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A look at the "first" Economic stilumulus package and a look back on how it all happened.
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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
The Current Economic Situation
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%
The Current Economic Situation
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
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?
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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
UK
9/07 USB $4B write down of Subprime mortgages
Swiss
11/07 HSBC $45B bailout of a $2.5T Asset institution
UK
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
US
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
US
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
US
The Scope of the Challenge9/08 HBOS, PLC UK’s largest mortgage lender
taken over by Lloyds using L$11.5b in gov funding
UK
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
Japan
9/08 Lehman, Asia
Nomura purchases in “exclusive talks”
Japan
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;
US
Fun Stats
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?
?
“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.
First
The ^ Solution
Term
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
them?
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
/wFk
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
How does this add up? Maybe $8.5T (as in Trillion)
• 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
How does this add up? Maybe $8.5T (as in Trillion)
• 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
$9.3T
Other Solutions to Watch
• Allow homeowners to borrow at Fed Funds rate;
• Sheila Bair head of FDIC wants $40B to create a mortgage insuring vehicle to spark refi’s to save homeownership.
• H4H – “HOPE” for Homeowners
• New Administration in it’s first 100 days;
We should be careful what we ask for.
Issues/Concerns
• Right now someone else owns the housing value melt-down, (i.e, China, Japan, Europe)
• Is our skin in the game?
… But it’s an INTERNATIONAL challenge!
But
The key Consideration is embedded in who we are as Americans.
• Entrepreneurs
• Innovative
• Checks & Balances
• “Refresh Button” - Democracy
• Lead the Hunt
Some Presidential Numbers:
ECONOMY SNAPSHOT: 1943
GDP (in billions) $180
GDP growth 22.7%
Unemployment rate N/A
Inflation (CPI) 6.1%
ECONOMY SNAPSHOT: 1968
GDP (in billions) $910
GDP growth 9.3%
Unemployment rate 3.6%
Inflation (CPI) 4.2%
ECONOMY SNAPSHOT: 1976
GDP (in trillions) $1.825
GDP growth 11.4%
Unemployment rate 7.7%
Inflation (CPI) 5.8%
ECONOMY SNAPSHOT: 1983
GDP (in trillions) $3.536
GDP growth 8.7%
Unemployment rate 9.6%
Inflation (CPI) 3.2%
ECONOMY SNAPSHOT: 2004*
GDP (in trillions) $11.466
GDP growth 4.25%
Unemployment rate 5.5%
Inflation (CPI) 1.8%
Also out There
Mortgage Debt Relief Act of 2007.
• Tax relief applying to certain mortgage debt forgiveness normally 1099’d by lender. Extended to 2012 from 2009.– O/O to $2MM per year
• Specialized FHA financing to 85% LTV with sacrifice of 50% – 100% of future equity
Meanwhile: Conserve and Control Replaces Conspicuous Consumption
• We may not need Victory Gardens again, but– Not a bad idea to reflect back on how our parents’
parents maneuvered back then.
• Increased interest in public transportation and Green initiatives;– Conspicuous consumption may have seen its day .
• Bankers are entrepreneurs too; We are survivors;– Consumers trying to get their arms wrapped around
personal credit– New credit vehicles emerging
Conserve and Control
•Loan Modifications
•Short Sales
•Financial Control
Granderson Associates
Law Offices
• Loan Modifications
• Short Sales
• Financial Training and Control
www.AmeRestart.Com
Hope Never Hurts-Cornel Hunter
Thank You
?
??
?
Test Results
• 0 to 3 correct answers: keep the day job
• 4 to 7 correct answers: stay after school
• 8 to 9 correct answers: Economic Genius
• 10 (or More) correct answers: go to
www.obamaeconadvisor.whatever
You’re needed in Washington!!!