Do You Really Think 700 Billion Can Stop This ? If You Dont Like Reading Dont Answer?
Martin D. Weiss writes: The proposal before Congress for a $700 billion mega-bailout is far too little to repair the damaged debt and derivatives markets … and, at the same time, far too much for investors and taxpayers who must put up the money.
How big is the problem, really?
In the past, Congress has repeatedly asked us for data and analysis on these issues, and we have provided it in Congressional testimony and white papers. In that same tradition, below is a partial first draft of a white paper we will be submitting on this matter:
Why the Magnitude of the Mortgage, Debt and Derivatives Crisis Overwhelms The $700 Billion Bailout Plan Now Under Discussion in Congress
(Partial First Draft of Weiss Research’s Submission
to Congress and Federal Banking Regulators)
Last week, the President, the Treasury Secretary and the Federal Reserve Chairman announced their view that Congress must get to the root of the debt crisis in America by providing a broad solution that truly puts the crisis to an end.
However, the magnitude of the crisis afflicting mortgages, other debts and derivatives clearly overwhelms the $700 billion bailout proposal currently under discussion. To better understand the magnitude of the problem …
First and foremost, we urge members of Congress to disregard data based on the list of troubled banks maintained by the Federal Deposit Insurance Corporation (FDIC).
The FDIC’s list has only 117 institutions with $78 billion in assets. But given the current proposal for a $700 billion bailout, it is clear that Administration officials tacitly recognize that the FDIC list understates the problem. There are many more financial institutions at risk or in need of assistance with their toxic paper.
How many more? We believe a more accurate count comes from our analysis of: (a) the derivative risks assumed by major banks, (b) the mortgage holdings of the largest regional banks and (c) all banks and thrifts with TheStreet.com’s financial strength rating of D+ (weak) or lower. Based on this analysis, we believe:
1,479 FDIC member banks are at risk of failure with total assets of $2.4 trillion.
In addition, 158 savings and loans are at risk with $756 billion in assets.
In sum, banks and S&Ls at risk have assets of $3.2 trillion, or over 36 times the assets of banks on the FDIC’s watch list.
These numbers alone indicate that the $700 billion contemplated for the bailout plan could be severely inadequate.
Second, Congress should seriously consider the facts in the Federal Reserve’s Second Quarter Flow of Funds Report .
In this report, released on September 18, just one day before the President announced the Administration’s $700 billion bailout proposal, the Fed estimates that the nation’s mountain of interest-bearing debts has now grown to $51 trillion.
Plus, it provides critical additional insights regarding the breadth of the debt problems facing the nation, as follows:
1. The ownership of residential mortgages is dispersed among many different sectors. There are $12.1 trillion in mortgages on single- and multi-family homes in the United States. But these are not held only by banks and S&Ls. They are spread among a wide variety of institutions and individuals, all of which could have similar claims to federal assistance.
Specifically …
2. Fannie, Freddie and GSAs are still at risk. As a first priority, the plan would have to expand the recently announced bailouts of Fannie Mae and Freddie Mac in order to properly secure the residential mortgages held by government-sponsored enterprises (GSEs) and agencies (GSAs). These now total $5.4 trillion, according to the Fed.
Plus …
3. Private sectors and local governments also own residential mortgages in substantial quantities. The bailout plan would also have to cover:
Investment banks and others that issue asset-backed securities, now holding $2.1 trillion in mortgages,
Nonbank finance companies ($426 billion),
Credit unions ($332.4 billion),
State and local governments ($159 billion),
Life insurance companies ($61.6 billion), plus …
Private pension funds, government retirement funds and households themselves.
4. Commercial mortgages are now going bad as well. The current debate seems to focus exclusively on residential mortgages. But at many regional and super-regional banks, much of the risk is currently in the commercial mortgage sector, where recent data denotes many of the same difficulties as the residential sector. To truly get to the root of the problem, Congress cannot exclude these either.
There are $2.6 trillion in commercial mortgages outstanding in the United States. As with residential mortgages, these are also dispersed widely beyond the banking sector — $644 billion held by issuers of asset-backed securities, $263 billion held by life insurers, $65 billion at nonbank finance companies and $37 billion at Real Estate Investment Trusts (REITs).
5. Mortgages are less than hal
First off the reason ALL these problems arose is basically simple; corruption and greed. Corruption is money – the next line here in quotes was from an article I read yesterday on a proposal to fix this huge economy mess – “the priorities of the vast majority of the American people” (he was stating the people must come first): in this sense it is all well and good, but the vast majority always has to have a leader and the leaders are always those with the money (power) and control. You’re not just looking at people losing money many are losing all three; with their money goes their power and control. They will fight this ‘change of life’ cycle and a few will commit suicide.
The corrupt are not just at the top, it goes right down to the salesman selling you the loan and the credit cards. How many credit card applications do you get a day in the mail, and on the internet? Right by the local VA here is a city finance office, when a few older veterans had to enter the nursing home; their home was then owned by city for a small amount still owed on a small loan the veteran took out of necessity to survive. The last loan they got me for, their salesman was 24 and my daughter was 15. Several times he asked if I would object to him “seeing” her. The corruption and greed is at the very top and the very bottom of the barrel.
Your number 6 detail stating the how the state’s financial budget short fall will come first is a very interesting one. Look at Pennsylvania we have the worst highways in the whole nation and no funds to fix them, our governor wants to lease them to Citi and a Spanish owned company – which by the way would add even more illegal’s to our very small inadequate, outdated sewer system, and their families would over crowd our schools even more and unemployment would climb over the now 6% rate.
A few years ago the permits where granted and Mohegan Sun was allowed to build their second-largest casino on to our race track. The casinos taxes are higher than in any other state, and as the residents here we were promised hundreds of dollars of savings in our taxes, and improvements to our schools and towns. This year the relief was seen with a $135 tax credit that did not even match the increase in my school taxes. Very recently it has been discovered much of the state revenue from this casino is MIA… Even more local is our small county just paid $9 million to have our property taxes reassessed. We have a very high population of people over 65 on Social Security who are looking at having to pay an 110% increase in property taxes, along with the rest of the population in the US which rely on the yearly COLA increase (ex. disabled veterans, postal workers etc). Add to that the cap comes off the electric company rate hikes in 2009 (after the COLA rate is determined) and a small home without electric heat will rise $71.50 a month. Don’t forget the normal increases and tax and surcharges for phone services , cable or satellite TV, food and medical and gasoline will also increase. The middle class must not be charged in the bail out of the corrupt and greedy who never had to worry how they would heat their home or decide if they should buy medication or food. And while they are solving this big economic crisis for Wall Street how about solving the ones the middle class has been living, instead of making us pay for their mistakes because we have no more money to pay out! A good start would be a 2009 8.5% COLA rate increase, and deportation of the 20 million illegal’s driving up our school taxes, unemployment and early retirement rates.
$700 billion is no guarantee that we will avoid a complete economic collapse. http://www.flickr.com/photos/matthewkend…
Yes, but it may slow the rate of decline of home values and as such ‘prop up’ the economy for a slower decline. This is why I blame the Republicans since they were completely in charge for the first 6 years out of 8 and did nothing. Not only that but doubled the national debt with their tax policies and irrational Mid East fears. Soon half of all individual income taxes will be needed to service the debt- money, essentially lost forever. Derivatives, a rich man’s game, are largely to blame as well and will give those non pension funded people a chance to bail and enter less risky markets. It’s all designed to bail out the wealthy and not immediately destroy the average investor and home owner. That’s the way that I see it, anyway. Deregulation or a lack of regulations created the first great Depression as profits from advanced manufacturing processes went into fewer pockets, not unlike today’s extreme Executive compensation packages no matter which way the wind blows. Why so many still vaunt the Republican agenda is one of the mysteries of ideology and assumption of false information
I was just reading fox — and here is a surprise they are all for this bail out
not only does Weiss say this so does Keiser another economist based out of Paris has a similar take on all this
As Does Paul Craig Roberts the former treasury secretary under Regan – he not only fears collapse but warns of Fascist doctrines coming to light in these bailouts being offered –
He points out that as a tag along to it all the Treasury will no longer have oversight from the Congress or the courts
An all powerful Treasury dept ?
I was worried there when the sale of Treasury bonds would have to be sold to mostly forriegners in order to finance the pay back of this 70 billion dollar investment
But – then I heard that Fox was on side – Yes the Bush network of disinformation told me to just relax – this bail out is going to make all of America rich ….