Billy's Blog

Mortgage rates plummetting thanks to the Federal Reserve today...

Institute of Wealth Strategies, LLC — Tue, 16 Dec 2008 13:33:55 -0600

Press Release

Release Date: December 16, 2008

For immediate release

The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.

Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.

Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Richmond, Atlanta, Minneapolis, and San Francisco. The Board also established interest rates on required and excess reserve balances of 1/4 percent.

2008 Monetary Policy Releases

With the news that the Fed will be buying huge amounts of...

Institute of Wealth Strategies, LLC — Tue, 25 Nov 2008 09:18:12 -0600

mortgage backed securities, you can look for substantially lower rates. This is the move that may really spur home sales. Here is the press release from the Fed...

Press Release

Release Date: November 25, 2008

For release at 8:15 a.m. EST

The Federal Reserve announced on Tuesday that it will initiate a program to purchase the direct obligations of housing-related government-sponsored enterprises (GSEs)--Fannie Mae, Freddie Mac, and the Federal Home Loan Banks--and mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae. Spreads of rates on GSE debt and on GSE-guaranteed mortgages have widened appreciably of late. This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.

Purchases of up to $100 billion in GSE direct obligations under the program will be conducted with the Federal Reserve's primary dealers through a series of competitive auctions and will begin next week. Purchases of up to $500 billion in MBS will be conducted by asset managers selected via a competitive process with a goal of beginning these purchases before year-end. Purchases of both direct obligations and MBS are expected to take place over several quarters. Further information regarding the operational details of this program will be provided after consultation with market participants.

2008 Monetary Policy Releases

Meredith Whitney says Citi is a goner...

Institute of Wealth Strategies, LLC — Sun, 23 Nov 2008 19:08:20 -0600

Meredith Whitney the most reliable of the banking analysts told the New York Post today that Citigroup is in big trouble and their CEO Vikram Pandit is wrong in thinking he can survive in its current form.

"Pandit is wrong, Citi will not be able to stay in its current form," she said, adding that the banking giant must break itself up and sell off the pieces to raise capital and reduce its size.....

"Citigroup is in such a mess Stephen Hawking couldn't turn this company around," the money maven added. "It has lost the most money of all the banks, and has the greatest leverage."....

"Citi is wrong if they say they are adequately capitalized. No bank is adequately capitalized today and Citi is no exception," she said...."

This will get ugly quick and it looks like the government will get involved soon...

Meredith Whitney says Citi is a goner...

Institute of Wealth Strategies, LLC — Sun, 23 Nov 2008 19:08:02 -0600

This will get ugly quick and it looks like the government will get involved soon...

Don't be surprised if you hear some news regarding Citigroup today...

Institute of Wealth Strategies, LLC — Sun, 23 Nov 2008 12:29:31 -0600

It will be difficult for the U.S. Government to allow another day of market turmoil for this financial behemoth. Paulson and Bernanke are, no doubt, trying to broker a private deal for them, but it wouldn't surprise me to see some sort of bridge loan or backstop similar to AIG or Fannie/Freddie. Look for this to occur before the Russian/Asian market open tonight, EST.

This will be another interesting week...

Don't be surprised if you hear some news regarding Citigroup today...

Institute of Wealth Strategies, LLC — Sun, 23 Nov 2008 12:29:21 -0600

This will be another interesting week...

Don't be surprised if you hear some news regarding Citigroup today...

Institute of Wealth Strategies, LLC — Sun, 23 Nov 2008 12:29:17 -0600

This will be another interesting week...

Don't be surprised if you hear some news regarding Citigroup today...

Institute of Wealth Strategies, LLC — Sun, 23 Nov 2008 12:28:57 -0600

This will be another interesting week...

Here we go again...again...

Institute of Wealth Strategies, LLC — Tue, 21 Oct 2008 09:19:03 -0500

It had been a few days without a day new Fed funding facility ... From the Fed: Federal Reserve announces the creation of the Money Market Investor Funding Facility (MMIFF) The Federal Reserve Board on Tuesday announced the creation of the Money Market Investor Funding Facility (MMIFF), which will support a private-sector initiative designed to provide liquidity to U.S. money market investors.

From the Fed...

Press Release

Release Date: October 21, 2008

For release at 9:00 a.m. EDT

The Federal Reserve Board on Tuesday announced the creation of the Money Market Investor Funding Facility (MMIFF), which will support a private-sector initiative designed to provide liquidity to U.S. money market investors.

Under the MMIFF, authorized by the Board under Section 13(3) of the Federal Reserve Act, the Federal Reserve Bank of New York (FRBNY) will provide senior secured funding to a series of special purpose vehicles to facilitate an industry-supported private-sector initiative to finance the purchase of eligible assets from eligible investors. Eligible assets will include U.S. dollar-denominated certificates of deposit and commercial paper issued by highly rated financial institutions and having remaining maturities of 90 days or less. Eligible investors will include U.S. money market mutual funds and over time may include other U.S. money market investors.

The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests and meet portfolio rebalancing needs. By facilitating the sales of money market instruments in the secondary market, the MMIFF should improve the liquidity position of money market investors, thus increasing their ability to meet any further redemption requests and their willingness to invest in money market instruments. Improved money market conditions will enhance the ability of banks and other financial intermediaries to accommodate the credit needs of businesses and households.

The attached term sheet describes the basic terms and operational details of the facility.

The MMIFF complements the previously announced Commercial Paper Funding Facility (CPFF), which on October 27, 2008 will begin funding purchases of highly rated, U.S.-dollar denominated, three-month, unsecured and asset-backed commercial paper issued by U.S. issuers, as well as the Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), announced on September 19, 2008, which extends loans to banking organizations to purchase asset backed commercial paper from money market mutual funds. The AMLF, CPFF, and MMIFF are all intended to improve liquidity in short-term debt markets and thereby increase the availability of credit.

MMIFF Terms and Conditions (56 KB PDF)

2008 Monetary Policy Releases

Helping high school kids become financially educated...

Institute of Wealth Strategies, LLC — Mon, 20 Oct 2008 17:56:10 -0500

Since this credit crisis, I have thought what we need is more education regarding financial matters. We, at the Manders Group, have decided that we would like to help high school kids in our area, state and region become more financially educated. We are donating a $200 scholarship to the "Secure Student" for any parent with a high school child that would like to enroll in this program. I have become very active in the Financial Education community and feel that this is a way to give back. Read about the program below and e-mail me(e-mail address on the right side of this page) so I can give you the code for the $200 discount...

Here is a recent blog at the "Frugal Dad..."

The following guest post is from Mike Young, Founder and CEO of The S.E.C.U.R.E. ^TM student program. You can learn more about Mike, and the The S.E.C.U.R.E.^TM student program at his website.

The media today is focused on the $700 Billion bailout on Wall Street and the credit crunch. However, what has become very clear in the eyes of many is that the real problem is with the foundation of our educational system.

Remember all of the neat stuff you learned in high school about credit and money? If you are like me, you don't, because there was no education on how credit and money actually worked. The average kid today will see over 360,000 advertisements before the age of 18 while receiving less than 10 hours of formal education on financial literacy.

CNBC reported that the real problem with the adult population today, is they were never taught this stuff in school. This leads us to an entire generation of consumers with a -2% savings rate. The average American has less than $3800 in savings and an average credit card balance of $9,200!

Marketing and advertising has been working full steam ahead since the 1950's and it's about time that our educational system begins to make sweeping changes to help high school kids develop positive habits with credit and money before they leave home.

It's time for our society to begin making an impact on the next generation, teaching them lessons we've learned the hard way. It's time to make a difference and consume less while saving more. We can turn this ship around, but it's going to take a group effort at the community level and begin getting involved now.

Frugal Dad's Thoughts: I couldn't agree more with Mike's message, and his organization's mission. As a society, we do a poor job at preparing our youth to take the next step to become fiscally responsible citizens. Think about it-we spend countless hours of instruction preparing students for fitness through health classes, gym and physical education. We spend many more hours teaching students proper grammar, in both English and foreign languages. Rather than teaching them how to take tests, or prepare for college, perhaps we should focus our efforts on preparing students for life. Some basic courses in personal finance including lessons such as how to balance a checkbook, how to manage credit, how taxes work, etc. would go a long way towards creating a better prepared group of high school graduates.

Post from: Frugal Dad

Mortgage rates since the bailout and why...

Institute of Wealth Strategies, LLC — Fri, 17 Oct 2008 13:47:23 -0500

When the U.S. government first took conservatorship of Fannie and Freddie, rates started to plummet as bond purchasors decided that with the "implicit" guarantee for mortgage backed securities they would receive a better yield than comparable treasuries. This was true and investors flocked into MBS's, driving rates on a 30-year fixed to below 5.375 for a few days, but this trend has reversed and here is why...

From the Financial Times:

US mortgage rates have soared this week in an unexpected reaction to the latest Treasury financial rescue plan, which has prompted investors to buy bank debt and sell bonds backed by home loans.

Interest rates on 30-year fixed-rate mortgages, as measured by Bankrate.com, rose to 6.38 per cent on Thursday from 5.87 per cent last week - before the Treasury said on Tuesday that it would take equity stakes in banks and guarantee new bank debt.

Investors responded to the new guarantee by buying existing bank debt, reckoning it could be refinanced with the new government-supported bonds. As they did so, they sold lower-yielding paper issued by Fannie Mae and Freddie Mac, the mortgage companies put into government conservatorship last month....

Fannie and Freddie had been taken into conservatorship by their regulator to help keep mortgage rates low and - it was hoped - revive the housing market.

However, the opposite is now happening, making it more difficult for struggling homeowners to refinance their mortgages and for prospective homebuyers to get financing. As a result, house prices may fall further before they find a bottom...

Some analysts believe that further government intervention in the housing sector could be forthcoming to push down the cost of borrowing and help prices recover.

"Weak housing remains at the heart of the economic and financial turmoil, and the policy imperative will remain improving housing affordability," said Janaki Rao, analyst at Morgan Stanley. "The possibility of a policy response to what is obviously an unacceptable outcome for policymakers has increased, in our opinion."

The conservatorship brought down the cost of funding for Fannie and Freddie by making explicit a previously implicit government guarantee of their debt, allowing them to buy more mortgages. Before they were taken over, the fragile state of their finances had limited Fannie and Freddie's participation in the mortgage market.

Joint press release from the Treasury, Federal Reserve and FDIC...

Institute of Wealth Strategies, LLC — Tue, 14 Oct 2008 07:51:18 -0500

Here is the latest announcement from the Treasury, Federal Reserve and FDIC...

Joint Press Release

Board of Governors of the Federal Reserve System
U.S. Department of the Treasury
Federal Deposit Insurance Corporation
For release at 8:30 a.m. EDT October 14, 2008

Joint Statement by Treasury, Federal Reserve, and FDIC

Washington, DC-- The following statement was made by Treasury Secretary Henry M. Paulson, Jr, Federal Reserve Chairman Ben Bernanke and FDIC Chairman Sheila C. Bair:

Today we are taking decisive actions to protect the U.S. economy, to strengthen public confidence in our financial institutions, and to foster the robust functioning of our credit markets. These steps will ensure that the U.S. financial system performs its vital role of providing credit to households and businesses and protecting savings and investments in a manner that promotes strong economic growth in the U.S. and around the world. The overwhelming majority of banks in the United States are strong and well-capitalized. These actions will bolster public confidence in our system to restore and stabilize liquidity necessary to support economic growth.

Last week, the President's Working Group on Financial Markets announced that the U.S. government would deploy all of our tools in a strategic and collaborative manner to address the current instability in our financial markets and mitigate the risks that instability poses for broader economic growth. This past weekend, we and our G7 colleagues committed to a comprehensive global strategy to provide liquidity to markets, to strengthen financial institutions, to prevent failures that pose systemic risk, to protect savers, and to enforce investor protections.

We welcomed the steps announced by our European colleagues this weekend to implement the action plan, and ensure financial institutions in Europe can finance economic growth. Today we are implementing our strategy with three important actions.

First, Treasury is announcing a voluntary capital purchase program. A broad array of financial institutions is eligible to participate in this program by selling preferred shares to the U.S. government on attractive terms that protect the taxpayer. Second, after receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Paulson signed the systemic risk exception to the FDIC Act, enabling the FDIC to temporarily guarantee the senior debt of all FDIC-insured institutions and their holding companies, as well as deposits in non-interest bearing deposit transaction accounts. Regulators will implement an enhanced supervisory framework to assure appropriate use of this new guarantee.

We are pleased to announce that nine major financial institutions have already agreed to participate in both the capital purchase program and the FDIC guarantee program. We appreciate that these healthy institutions are taking these steps to strengthen their own positions and to enhance the overall performance of the U.S. economy. By participating in these programs, these institutions, along with thousands of others to come, will have enhanced capacity to perform their vital function of lending to U.S. consumers and businesses and promoting economic growth. They have also committed to continued aggressive actions to prevent unnecessary foreclosures and preserve homeownership.

Third, to further increase access to funding for businesses in all sectors of our economy, the Federal Reserve has announced further details of its Commercial Paper Funding Facility (CPFF) program, which provides a broad backstop for the commercial paper market. Beginning October 27, the CPFF will fund purchases of commercial paper of 3 month maturity from high-quality issuers.

Together these three steps significantly strengthen the capital position and funding ability of U.S. financial institutions, enabling them to perform their role of underpinning overall economic growth. These actions demonstrate to market participants here and around the world the strength of the U.S. government's commitment to take all necessary steps to unlock our credit markets and minimize the impact of the current instability on the overall U.S. economy. The actions taken today are a powerful step toward restoring the health of the global financial system.

Remarks by Chairman Ben S. Bernanke at the President's Working Group Market Stability Initiative announcement

2008 Monetary Policy Releases

Fed works in concert with other Central Banks to ease rates...

Institute of Wealth Strategies, LLC — Wed, 08 Oct 2008 06:23:37 -0500

Press Release

Release Date: October 8, 2008

For release at 7:00 a.m. EDT

Joint Statement by Central Banks

Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets.

Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability.

Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions.

Federal Reserve Actions
The Federal Open Market Committee has decided to lower its target for the federal funds rate 50 basis points to 1-1/2 percent. The Committee took this action in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures.

Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit. Inflation has been high, but the Committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation.

The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1-3/4 percent. In taking this action, the Board approved the request submitted by the Board of Directors of the Federal Reserve Bank of Boston.

Information on Actions Taken by Other Central Banks
Information on the actions that will be taken by other central banks is available at the following websites:

Bank of Canada
Bank of England
European Central Bank
Sveriges Riksbank (Bank of Sweden)
Swiss National Bank

Statements by Other Central Banks
Bank of Japan

Fed to buy Commercial Paper...

Institute of Wealth Strategies, LLC — Tue, 07 Oct 2008 08:40:07 -0500

Press Release

Release Date: October 7, 2008

For release at 9:00 a.m. EDT

The Federal Reserve Board on Tuesday announced the creation of the Commercial Paper Funding Facility (CPFF), a facility that will complement the Federal Reserve's existing credit facilities to help provide liquidity to term funding markets. The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers. The Federal Reserve will provide financing to the SPV under the CPFF and will be secured by all of the assets of the SPV and, in the case of commercial paper that is not asset-backed commercial paper, by the retention of up-front fees paid by the issuers or by other forms of security acceptable to the Federal Reserve in consultation with market participants. The Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets and the economy and will make a special deposit at the Federal Reserve Bank of New York in support of this facility.

The commercial paper market has been under considerable strain in recent weeks as money market mutual funds and other investors, themselves often facing liquidity pressures, have become increasingly reluctant to purchase commercial paper, especially at longer-dated maturities. As a result, the volume of outstanding commercial paper has shrunk, interest rates on longer-term commercial paper have increased significantly, and an increasingly high percentage of outstanding paper must now be refinanced each day. A large share of outstanding commercial paper is issued or sponsored by financial intermediaries, and their difficulties placing commercial paper have made it more difficult for those intermediaries to play their vital role in meeting the credit needs of businesses and households.

By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, this facility should encourage investors to once again engage in term lending in the commercial paper market. Added investor demand should lower commercial paper rates from their current elevated levels and foster issuance of longer-term commercial paper. An improved commercial paper market will enhance the ability of financial intermediaries to accommodate the credit needs of businesses and households.

Commercial Paper Funding Facility (CPFF) Terms and Conditions (57 KB PDF)

2008 Monetary Policy Releases

Statement from Bernanke on bailout passage...

Institute of Wealth Strategies, LLC — Fri, 03 Oct 2008 13:06:37 -0500

Press Release

Release Date: October 3, 2008

For immediate release

I applaud the action taken by the Congress. It demonstrates the government's commitment to do what it takes to support and strengthen our economy. The legislation is a critical step toward stabilizing our financial markets and ensuring an uninterrupted flow of credit to households and businesses.

The Federal Reserve will continue to work closely with the Treasury as it undertakes these new initiatives. We will continue to use all of the powers at our disposal to mitigate credit market disruptions and to foster a strong, vibrant economy.

FDIC could now have unlimited access to the Treasury...

Institute of Wealth Strategies, LLC — Wed, 01 Oct 2008 11:37:49 -0500

From the WSJ: Revised Bill Lets FDIC Borrow Without Limits

The Senate financial market rescue bill would temporarily allow the Federal Deposit Insurance Corp. to borrow unlimited amounts of money from the Treasury Department in connection with the larger government deposit coverage that would extend until the end of next year.

This is important because it would increase the backstop that the FDIC has to make sure that insured depositors can be repaid if their bank fails.

full text of the revised bill.

This could really help preven the "run on the banks" that many are fearing and prepare the FDIC for more bank failures. I like this move...

Foreign leaders demanding bailout passage...

Institute of Wealth Strategies, LLC — Wed, 01 Oct 2008 08:15:11 -0500

I never thought I would see the United States being led around by our nose by leaders of foreign governments because WE owed them so much money, but it has happened. I am concerned about the signal being sent...

From Bloomberg:

"European Central Bank President Jean- Claude Trichet said U.S. lawmakers must pass a $700 billion rescue package for banks to shore up confidence in the global financial system.

``It has to go, for the sake of the U.S. and for the sake of global finance,'' Trichet said in an interview in Frankfurt with Bloomberg Television late yesterday. ``I am confident, but of course it is the decision of the U.S. Congress.''

Click here for the entire article http://www.bloomberg.com/apps/news?pid=20602007&sid=aRJToi7NKwSQ&refer=govt_bonds

Citi buys Wachovia retail banking operations...

Institute of Wealth Strategies, LLC — Mon, 29 Sep 2008 07:26:18 -0500

Breaking News!

From NY Times blog:

"Citi assumes Wachovia banking operations for $1 a share, a move that that would concentrate power within the nation's banking industry in the hands of a few giant lenders, The New York Times's Eric Dash and Andrew Ross Sorkin reported Monday morning.

The Federal Deposit Insurance Corporation said in a statement on Monday that Citigroup will assume Wachovia's senior subordinated debt, and emphasized that Wachovia did not fail."

Goodbye Wachovia...

Institute of Wealth Strategies, LLC — Sun, 28 Sep 2008 18:25:51 -0500

From the NY Times: Citigroup and Wells Fargo Said to Be Bidding for Wachovia

Citigroup and Wells Fargo were locked in a bidding war on Sunday over a possible emergency takeover of the Wachovia Corporation ...

The government, led by the Federal Reserve and Treasury Department, has been involved in the talks as well ...

The government has ... opposed taking over Wachovia the way it did Washington Mutual earlier this week, these people said, unless its financial position deteriorates more rapidly.
...
Citigroup and Wells Fargo are unlikely to bid more than a few dollars per share for Wachovia

Link for the draft of bailout bill...

Institute of Wealth Strategies, LLC — Sun, 28 Sep 2008 16:02:52 -0500

Alright guys, who is man/woman enough to read this article in its entirety? I have linked the pdf version and it is 106 pages. Good luck and please report back with Cliff Notes...

The Troubled Assets are initially limited to commercial and residential mortgages and instruments based on them. The Treasury has to go to Bernanke and get his consent and then write a note to Congress.

http://money.cnn.com/2008/09/28/news/pdf/index.htm

Deal reached on bailout bill...

Institute of Wealth Strategies, LLC — Sun, 28 Sep 2008 15:45:04 -0500

There seems to be a deal reached on the bailout bill. The House Republicans were conspicuously missing from the press conferences early this morning, but many people associated think this deal can get done...

From the NY Times: Breakthrough Reached in Negotiations on Bailout

Congressional leaders and the Bush administration reached a tentative agreement early Sunday...

The bill includes pay limits for some executives whose firms seek help, aides said. And it requires the government to use its new role as owner of distressed mortgage-backed securities to make more aggressive efforts to prevent home foreclosures. In some cases, the government would receive an equity stake in companies that seek aid, allowing taxpayers to profit should the rescue plan work and the private firms flourish in the months and years ahead.

The White House also agreed to strict oversight of the program by a Congressional panel and conflict-of-interest rules for firms hired by the Treasury to help run the program.

FDIC to seize WAMU and sell deposits to JPMorgan Chase...

Institute of Wealth Strategies, LLC — Thu, 25 Sep 2008 19:40:20 -0500

Another wild night in the financial markets...

CNBC reports: FDIC to Seize WaMu and Sell Deposits to JPMorgan The Federal Deposit Insurance Corp will seize Washington Mutual and sell its deposits to JPMorgan Chase for an undisclosed sum, CNBC has learned. The deal is expected to be announced during a Thursday night conference call at 9:15 p.m. ET.

JPMorgan announces investor conference call:

JPMorgan Chase & Co. (NYSE: JPM) will host a conference call at 9:15 p.m. (Eastern Time) tonight, September 25, 2008. You may access the conference call by dialing 1-877-238-4671 (U.S. and Canada) / 1-719-785-5594 (International) - access code: 814030 or via live audio webcast at www.jpmorganchase.com under Investor Relations/Investor Presentations. Materials and further communication will be available on this website at the time of the call.

A replay of the conference call will be available beginning at approximately 1:00 a.m. on September 26 through midnight, Thursday, October 9 by telephone at (888) 348-4629 (U.S. and Canada); access code: 942856 or (719) 884-8882 (International). The replay will also be available via webcast on www.jpmorganchase.com under Investor Relations, Investor Presentations.

Bernanke testimony before Congress today...

Institute of Wealth Strategies, LLC — Wed, 24 Sep 2008 09:47:51 -0500

Here is the transcript of the speech Chairman Bernanke will give to Congress this afternoon. It was made public just a few minutes ago...

Testimony

Chairman Ben S. Bernanke

Economic outlook

Before the Joint Economic Committee, U.S. Congress

September 24, 2008

Chairman Schumer, Vice Chair Maloney, Representative Saxton, and other members of the committee, I appreciate this opportunity to discuss recent developments in financial markets and to present an update on the economic situation. As you know, the U.S. economy continues to confront substantial challenges, including a weakening labor market and elevated inflation. Notably, stresses in financial markets have been high and have recently intensified significantly. If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse.

The downturn in the housing market has been a key factor underlying both the strained condition of financial markets and the slowdown of the broader economy. In the financial sphere, falling home prices and rising mortgage delinquencies have led to major losses at many financial institutions, losses only partially replaced by the raising of new capital. Investor concerns about financial institutions increased over the summer, as mortgage-related assets deteriorated further and economic activity weakened. Among the firms under the greatest pressure were Fannie Mae and Freddie Mac, Lehman Brothers, and, more recently, American International Group (AIG). As investors lost confidence in them, these companies saw their access to liquidity and capital markets increasingly impaired and their stock prices drop sharply.

The Federal Reserve believes that, whenever possible, such difficulties should be addressed through private-sector arrangements--for example, by raising new equity capital, by negotiations leading to a merger or acquisition, or by an orderly wind-down. Government assistance should be given with the greatest of reluctance and only when the stability of the financial system, and, consequently, the health of the broader economy, is at risk. In the cases of Fannie Mae and Freddie Mac, however, capital raises of sufficient size appeared infeasible and the size and government-sponsored status of the two companies precluded a merger with or acquisition by another company. To avoid unacceptably large dislocations in the financial sector, the housing market, and the economy as a whole, the Federal Housing Finance Agency (FHFA) placed Fannie Mae and Freddie Mac into conservatorship, and the Treasury used its authority, granted by the Congress in July, to make available financial support to the two firms. The Federal Reserve, with which FHFA consulted on the conservatorship decision as specified in the July legislation, supported these steps as necessary and appropriate. We have seen benefits of this action in the form of lower mortgage rates, which should help the housing market.

The Federal Reserve and the Treasury attempted to identify private-sector solutions for AIG and Lehman Brothers, but none was forthcoming. In the case of AIG, the Federal Reserve, with the support of the Treasury, provided an emergency credit line to facilitate an orderly resolution. The Federal Reserve took this action because it judged that, in light of the prevailing market conditions and the size and composition of AIG's obligations, a disorderly failure of AIG would have severely threatened global financial stability and, consequently, the performance of the U.S. economy. To mitigate concerns that this action would exacerbate moral hazard and encourage inappropriate risk-taking in the future, the Federal Reserve ensured that the terms of the credit extended to AIG imposed significant costs and constraints on the firm's owners, managers, and creditors. The chief executive officer has been replaced. The collateral for the loan is the company itself, together with its subsidiaries.¹ (Insurance policyholders and holders of AIG investment products are, however, fully protected.) Interest will accrue on the outstanding balance of the loan at a rate of three-month Libor plus 850 basis points, implying a current interest rate over 11 percent. In addition, the U.S. government will receive equity participation rights corresponding to a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders, among other things.

In the case of Lehman Brothers, a major investment bank, the Federal Reserve and the Treasury declined to commit public funds to support the institution. The failure of Lehman posed risks. But the troubles at Lehman had been well known for some time, and investors clearly recognized--as evidenced, for example, by the high cost of insuring Lehman's debt in the market for credit default swaps--that the failure of the firm was a significant possibility. Thus, we judged that investors and counterparties had had time to take precautionary measures.

While perhaps manageable in itself, Lehman's default was combined with the unexpectedly rapid collapse of AIG, which together contributed to the development last week of extraordinarily turbulent conditions in global financial markets. These conditions caused equity prices to fall sharply, the cost of short-term credit--where available--to spike upward, and liquidity to dry up in many markets. Losses at a large money market mutual fund sparked extensive withdrawals from a number of such funds. A marked increase in the demand for safe assets--a flight to quality--sent the yield on Treasury bills down to a few hundredths of a percent. By further reducing asset values and potentially restricting the flow of credit to households and businesses, these developments pose a direct threat to economic growth.

The Federal Reserve took a number of actions to increase liquidity and stabilize markets. Notably, to address dollar funding pressures worldwide, we announced a significant expansion of reciprocal currency arrangements with foreign central banks, including an approximate doubling of the existing swap lines with the European Central Bank and the Swiss National Bank and the authorization of new swap facilities with the Bank of Japan, the Bank of England, and the Bank of Canada, among others. We will continue to work closely with colleagues at other central banks to address ongoing liquidity pressures. The Federal Reserve also announced initiatives to assist money market mutual funds facing heavy redemptions and to increase liquidity in short-term credit markets.

Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress. Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy. In this regard, the Federal Reserve supports the Treasury's proposal to buy illiquid assets from financial institutions. Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions. More generally, removing these assets from institutions' balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth.

I will now turn to a brief update on the economic situation.

Ongoing developments in financial markets are directly affecting the broader economy through several channels, most notably by restricting the availability of credit. Mortgage credit terms have tightened significantly and fees have risen, especially for potential borrowers who lack substantial down payments or who have blemished credit histories. Mortgages that are ineligible for credit guarantees by Fannie Mae or Freddie Mac--for example, nonconforming jumbo mortgages--cannot be securitized and thus carry much higher interest rates than conforming mortgages. Some lenders have reduced borrowing limits on home equity lines of credit. Households also appear to be having more difficulty of late in obtaining nonmortgage credit. For example, the Federal Reserve's Senior Loan Officer Opinion Survey reported that as of July an increasing proportion of banks had tightened standards for credit card and other consumer loans. In the business sector, through August, the financially strongest firms remained able to issue bonds but bond issuance by speculative-grade firms remained very light. More recently, however, deteriorating financial market conditions have disrupted the commercial paper market and other forms of financing for a wide range of firms, including investment-grade firms. Financing for commercial real estate projects has also tightened very significantly.

When worried lenders tighten credit, then spending, production, and job creation slow. Real economic activity in the second quarter appears to have been surprisingly resilient, but, more recently, economic activity appears to have decelerated broadly. In the labor market, private payrolls shed another 100,000 jobs in August, bringing the cumulative drop since November to 770,000. New claims for unemployment insurance are at elevated levels and the civilian unemployment rate rose to 6.1 percent in August. Households' real disposable income was boosted significantly in the spring by the tax rebate payments, but, excluding those payments, real after-tax income has fallen this year, which partly reflects increases in the prices of energy and food.

In recent months, the weakness in real income together with the restraining effects of reduced credit flows and declining financial and housing wealth have begun to show through more clearly to consumer spending. Real personal consumption expenditures for goods and services declined in June and July, and the retail sales report for August suggests that outlays for consumer goods fell noticeably further last month. Although the retrenchment in household spending has been widespread, purchases of motor vehicles have dropped off particularly sharply. On a more positive note, oil and gasoline prices--while still at high levels, in part reflecting the effects of Hurricane Ike--have come down substantially from the peaks they reached earlier this summer, contributing to a recent improvement in consumer confidence. However, the weakness in the fundamentals underlying consumer spending suggest that household expenditures will be sluggish, at best, in the near term.

The recent indicators of the demand for new and existing homes hint at some stabilization of sales, and lower mortgage rates are likely to provide some support for demand in coming months. Moreover, although expectations that house prices will continue to fall have probably dissuaded some potential buyers from entering the market, lower house prices and mortgage interest rates are making housing increasingly affordable over time. Still, homebuilders retain large backlogs of unsold homes, which should continue to restrain the pace of new home construction. Indeed, single-family housing starts and new permit issuance dropped further in August. At the same time, the continuing decline in house prices reduces homeowners' equity and puts continuing pressure on the balance sheets of financial institutions, as I have already noted.

As of midyear, business investment was holding up reasonably well, with investment in nonresidential structures particularly robust. However, a range of factors, including weakening fundamentals and constraints on credit, are likely to result in a considerable slowdown in the construction of commercial and office buildings in coming quarters. Business outlays for equipment and software also appear poised to slow in the second half of this year, assuming that production and sales slow as anticipated.

International trade provided considerable support for the U.S. economy over the first half of the year. Economic activity has been buoyed by strong foreign demand for a wide range of U.S. exports, including agricultural products, capital goods, and industrial supplies, even as imports declined. However, in recent months, the outlook for foreign economic activity has deteriorated amid unsettled conditions in financial markets, troubled housing sectors, and softening sentiment. As a consequence, in coming quarters, the contribution of net exports to U.S. production is not likely to be as sizable as it was in the first half of the year.

All told, real gross domestic product is likely to expand at a pace appreciably below its potential rate in the second half of this year and then to gradually pick up as financial markets return to more-normal functioning and the housing contraction runs its course. Given the extraordinary circumstances, greater-than-normal uncertainty surrounds any forecast of the pace of activity. In particular, the intensification of financial stress in recent weeks, which will make lenders still more cautious about extending credit to households and business, could prove a significant further drag on growth. The downside risks to the outlook thus remain a significant concern.

Inflation rose sharply over the period from May to July, reflecting rapid increases in energy and food prices. During the same period, price inflation for goods and services other than food and energy also moved up from the low rates seen in the spring, as the higher costs of energy, other commodities, and imported goods were partially passed through to consumers. Recently, however, the news on inflation has been more favorable. The prices of oil and other commodities, while remaining quite volatile, have fallen, on net, from their recent peaks, and the dollar is up from its mid-summer lows. The declines in energy prices have also led to some easing of inflation expectations, as measured, for example, by consumer surveys and the pricing of inflation-indexed Treasury securities.

If not reversed, these developments, together with a pace of growth that is likely to fall short of potential for a time, should lead inflation to moderate later this year and next year. Nevertheless, the inflation outlook remains highly uncertain. Indeed, the fluctuations in oil prices in the past few days illustrate the difficulty of predicting the future course of commodity prices. Consequently, the upside risks to inflation remain a significant concern as well.

Over time, a number of factors should promote the return of our economy to higher levels of employment and sustainable growth with price stability, including the stimulus being provided by monetary policy, lower oil and commodity prices, increasing stability in the mortgage and housing markets, and the natural recuperative powers of our economy. However, stabilization of our financial system is an essential precondition for economic recovery. I urge the Congress to act quickly to address the grave threats to financial stability that we currently face. For its part, the Federal Open Market Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Footnotes

Testimony from Bernanke on U.S. Financial Markets...

Institute of Wealth Strategies, LLC — Tue, 23 Sep 2008 07:01:33 -0500

This is a very interesting read just made public. This is the speech Chairman Bernanke will give before the Committee on Banking, Housing and Urban Affairs...

The entire speech:

Chairman Ben S. Bernanke

U.S. financial markets

Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate

September 23, 2008

Chairman Dodd, Senator Shelby, and members of the Committee, I appreciate this opportunity to discuss recent developments in financial markets and the economy. As you know, the U.S. economy continues to confront substantial challenges, including a weakening labor market and elevated inflation. Notably, stresses in financial markets have been high and have recently intensified significantly. If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse.

The Federal Reserve and the Treasury attempted to identify private-sector approaches to avoid the imminent failures of AIG and Lehman Brothers, but none was forthcoming. In the case of AIG, the Federal Reserve, with the support of the Treasury, provided an emergency credit line to facilitate an orderly resolution. The Federal Reserve took this action because it judged that, in light of the prevailing market conditions and the size and composition of AIG's obligations, a disorderly failure of AIG would have severely threatened global financial stability and, consequently, the performance of the U.S. economy. To mitigate concerns that this action would exacerbate moral hazard and encourage inappropriate risk-taking in the future, the Federal Reserve ensured that the terms of the credit extended to AIG imposed significant costs and constraints on the firm's owners, managers, and creditors. The chief executive officer has been replaced. The collateral for the loan is the company itself, together with its subsidiaries.¹ (Insurance policyholders and holders of AIG investment products are, however, fully protected.) Interest will accrue on the outstanding balance of the loan at a rate of three-month Libor plus 850 basis points, implying a current interest rate over 11 percent. In addition, the U.S. government will receive equity participation rights corresponding to a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders, among other things.

The Federal Reserve took a number of actions to increase liquidity and stabilize markets. Notably, to address dollar funding pressures worldwide, we announced a significant expansion of reciprocal currency arrangements with foreign central banks, including an approximate doubling of the existing swap lines with the European Central Bank and the Swiss National Bank and the authorization of new swap facilities with the Bank of Japan, the Bank of England, and the Bank of Canada. We will continue to work closely with colleagues at other central banks to address ongoing liquidity pressures. The Federal Reserve also announced initiatives to assist money market mutual funds facing heavy redemptions and to increase liquidity in short-term credit markets.

At this juncture, in light of the fast-moving developments in financial markets, it is essential to deal with the crisis at hand. Certainly, the shortcomings and weaknesses of our financial markets and regulatory system must be addressed if we are to avoid a repetition of what has transpired in our financial markets over the past year. However, the development of a comprehensive proposal for reform would require careful and extensive analysis that would be difficult to compress into a short legislative timeframe now available. Looking forward, the Federal Reserve is committed to working closely with the Congress, the Administration, other federal regulators, and other stakeholders in developing a stronger, more resilient, and better regulated financial system.

Footnotes

1. Specifically, the loan is collateralized by all of the assets of the company and its primary non-regulated subsidiaries. These assets include the equity of substantially all of AIG's regulated subsidiaries. Return to text

Goldman Sachs and Morgan Stanley abandon investment banking model...

Institute of Wealth Strategies, LLC — Mon, 22 Sep 2008 05:06:09 -0500

they have petitioned the Fed to become bank holding companies which will oversee their balance sheets and give them limits on leverage and access to the discount window.

From the Fed press release:

Release Date: September 21, 2008

For release at 9:30 p.m. EDT

The Federal Reserve Board on Sunday approved, pending a statutory five-day antitrust waiting period, the applications of Goldman Sachs and Morgan Stanley to become bank holding companies.

To provide increased liquidity support to these firms as they transition to managing their funding within a bank holding company structure, the Federal Reserve Board authorized the Federal Reserve Bank of New York to extend credit to the U.S. broker-dealer subsidiaries of Goldman Sachs and Morgan Stanley against all types of collateral that may be pledged at the Federal Reserve's primary credit facility for depository institutions or at the existing Primary Dealer Credit Facility (PDCF); the Federal Reserve has also made these collateral arrangements available to the broker-dealer subsidiary of Merrill Lynch. In addition, the Board also authorized the Federal Reserve Bank of New York to extend credit to the London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley, and Merrill Lynch against collateral that would be eligible to be pledged at the PDCF.