U.S. Drafts Sweeping Plan to Fight Crisis As Turmoil Worsens in Credit Markets
In the midst of the worst credit crisis in our lifetimes, the Federal government is drafting a plan to get the bad assets off the books of lending institutions around the country in a bid to restore confidence and liquidity to the national banking system. Included in the plan is a move to provide federal insurance to money market funds which are experiencing a wave of redemptions.
~~John Cronin~~
http://online.wsj.com/article/SB122177442732653979.html
Paulson Briefs Congress on Idea to Buy Bad Assets From Banks, Insure Money-Market Funds; Stocks Rebound Sharply
By DEBORAH SOLOMON and DAMIAN PALETTA
WASHINGTON –
The federal government is working on a sweeping series of programs that would represent perhaps the biggest intervention in financial markets since the 1930s, embracing the need for a comprehensive approach to the financial crisis after a series of ad hoc rescues.
At the center of the potential plan is a mechanism that would take bad assets off the balance sheets of financial companies, said people familiar with the matter, a device that echoes similar moves taken in past financial crises. The size of the entity could reach hundreds of billions of dollars, one person said.
Another proposal would be the creation of federal insurance for investors in money-market mutual funds, coverage akin to the insurance that currently safeguards bank deposits. The move is designed to stem an outflow of funds as consumers start to worry about even the safest of investments, a sign of how the crisis is spreading to Main Street. There is $3.4 trillion in money-market funds outstanding.
In addition, the Securities and Exchange Commission is set to propose a temporary ban on short-selling. It’s not clear how broadly the ban might extend, but it could apply only to financial stocks.
Details of the plan were still being worked out Thursday night and could be delivered to Congress in “hours,” said Senate Majority Leader Harry Reid of Nevada.
The administration had been taking a patchwork approach to the financial crisis, putting out fires as they ignited. The new moves represent an effort to take a more systematic approach, after a spiral of bad debts, credit downgrades and tumbling stocks brought down venerable names from investment bank Lehman Brothers Holdings Inc. to insurance giant American International Group Inc. Banks have grown unwilling to lend to one another, a sign of extreme stress, because financial markets work only when institutions have faith in each other’s ability to meet their obligations.
Word of the plan came the same day as the Federal Reserve and other major central banks offered hundreds of billions of dollars in loans to commercial banks to alleviate a deepening freeze in the world’s credit markets. That step appeared to have moderate impact on lending among banks. Meanwhile, a wave of redemptions continued hitting money-market funds, causing a second large fund to shut to investors.
September 19th, 2008 at 7:33 am
I have heard tis plan could cost 1 trillion dollars!!!
Taxes going up in the next administration is a guarantee under the democrat controlled congress.
September 19th, 2008 at 10:55 am
1 trillion??? a lot more than that in my book…just a complete bailout of the connected firms on WS and repubs pretty much walk away from the principles they have talked about for generations…but anybody watching the first 6 years of the W admin and the repub congress knew they were full of it, only principle they have is staying in office…maybe congress should have a tech stock bailout to square folks who got creamed in the tech dot.com meltdown….
http://www.minyanville.com/articles/MER-countrywide-LEH-aig-WB-wm/index/a/19079/from/yahoo
As for how it effects romney…don’t know if he wants to walk into the mess that will be sec of treasury job but hey that is his job skill set and probably the most useful thing he could do…really if mccain wins and things blow up, no repub is gonna win the white house in 2012 or 2016, so romney might as well be at the helm of the ship of treasury…than again being ambassador to the UN has some stature, fills in a resume gap, comes with a nice apt in NYC and keeps him out of DC…
September 19th, 2008 at 11:16 am
Blue. Assuming that this does not stick on McCain. Romney can be pegged to help Obama if O wins, just as much as McCain. But keep in mind: McCain has been in senate almost 3 decades. A lot of this problem stems from bills he voted on and supported. I’m not saying he’s at fault, but he is part of the problem. Wouldent it be totally cool if O wins, and peggs Mitt to clean up the mess? Best of both worlds! A president destine for destruction in 4,and Romney ‘rising’ fixing the problems the others created.
September 19th, 2008 at 12:29 pm
????? i don’t think obama will peg romney for anything if he won, he will probably pick the gov of nj as his sec of tres so the fox keeps guarding the house…not that romney would want anything to do with obama since he most likely would be running in 2012…as for if mccain wins, my point was if the mccain admin hits hard times than no repub, romney included has any shot to win in 2012…thus its in romney’s best interest to have a successful mccain admin and wouldn’t the best way for that to happen be to join it? thus he could have some control in the outcome.
September 19th, 2008 at 1:00 pm
Blue. I don’t want McCain in the white house. this is going down, and fast. Do you REALLY think that McCain has the guts to pull it out? not on your life. He wants his twilight tour in the whitehouse. that’s prett much it. It’s been his attitude that “it’s mine, and I only want the title”. I don’t think he has thought it through what he needs to do as leader. Honestly, in the past few weeks, I have heard very little in policy or issues from him. Just “hey, look! I got me a girl for a running mate!” That makes me feel good about voting for him. We are in a down turn cycle. It happens every few years. It’s made worse becase EVERYONE was turning their backs and doing it wrong. I think Romney needs to jump off the sinkig ship, and come back in 4 to fix it. Im just really sorry that I can’t jump on board this one. Our country is getting a wake up call, and it might take 4 years to answer the phone.