http://www.reuters.com/…

The Senate agreed to vote on Wednesday night on a $700 billion financial rescue package that will include a sharp increase in the amount of bank deposits insured by the FDIC, but also includes a package of tax breaks the House of Representatives has rejected.

A Democratic aide predicted that “the Senate will pass it.”

Under the agreement to move the bill to the floor quickly, the measure will require 60 votes to pass instead of a simple majority in the 100-member chamber.

The Senate bill would increase to $250,000 from $100,000 the amount of individual deposits the Federal Deposit Insurance Corp insures, seeking to shore up consumer and business confidence in banks and win over lawmakers trying to sell their constituents on an expensive plan funded by taxpayers and seen as benefiting wealthy financiers.

The FDIC insurance money comes from the general account which is in the red already. Any payments would have to be borrowed or printed. In addition the FDIC covers all banks equally which is a distortion of the market. Insurance rates for the banks should be based on their solvency and related factors. Treating them the same incentivizes risky investments.

I’m glad it will require 60% to pass but my feeling is it’s likely to pass. Only a third of the senators are up for reelection and the FDIC and tax breaks may be enough of a carrot to push it over.

You can find the tax components at the Senate Finance Committee site but the FDIC increase is not listed.

Regardless of what we think they may do we need to keep up the pressure. Email the senators of your state and tell them in no way do you support this bill nor anything related to it. If they are up for reelection make sure you remind them this would be an absolute deal breaker for your vote (regardless of whether you would have done so anyway.)

It’s the last thing listed on the schedule so we have all day to overwhelm them with “NO”s.

You can utilize DownsizeDC or go straight to the senators site.

http://www.washingtonpost.com/…

Citigroup has agreed to buy Wachovia bank in a deal brokered by the Federal Deposit Insurance Corporation to avoid another major corporate failure in the midst of the ongoing financial crisis.

The FDIC announced the deal on its Web site this morning. No price for the transaction was included in the announcement. But the FDIC said that the deal hinged on a loss sharing arrangement between Citigroup and the FDIC, the agency responsible for insuring bank deposits.

Wachovia has been saddled by mortgage-related losses. Under the terms of the deal, Citigroup will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will be responsible for any losses beyond that, but was given $12 billion in Citigroup preferred stock and warrants in return for that guaranty.

The FDIC statement emphasized that Wachovia “did not fail,” and that its branches and other offices will be open as usual.

http://www.bloomberg.com/…

European governments stepped in to rescue Fortis, Bradford & Bingley Plc, and Hypo Real Estate Holding AG as tremors from the U.S. credit crisis reverberated around the world.

The U.K. Treasury seized Bradford & Bingley, Britain’s biggest lender to landlords, while governments in Belgium, the Netherlands and Luxembourg threw an 11.2 billion-euro ($16.3 billion) lifeline to Fortis. Germany guaranteed a loan to Hypo.

The interventions exposed how fallout from the crisis that drove Lehman Brothers Holdings Inc. into bankruptcy and prompted a $700 billion U.S. bank-rescue package has gone global. It also added urgency to negotiations among European policy makers as to how they deal with banking collapses.

“The precarious global environment means the weakest links in Europe are now falling,” said Mamoun Tazi, an analyst at MF Global Securities Ltd. in London. “If banks continue not to lend to each other we’ll see more failures.”

More insider deals, more centralization, more government interference and control.

This is what happens when you have a system based on debt on a large scale. It’s inherently insolvent.

Update:

This is cute…

Federal Reserve Chairman Ben Bernanke said in a statement the FDIC action “demonstrates our government’s unwavering commitment to financial and economic stability.”

http://www.nytimes.com/…

Goldman Sachs and Morgan Stanley, the last big independent investment banks on Wall Street, will transform themselves into bank holding companies subject to far greater regulation, the Federal Reserve said Sunday night, a move that fundamentally reshapes an era of high finance that defined the modern Gilded Age.

The firms requested the change themselves, even as Congress and the Bush administration rushed to pass a $700 billion rescue of financial firms. It was a blunt acknowledgment that their model of finance and investing had become too risky and that they needed the cushion of bank deposits that had kept big commercial banks like Bank of America and JPMorgan Chase relatively safe amid the recent turmoil.

It also is a turning point for the high-rolling culture of Wall Street, with its seven-figure bonuses and lavish perks for even midlevel executives. It effectively returns Wall Street to the way it was structured before Congress passed a law during the Great Depression separating investment banking from commercial banking, known as the Glass-Steagall Act.

By becoming bank holding companies, the firms are agreeing to significantly tighter regulations and much closer supervision by bank examiners from several government agencies rather than only the Securities and Exchange Commission. Now, the firms will look more like commercial banks, with more disclosure, higher capital reserves and less risk-taking.

I’m fine with this outcome in that the Glass-Steagall Act has been effectively nullified as far as I can tell. However, it makes me wonder if this was all part of some plan. Yes these firms will become more regulated in some ways but in what way does it harm them vs harming smaller firms. Morgan Stanley has had its Utah based industrial bank and word is they have been looking at the benefits of becoming a bank holding company for a while now.

So now they are a net less risky. They claim revenue will be down as a result as will bonuses and perhaps pay. We shall see. How long till the government forgets what led us here and creates the environment for a bubble again? If we make it out of this one… likely not long.