency downgrades triggered demands for billions of dollars in extra collateral from firms that had bought derivative-based protection from the insurer on complex mortgage-related products known as collateralized debt obligations, or CDOs.

AIG didn't have that much money and faced bankruptcy. But it was saved by an $85 billion emergency loan facility from the Federal Reserve.

By Nov. 5, the insurer had paid out $37.3 billion of that money to counterparties who had purchased a certain type of derivative-based protection from AIG called multi-sector credit-default swaps, according to the company's third-quarter regulatory filing.

"AIG has given the counterparties $20 billion. Those people could be just about anybody in the world. Why won't the Fed disclose who those are?" Sen. Ron Wyden, D-Ore., asked Fed Chairman Ben Bernanke during congressional testimony on Tuesday.

Bernanke said the counterparties made "legal, legitimate, financial transactions" with AIG and presumed at the time that the contracts would remain private. "That is a consideration we have to take into account," he added.

Sen. Mark Warner, D-Va., suggested that AIG's counterparties should have to take a "haircut," rather than be made whole, because some of them probably didn't do enough due diligence on whether the insurer was financially strong enough to be selling such protection.

"In effect, what we're saying is, consequently, folks who bought these instruments and that, at some point in their process, should have been doing some level of credit analysis of what AIG was selling who didn't do that credit analysis are going to still come out whole for their lack of appropriate due diligence or responsible behavior," he said.

"I'm as unhappy as you are about that, senator," Bernanke replied. "I just don't know what to do about it."

There are many problems with the handling of AIG but it all starts with the initial decision to do something as opposed to nothing. Government has no business bailing out anyone and the decision is made all the more galling by making everything a secret.

Note that the Fed is picking winners and losers. There are other creditors of AIG who might have a better claim on its assets than who the Fed is picking. Remember that the Fed promised transparency. Instead, we have gotten noting but lies and secrecy from Bernanke, Paulson, and Geithner every step of the way.

Words cannot begin to express my disgust of the lies and secret shenanigans of the Fed and Treasury.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2009 Mike Shedlock, All Rights Reserved

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