http://www.iht.com/…

The chief executives of the nine largest banks in the United States trooped into a gilded conference room at the Treasury Department at 3 p.m. Monday. To their astonishment, they were each handed a one-page document that said they agreed to sell shares to the government, then Treasury Secretary Henry Paulson Jr. said they must sign it before they left.

The chairman of JPMorgan Chase, Jamie Dimon, was receptive, saying he thought the deal looked pretty good once he ran the numbers through his head. The chairman of Wells Fargo, Richard Kovacevich, protested strongly that, unlike his New York rivals, his bank was not in trouble because of investments in exotic mortgages, and did not need a bailout, according to people briefed on the meeting.

But by 6:30, all nine chief executives had signed — setting in motion the largest government intervention in the American banking system since the Depression and retreating from the rescue plan Paulson had fought so hard to get through Congress only two weeks earlier.

Sounds a lot like what Herbert Hoover did at the beginning of the Great Depression. We all know, or should after reading the above link, how well that went.

http://www.marketwatch.com/…

The U.S. Federal Reserve is reportedly looking at getting into unsecured lending, an extreme step that could allow it to directly purchase commercial paper, according to a report in the Financial Times. The report said the Fed had never done so in its history, but doing so could allow it to participate in the frozen inter-bank money market and the contracting commercial paper market. The Fed doesn’t believe it has the legal mandate to make unsecured loans, so it would need the Treasury to guarantee any losses. The Fed had said in a statement on Monday that “the Federal Reserve and the Treasury Department are consulting with market participants on ways to provide additional support for term unsecured funding markets.”

This charade is sad at times. They are grasping at straws… either because they think they have to or because they don’t know any better. Unfortunately for us their mistakes are our hard times.

http://www.reuters.com/…

The Federal Deposit Insurance Corporation is seeking temporary unlimited borrowing authority from the Treasury Department, according to a copy of the final Senate bailout legislation on Wednesday.

In the bill, which is expected to be voted on by the Senate later Wednesday, the FDIC is seeking the borrowing authority through the end of 2009.

The FDIC currently insures up to $100,000 per depositor and up to $250,000 per individual retirement account at insured banks.

Really just accounting tricks. The FDIC doesn’t have their own separate fund to draw from anyway so instead of the Congress borrowing they are trying to delegate the borrowing through the FDIC.

http://www.nytimes.com/…

The Bush administration on Saturday formally proposed to Congress what could become the largest financial bailout in United States history, requesting unfettered authority for the Treasury Department to buy up to $700 billion in mortgage-related assets.

The proposal, not quite three pages long, was stunning for its stark simplicity. It would raise the national debt ceiling to $11.3 trillion. And it would place no restrictions on the administration other than requiring semiannual reports to Congress, granting the Treasury secretary unprecedented power to buy and resell mortgage debt.

A $700 billion expenditure on distressed mortgage-related assets would be roughly what the country has spent so far in direct costs on the Iraq war and more than the Pentagon’s total yearly budget appropriation. Divided across the population, it would amount to more than $2,000 for every man, woman and child in the United States.

“This is a good foundation of a plan that can stabilize markets quickly,” Mr. Schumer said in a statement. “But it includes no visible protection for taxpayers or homeowners. We look forward to talking to Treasury to see what, if anything, they have in mind in these two areas.”

In Florida, Senator Barack Obama of Illinois, the Democratic presidential nominee, said he would press for a broader economic stimulus initiative to be part of the bailout plan for financial firms.

Senator John McCain of Arizona, the Republican nominee, issued a statement on Saturday saying he was reviewing the administration’s plan. He also urged the administration and lawmakers to consider his own plan for creating a trust within the Treasury Department to aid ailing mortgage lenders and other financial institutions.

Senator Mitch McConnell of Kentucky, the Republican leader, said in a statement: “This proposal is, and should be kept, simple and clear.” He added, “Simply put, now is not the time for partisan plans or pet projects.”

Some Democrats, including lawmakers like Mr. Frank and Senator Christopher J. Dodd, Democrat of Connecticut and the chairman of the banking committee, were adamant about including provisions to promote government action to stabilize real estate prices and help troubled borrowers refinance their mortgages.

Still another group of Democrats was pushing for a wider stimulus package that would direct help more directly and immediately to Main Street, perhaps including an increase in unemployment benefits and investments in infrastructure projects, including bridges and roads, that would help to create jobs.

A fourth, smaller group of lawmakers was highly critical and in some cases adamantly opposed to the plan. That group included including Senator Jim Bunning, Republican of Kentucky, and Senator Bernard Sanders, independent of Vermont.

“The free market for all intents and purposes is dead in America,” Mr. Bunning declared on Friday. “The action proposed today by the Treasury Department will take away the free market and institute socialism in America. The American taxpayer has been misled throughout this economic crisis. The government on all fronts has failed the American people miserably.”

COME ONE, COME ALL! FREE MONEY! FREE FASCISM! ALL YOU CAN CARRY!

I have to laugh because otherwise I may cry.

http://news.moneycentral.msn.com/…

Fannie Mae and Freddie Mac shares reached their lowest levels in almost two decades Monday after a Barron’s report said it is increasingly likely the government will have to bail out the mortgage giants.

“It may be curtains soon for the management and shareholders of beleaguered housing giants Fannie Mae and Freddie Mac,” wrote Barron’s Jonathan Laing, saying the Treasury Department is likely to recapitalize them in the months ahead.

“Such a move would almost certainly wipe out existing holders of the agencies’ common stock,” Laing wrote.

He also predicted a bailout would also mean losses for holders of the companies’ preferred shares and holders of their combined $19 billion in subordinated debt.

Fannie Mae stock fell as much as 17 percent Monday. Freddie Mac shares fell as much as 14 percent. Both stocks have lost more than 80 percent of their value this year.

Neither company issued public comments Monday on the Barron’s report. Both companies have previously said they are able to raise sufficient capital on their own. Treasury Secretary Henry Paulson earlier this month indicated a bailout would not be necessary.

The housing bill passed by Congress in July gave the Treasury authority to pump money into Fannie Mae and Freddie Mac by buying their stock, debt or mortgage-backed securities.

Fannie Mae (NYSE: FRE) and Freddie Mac (NYSE: FNM) reported a combined second quarter loss of $3.1 billion. Both companies also slashed their shareholder dividends this month.

I’d say they are their lowest levels ever. It’s difficult to say really because the stocks have both split twice in the past two decades but accounting for inflation alone today’s $4.05 for Freddie would have been $2.34 in 1989. That’s only accounting for inflation up to 2007. In January of 1989 Freddie was trading around $4.25.

http://www.fortbendnow.com/…

In the face of $4 per gallon gasoline and predictions the price will rise to $7 by the end of summer, Congressman Ron Paul (R-Lake Jackson) is calling on Congress to explore how the weakened value of the dollar may be contributing to the rise in oil prices.

Paul, whose 14th Congressional District of Texas includes part of the Katy area and much of Cinco Ranch, said he wants Congress to hold hearings on the relationship between the falling value of the dollar and the recent rise of oil prices.

As ranking member of the House Subcommittee on Domestic and International Monetary Policy, Paul sent a letter earlier this week to Rep. Barney Frank (D-Mass.), chairman of the House Financial Services committee, asking for the hearings.

“The price of oil is currently among the most pressing issues to American workers,” Paul said. “Congress should be examining all factors contributing to the high cost of oil, and monetary policy is one of the key factors in the run-up in price.”

Paul’s letter pointed out that the price of oil in dollars has risen 39 percent this year. Oil in Euros has only risen 30 percent, resulting in degraded purchasing power of the dollar of at least 80 cents of the increased price of a gallon of gas.

“Neither the Federal Reserve nor the Treasury Department have been willing to take responsibility for the dollar’s slide over the past several years, while American consumers have been forced to pay continually higher prices for gasoline, heating oil and numerous other imported products upon which Americans depend,” Paul noted in his letter. “American consumers cannot afford to allow continued lax Congressional oversight of the Federal Reserve and the Treasury Department’s duties as stewards of the dollar, especially since the dollar is a major factor in the skyrocketing price of oil.”

Besides himself, 16 other Members of Congress signed on to the letter, including ranking member of the House Committee on Financial Services Spencer Bachus, and Chairman of the Republican Study Committee, Rep. Jeb Hensarling.

Hopefully DownsizeDC will get something going on this. If anything this could be an educational tool for those who would be participating. The more congress critters who understand economics, even a little bit, the better.