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Fed’s Strategy Reduces U.s. Bailout To $11.6 Trillion

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http://www.bloomberg.com/apps/news?pid=206...id=a3mpIdYuoB0M

The Federal Reserve decided to keep pumping $1.25 trillion of new money into the mortgage market to focus on rescuing the U.S. economy as the financial system revives and banks ask for less help.

The Fed is allowing some of the 10 support programs it created or expanded after the credit crisis began in August 2007 to expire or shrink. That caused the first decline in the amount of money the U.S. has committed on behalf of taxpayers to end the recession, according to data compiled by Bloomberg.

The central bank has purchased $694 billion of mortgage- backed securities since January and plans to spend $556 billion more by April 2010 to keep interest rates down. The debt-buying is the biggest program in the Fed’s arsenal.

“The first thing the Fed had to do was stop the bleeding in the banking system,†said Richard Yamarone, director of economic research at Argus Research Corp. in New York. “Now that that seems to have been accomplished, they’re focusing on the economy by buying mortgage-backed securities.â€

The purchases were scheduled to stop at the end of December. The Federal Open Market Committee decided on Sept. 23 to continue the program through the first quarter of next year and slow the pace of buying to “promote a smooth transition in markets,†the committee said in a statement. It also said the economy has “picked up.â€

9.4 Percent Decline

The debt-buying pushed the average 30-year mortgage interest rate this week to 5.04 percent, its lowest since May, according to McLean, Virginia-based Freddie Mac. The debt is guaranteed by Freddie Mac and the other government-sponsored home-loan financiers, Fannie Mae and Ginnie Mae, both based in Washington.

The U.S. has lent, spent or guaranteed $11.6 trillion to bolster banks and fight the longest recession in 70 years, according to data compiled by Bloomberg.

That’s a 9.4 percent decline since March 31, when Bloomberg last calculated the total at $12.8 trillion.

The tally “ignores the fact that virtually all commitments are backed by assets,†Andrew S. Williams, a Treasury Department spokesman who had the same role at the Federal Reserve Bank of New York until earlier this year, said in an e- mail. “The Federal Reserve’s current ‘outlays’ are largely in the form of secured loans. The aggregate value of the collateral backing those loans exceeds the loan value. These are not ‘outlays.’â€

Refused to Identify

Spokesmen Calvin A. Mitchell of the New York Fed and David Skidmore of the Fed in Washington declined to comment.

The Fed has refused to identify the collateral backing its loans. Bloomberg News parent Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, sued the central bank in November to force it to provide the information. U.S. District Judge Loretta A. Preska gave the Fed until Sept. 30 to appeal her decision requiring more disclosure about the financial institutions that have benefited. [/quote]

The Fed are desperate to stop folks doing jingle mail. Can they keep mortgage payments lower than rents?? For millions it's got to be more economically viable to walk away.

I wonder what lovely assets the loans have been backed with?

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Guest Daddy Bear
I wonder what lovely assets the loans have been backed with?

A printing press maybe?

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this is just accountancy gone mad...balance the books by...well balancing them with made up numbers.

wont do a thing to protect anyone...the real wealth is gone.....well the wealth the beleived they created is gone..

they just cant accept that half their big banks are bust.

saying they arent doesnt make it so.

Its very sad.

UK must not follow this path.

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what do you mean? follow this path? The US bailout of the financial industry was only 25% of their GDP whilst ours was over 94%.

Our bailout was three times bigger than theirs in relative terms.

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what do you mean? follow this path? The US bailout of the financial industry was only 25% of their GDP whilst ours was over 94%.

Our bailout was three times bigger than theirs in relative terms.

<h1 id="heading-alone">IMF: Fifth of Britain's GDP spent so far on bailouts</h1>

Alistair Darling has already spent almost a fifth of Britain's GDP on bailing out its shattered banking system – more than any other major economy, according to a grave assessment of the world financial crisis published today by the International Monetary Fund.

Edited by Bloo Loo

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Many of the big US banks are bust. Their recovery in profits is an illusion courtesy of accountancy tricks which were enabled when the FASB elbowed fair value rules after they were lent on by the Wall Street crooks back in April.

http://www.bloomberg.com/apps/news?pid=206...id=agfrKseJ94jc

FASB Eases Fair-Value Rules Amid Lawmaker Pressure (Update5)

By Ian Katz

April 2 (Bloomberg) -- The Financial Accounting Standards Board, pressured by U.S. lawmakers and financial companies, voted to relax fair-value accounting rules that Citigroup Inc. and Wells Fargo & Co. say don’t work when markets are inactive.

Changes to fair-value, or mark-to-market accounting, approved by FASB today allow companies to use “significant†judgment in gauging prices of some investments on their books, including mortgage-backed securities. Analysts say the measure may reduce banks’ writedowns and boost net income. Firms could apply the changes to first-quarter results.

“Good decision,†Citigroup Chairman Richard Parsons said of FASB’s move. The market for mortgages and other assets was not working, so something had to change, Parsons said in a New York interview today. Citigroup later said in a statement the decision will have “no impact†on its financial statements.

House Financial Services Committee members pressed FASB Chairman Robert Herz at a March 12 hearing to revise fair-value, which requires banks to mark assets each quarter to reflect market prices, saying it unfairly punished financial companies. FASB’s proposals, made less than a week later, led to criticism from investor advocates and accounting-industry groups, which say the rules force firms to reveal their true financial health.

Financial shares rose after the FASB move. Citigroup rose 2.2 percent to $2.74 at 4:15 p.m. in New York Stock Exchange composite trading. Bank of America Corp. added 2.7 percent to $7.24. The KBW Bank Index earlier rose as much as 6.1 percent.

‘More Accurate’

“Today’s decision should improve information for investors by providing more accurate estimates of market values,†Edward Yingling, chief executive officer of the American Bankers Association, said in a statement.

Responding to investor complaints about its March proposal, FASB today increased the amount of information companies must give on how they value assets. In a related measure, the board voted to allow more flexibility in valuing so-called impaired securities. FASB decided to apply that proposal only for debt securities.

“We went through a full due process,†Herz told reporters after the board meeting. “It was accelerated and expedited. Not everyone is going to agree.â€

The ABA in September joined Blackstone Group LP Chairman Stephen Schwarzman and 65 members of the U.S. House of Representatives to urge that FASB-mandated fair-value accounting be suspended. William Isaac, chairman of the Federal Deposit Insurance Corp. from 1981 to 1985, has called fair value “a major cause†of the credit crisis. Robert Rubin, the former Citigroup senior counselor and Treasury secretary, said Jan. 27 the rule has done “a great deal of damage.â€

‘Long Overdue’

FASB’s vote was “long overdue,†Representative Spencer Bachus, the ranking Republican on the House Financial Services Committee, said in a statement today. “Financial institutions and community banks have been adversely affected by the rigid application of these rules during this financial crisis, causing further instability in the banking system.â€

“I think we’ll see significant write-ups as a result of this,†boosting bank earnings, said Brian Wesbury, chief economist at First Trust Advisors LP in Lisle, Illinois. “It will put the banks back to where they would have been if the rule hadn’t been in place.â€

The biggest remaining question is “whether auditors will agree with the judgment of the bank management,†Wesbury said in an interview.

Competitors’ Sales

Banks rely on competitors’ asset sales to help determine the fair-market value of similar securities they hold on their own books. FASB’s staff conceded the March 17 proposal led to a “presumption†that all security sales are “distressed†unless evidence proves otherwise. Such an interpretation might have let financial firms ignore transactions in valuing assets.

FASB staff said banks should only disregard transactions that aren’t “orderly,†including situations in which the “seller is near bankruptcy†or needed to sell the asset to comply with regulatory requirements. The staff said in a report today it was not FASB’s intent “to change the objective of a fair-value measurement.â€

Fair-value “provides the kind of transparency essential to restoring public confidence in U.S. markets,†former Securities and Exchange Commission Chairman Arthur Levitt said in an interview yesterday.

Levitt is co-chairman, along with former SEC head William Donaldson, of the Investors’ Working Group, a non-partisan panel formed to recommend improvements to financial regulation.

“The group is deeply concerned about the apparent FASB succumbing to political pressures,†he said. Levitt is a senior adviser at buyout firm Carlyle Group and a board member at Bloomberg LP, the parent of Bloomberg News.

‘Not as Bleak’

“The changes themselves are not quite as robust I think as the market had hoped,†said Gary Townsend, a former bank analyst who is president of Hill-Townsend Capital LLC in Chevy Chase, Maryland. “The outlook for the financials is turning out to be not as bleak as some in the market had suggested. The likelihood of the nationalization of the banks seems to be close to zero. Overall there is reason is see some optimism with respect to the direction of bank stocks,†Townsend said in an interview.

FASB rejected requests from banks to let them apply the fair-value change to their year-end financial statements for 2008. While the new standard takes effect for earnings reports filed at the end of June, FASB said companies could apply it to their first-quarter financial statements.

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Guest Daddy Bear
<h1 id="heading-alone">IMF: Fifth of Britain's GDP spent so far on bailouts</h1>

Alistair Darling has already spent almost a fifth of Britain's GDP on bailing out its shattered banking system ..............

The sooner the governments and consumers get to inflationary default on their debts the better .....

The alternative is 20-30 years of deflation......whilst it is paid down....mass unemployment, imploding economies and stagnation - civil unrest from all the 25-45 year olds...etc...etc...

Now can you see that happening?

They will just transfer the wealth from the cash rich (baby boom generation) and the east (chinese) to the young indebted consumers/homeowners and the West (UK and USA primarily) respectively - can't see much civil unrest with the >50 year olds.....and the chinese will be slapped down by the west (probably the last chance the west will get - better do it soon!).

Is there anyone who really thinks they will take the DEFLATIONARY route?

DB

Edited by Daddy Bear

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The sooner the governments and consumers get to inflationary default on their debts the better .....

The alternative is 20-30 years of deflation......whilst it is paid down....mass unemployment, imploding economies and stagnation - civil unrest from all the 25-45 year olds...etc...etc...

Now can you see that happening?

They will just transfer the wealth from the cash rich (baby boom generation) and the east (chinese) to the young indebted consumers/homeowners and the West (UK and USA primarily) respectively - can't see much civil unrest with the >50 year olds.....and the chinese will be slapped down by the west (probably the last chance the west will get - better do it soon!).

Is there anyone who really thinks they will take the DEFLATIONARY route?

DB

they are aiming for the middle path.

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Guest Daddy Bear
they are aiming for the middle path.

no............ they are pretending to aim for the middle path....

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no............ they are pretending to aim for the middle path....

no they are pretending that things are well, when they are clearly not, while aiming to tread the middle path.

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no............ they are pretending to aim for the middle path....

I think a debt jubilee will be the more likely outcome than inflating the debts away. The structural problems are huge in the economy, you may be able to argue this current crisis is the result of not dealing with the problems of 29 crash which ultimately was inflated away after a 20 year decline and a huge world war.

Inflation just creates even more problems, the economy needs to balance and deflate. You cannot have perpetual growth and inflation. However that doesn't mean they will try as the problem with politics is short termism.

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Guest Daddy Bear
I think a debt jubilee will be the more likely outcome than inflating the debts away. The structural problems are huge in the economy, you may be able to argue this current crisis is the result of not dealing with the problems of 29 crash which ultimately was inflated away after a 20 year decline and a huge world war.

Inflation just creates even more problems, the economy needs to balance and deflate. You cannot have perpetual growth and inflation. However that doesn't mean they will try as the problem with politics is short termism.

debt jubilee?
the 29 crash?
Inflation creates even more problems?

explain yourself dear boy.......

Edited by Daddy Bear

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explain yourself dear boy.......

The 29 crash was never allowed to work it's way out of the system, throughout the 30's we had stimulus after stimulus and the deflation which was needed wasn't allowed to take hold. In the end we had a war which allowed mass capital destruction which needed replacing. This allowed the papering over of the cracks.

To pay for all of this debt was slowly racked up and the system probably could have worked for a couple of hundred years before it reached tipping point, unfortunately in 80's Reagan went for it and started up the debt escalator hugely increasing demand by allowing massive credit consumption.

We have now reached a tipping point where the credit has clearly run out and the boom which was created to paper over the 29 collapse appears to have ended and is now imploding. Debt levels in the US far exceed the peak of depression era.

The blackhole is huge and is impossible to fill without revealing printed cash is worthless.

Troubling times ahead.

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