Equinaire's TARP Overview

A Look at The Federal Bailout(s)

November 22, 2008December 13, 2008

AKA: Emergency Economic Stabilization Act

of 2008

AKA: TARP, or

Troubled (“Toxic”) Asset Relief Program

AKA: Emergency Economic Stabilization Act

of 2008

AKA: TARP, or

Troubled (“Toxic”) Asset Relief Program

And make room for:TALF, Term-Asset Backed Securities Loan Facility

Overview

• International, National and some Local History and Fallout;

• Implications;• Pending Cures:

– USA– You and Me

• Outlook.• Drastic Solutions call for Drastic Times!• Q&A Throughout.• From Wall Street to main Street: The Modification Option

– Equinaire’s new AmeRestart

The Current Economic Situation

• Unemployment

• Stock, Commodities, Bond Values

• Housing Starts & stats

• Foreclosure Activity

• Market Confidence

…A Bumpy Ride

November 21, close B(W) %B(W) 52 wk Lo 52 wk Hi

Dow 8,046.42 +494.13 6.14% 7,449 13,780.11

S&P 800.03 +47.59 6.32% 741 1,523.57

Unemployment

Sept. Oct. Nov.

Stock Market Friday Closes

National 6.1 6.5 6.7

California 7.7 8.2

Texas 5.1 5.6

Florida 6.4 6.6 7.0e

December 12, close B(W) %B(W)

Dow ?1 64.59 .75%

S&P ?2 6.14 .70%

November 21, close B(W) %B(W) 52 wk Lo 52 wk Hi

Dow 8,046.42 +494.13 6.14% 7,449 13,780.11

S&P 800.03 +47.59 6.32% 741 1,523.57

Unemployment

Sept. Oct. Nov.

Stock Market Friday Closes

National 6.1 6.5 6.7

California 7.7 8.2

Texas 5.1 5.6

Florida 6.4 6.6 7.0e

December 12, close B(W) %B(W)

Dow 8,629.68 64.59 .75%

S&P 879.73 6.14 .70%

Fun Stats

Dow: All Time High ?3 14,164

Dow: All Time Low 12/6/74 ?4

Start of Reagan Bull Market 8/12/82 ?5

Start of Clinton Bull Market 1/14/00 ?6

Date Value

Fun Stats

Dow: All Time High 10/9/07 14,164

Dow: All Time Low 12/6/74 577

Start of Reagan Bull Market 8/12/82 776

Start of Clinton Bull Market 1/14/00 11,723

So What Happened?

An unswerving, if somewhat nationalistic belief in the American Dream had us looking the other way:

Precipitated by a ^ Sub Prime Meltdown

9/07 Northern Rock (Lender)

$42B rescue by Bank of England

9/07 USB $4B write down of Subprime mortgages

11/07 HSBC $45B bailout of a $2.5T Asset institution

1/08 Societe General

E$7B write down of US subprime

France

2/08 Credit Suisse $2.5B write down with money raised from Qatar Sovereign Fund; Saudi Arabia; and Israel’s Koor Ind

Swiss, Saudi Arabia, Qatar, Israel.

Global

The Scope of the Challenge3/08 Bear Sterns After 85yrs, sold to

JPMorgan/Chase for $2/sh – eventually $10/sh; JP Morgan later bought WAMU for $1.9B

4/08 Royal Bank of Scotland

L$12B “right issue” Scotland

6/08 Lehman Bros Announces “an issue” – Japan freezes Asian assets

Eventually losing 13,900 jobs 10/08

US, Japan

7/08 Deutsche Bk E$6B in write downs on a $2.6T in assets

Germany

9/08 Merrill Lynch Purchased by BofA for $50B

5,200 jobs lost

The Scope of the Challenge7/08 IndyMac $32B takeover by FDIC at the

time was second largest bank failure in US history; eventual cost of $4B - $8B

The Scope of the Challenge9/08 HBOS, PLC UK’s largest mortgage lender

taken over by Lloyds using L$11.5b in gov funding

9/08 Lehman, N. America

After BK filing, Barclay’s UK pays $1.75B

9/08 Morgan Stanley

Mitsubishi, UFG takes 10% -20% stake for $9B with at least one representative on their board

9/08 Lehman, Asia

Nomura purchases in “exclusive talks”

9/08 Goldman Sachs

Reinvents itself away from investment banker;

The Scope of the Challenge9/08 Wachovia $12B bailout; sold initially to

Citi US

9/08 Glitner Iceland’s 3rd largest bank nationalized;

Iceland

9/08 BPN, Paribas

French bank agrees to take over Fortis buying out Belgium’s interest

France, Belgium, Dutch, Luxemborg,

9/08 ING Gives up $11B equity after spinning off Taiwan Life Ins grp

Dutch, Tawain

The Granddaddy of them all

• ___________________

• Representing assets of

__$__________________

9/08 WAMU (At $307B in assets & $188B in Dep’s, biggest bank failure in US history)

Seized and sold to JP Morgan after a $16.7B run on the bank; est $19B in bad debts;

Fun Stats

“Who Said It”1. “The notion of a bubble bursting and the whole price

level coming down seems to me as far as a national nationwide phenomenon, is really quite unlikely

2. “Housing activity will remain healthy for some time to come”

3. “The idea that we’re going to see a collapse in he housing market seems to me improbable”

4. “It’s impossible for prices to go down this year”

5. At this juncture, the impact on the broader economy and financial markets of the problems in the sub prime market seems likely to be contained”

6. “We got a big problem”

“We Never Saw It Coming”1. “The notion of a bubble bursting and the

whole price level coming down seems to me as far as a national nationwide phenomenon, is really quite unlikely.” Alan Greenspan Fed Reserve Chairman, 2003

2. “Housing activity will remain healthy for some time to come” David Lereah, NAR’s Chief Economist, 2005

3. “The idea that we’re going to see a collapse in he housing market seems to me improbable” John Snow, Treasury secretary, 2005

4. “It’s impossible for prices to go down this year” Garry Watts, Orange County Assoc of Realtors, 2006

5. At this juncture, the impact on the broader economy and financial markets of the problems in the sub prime market seems likely to be contained” Ben Bernanke, Fed Reserve Chairman, 2007

6. “We got a big problem” ????

Financial Market

• Job Losses – 130,000 jobs lost– JP Morgan 3,000– Deutsche 900– Citi 52,000 e– RBS 3,000– Morgan 2,000– Amex 7,000 (10%)– Goldman 10%

Financial Market 130,000 Jobs Loss

LenderImplode.com

Since late 2006, 304 major U.S. lending operations have "imploded“

“We got a big problem”

- George W. Bush, September, 2008

More Signs of the Times• 2 year bond falling due to high demand fearing long range

“deflation.”• 30Yr dropped below 4% • More recently, the 3 month T ’Bill dropped to zero yield;• S&P - probably the most watched indicator in the world since it’s a

broader measure than the Dow – sank to 13 year low;• Dow below $8k since 2003• Citi (after taking its SIV’s onto it’s balance sheet) still losing value by

the buckets, rumored to layoff another 52,000 employees. Stock below $4.

• GM at $3.06, Ford at $1.03• Feds seizes Downey and PFF• More recently BofA announced a layoff affecting 32,000 workers.

Signs of the Time

• Sax 5th 3Q loss worse than expected;• Home Depot 3Q down 30% from

expectations – actually down 8% versus expected 5% decline;

• Circuit city – BK

I did look over the LA Times business section this morning… Remember They’re in BK protection… 4 pages on a Friday.

Who’s Doing Well?

?8._____ _______

Who’s Doing Well?

Wal-Mart doing nicely realizing 50% of all retail gains; last yr only 10% of retail gains;

Early economic indicator may be Starbucks

Drastic Solutions in Drastic Times

?9. Can You Name This Man?

OK Just In Case You Were Sleeping

There’s a man lose …

… with a wooden Stake!

… And a hammer!

Secretary of The Treasury, Henry M. Paulson, Jr.

BUT… he’s from Goldman Sachs

The ^ Solution

Emergency Economic Stabilization Act of 2008.

The ^ Solution

Asset-Backed Securities

Loan Facility

Second

Emergency Economic Stabilization Act of 2008

• Authorizes Treasury to spend $700B to – Purchase distressed assets– Make capital injections into banks

• Originally 3 pages when it started in the House;

• Became 110 pages by the Senate;• After another $150B in “unrelated

provisions” it became 451 pages by the time it was signed;

EESA of 2008

• Managed by the Office of Financial Stability within the Treasury Dept.

• Consults with:– Bd of Gov’s of Federal Rsrv. – FDIC’– Comptroller of the Currency– Director of Office of Thrift Supervision– Secretary of HUD

Actions thus Far

Allowed:• Immediate access to

$250B• Additional access to

$100B with Presidents Authorization

• For the Final $350B, President must notify Congress. They have 15 days to stop it by legislation. President can veto. Congress can override.

Done:• Money dispersed to 87

banks in 30 states;• Some measure of

secrecy of any troubled banks;

• Tres Secy to develop Foreclosure assist plan

• Svcrs encouraged to do loan mods and HOPE.

Creates TARP ?

To purchase toxic assets so as to free up banks to lend and re-open the credit markets.

Pro’s: market intervention is vital to prevent further erosion in credit markets;

Con’s: Problems created by excess credit and debt are not solved by a massive infusion of excess capital and debt;

Think of it like standing at the top of a sliding board with a smoldering fire underneath: – Pro’s want to go down on the slide side, legs first; – Con’s think investors should jump off the top of the staircase,

head first. – And Main street only knows that parks are where the bullies

are…

So What Do the Economists Think?

Economists Seem to Have Four Concerns

1. Fairness: this seems to be a subsidy to Investors at taxpayers expense;

2. Ambiguity: Mission and oversight are unclear including which assets and at what terms; Oversight and accountability is also unclear;

3. Long Term Effect: Gov’t intervention in free markets fundamentally weakens them; Exposes US to global scrutiny;

4. But Do Something : There is widespread agreement that further erosion could have caused “massive systemic failure of global financial markets.”

What if your

>>_____________________<< failed just when you needed

That Brings us to the ^ Solution

Actions Allowed• About $800B• To rejuvenate consumption

and mortgage credit;• Restore confidence in stock

market by offering support in the asset-backed markets (Credit cards, SBA loans, auto and student loans)

Allowed Are:• $200B in new Gts• $100B in direct debt purch

Fannie, Freddie & FHLB• $500B of MBS to Fannie,

Freddie and Ginnie

Actions Taken• Has Obama’s support• Film at Eleven – more to

follow;

Second

Term Asset-Backed Securities Loan Facility, TALF, 11/25/08

Consider a microcosm for a Second and let’s make it

personal…

So a Bailout was probably necessary.

Now what?

Worth Watching

The Fundamental parts worth watching include:• Secretary Paulson’s long-bridled control and

shifting attention;• The TARP targets – how much is main street

versus wall street;• Those Banks blessed with portions and their use

of the funds;• Current AND New Administration

announcements & hints.

Watching the Moving Parts

The Original intent was:• Purchase distressed

assets;• Make capital injections

into banks;

11/14 update:• Stock Purchase of

financial firms;• Fed financing for

investors in securities back by consumer debt such as car loans, student loans and credit cards;

• Big Three Discussions• Subsidies to mitigate

mortgage foreclosure;

New Foreclosures

Nationwide numbers were 2,795,420 new filings and 479,461sales YTD through July.

Through October, 2008

The Latest

Senate Banking Committee Chairman, Chris Dodd says Congress may have to reconsider some parts of the financial plan it approved.

Ford, Chrysler and GM seek $25B to “retool.” Question: Does trading the corp. jet for a PR road rally show they understand Main St sentiment? Question: Why has this become a political play when the election is safely behind us?

?10.So What’s This Gonna Cost?

A. $700B

B. $1.5T

C. Over $5T

D. Over $9T

E. Who Knows

How does this add up? Maybe $8.5T (as in Trillion)

• Fed Reserve Programs Max Committed– Commercial paper program $1.8T $271B– Term Auction Facility (for Bnks) .9T $415B– Fannie/Freddie Debt Purchase .6T 0– Citigroup bailout $291B $291B– AIG and other Credit extensions $123B $123B– Bear Sterns Asset Gt to JP Morgan $29B $27B– Fed Totals incl other $5.6T $2.1T

• FDIC Programs Max Committed – Loan Gts $1.4T $0– Gt to GE Capital $139B $139B– Citi Bailout toxic asset Gt $10B $10B– FDIC Totals incl other programs $1.5T $149B

• Treasury Dept Programs Max Committed– TARP $700B $330B– Txpyr Rebates $168B $168B– Treasury total incl other prgrms $1.1T $597B

• Federal Housing Administration – Hope for Homeowners $300B $300B

Total? Over $8.5T

• Fed Reserve Programs Max Committed$5.6T $2.1T

• FDIC Programs$1.5T $149B

• Treasury Dept Programs$1.1T $597B

• Federal Housing Administration

(FHA) $300B $300B

• U. S. Government

Total $8.5T $3.2T

Plus TALF $800B

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