http://www.bloomberg.com/…

Nov. 24 (Bloomberg) — Citigroup Inc. received a U.S. government rescue package that shields the bank from losses on toxic assets and injects $20 billion of capital, bolstering the stock after its 60 percent plunge last week.

The second-biggest U.S. bank by assets surged as much as 72.4 percent in New York trading after the Treasury, Federal Reserve and Federal Deposit Insurance Corp. announced the aid plan in a joint statement. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend.

The regulators stepped in to protect Citigroup from losses on a $306 billion pile of troubled U.S. home loans, commercial mortgages, subprime bonds and corporate loans when the firm’s tumbling share price sparked concern that depositors might pull their money and destabilize the company, which has $2 trillion of assets and operations in more than 100 countries. The $20 billion of new cash comes on top of a $25 billion infusion the bank received last month under the Troubled Asset Relief Program, passed by Congress to shore up the financial industry.

“It really was a must-do thing,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which manages about $85 billion. “If they’d let Citigroup go, that would’ve been disastrous.”

Citigroup’s stock sank about 80 percent this year and dropped below $5 last week for the first time since 1994. The shares closed last week at $3.77 on the New York Stock Exchange. They gained 65 percent to $6.22 at 11:00 a.m. in NYSE composite trading today, after rising as high as $6.50.

Not a surprise. Just like the coming car manufacturer bailout. Stock markets, as one would expect, are cheering this action on. Some financial stocks are up 30%+.

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.bloomberg.com/…

JPMorgan Chase & Co., the third- biggest U.S. bank by assets, agreed to acquire Washington Mutual Inc.’s deposits and branches for $1.9 billion after regulators seized the thrift in the biggest bank failure in U.S. history.

Customers withdrew $16.7 billion from WaMu accounts since Sept. 16, leaving the Seattle-based bank “unsound,” the Office of Thrift Supervision said today. WaMu’s branches will open tomorrow and customers will have full access to all their accounts, Sheila Bair, chairman of the Federal Deposit Insurance Corp., said on a conference call.

“JPMorgan is getting a steal compared with what they were going to pay,” said Scott Adams, a pension and investment analyst at the American Federation of State, County and Municipal Employees in Oakland, California, which owns WaMu shares. “It’s very tragic.”

WaMu collapsed as its credit rating was slashed to junk and its stock price tumbled. Facing $19 billion of losses on soured mortgage loans, the lender put itself up for sale last week after firing CEO Kerry Killinger this month. The bank named Alan Fishman as his replacement on Sept. 8, agreeing to pay him a $7.5 million signing bonus and $1 million salary.

JPMorgan won’t acquire WaMu’s liabilities, including claims by shareholders and subordinated and senior debt holders, the FDIC said.

The consolidation continues. Any bets on who’s next?

http://www.marketwatch.com/…

Central bankers and regulators are rethinking their faith in the ability of market forces alone to police the increasingly complex global financial system.

In a speech in Jackson Hole, Wyo., Federal Reserve Chairman Ben Bernanke said the Fed’s toughest challenge is not restoring growth, fighting inflation, or providing fragile banks with sufficient liquidity to get through the current financial crisis. Rather, it’s finding a way to prevent the next one.

The bailout of Bear Stearns in particular represents a failure of the supervisors to monitor the system. Bear wasn’t a particularly large institution, but its assets and liabilities were so thoroughly linked with the rest of the financial world that its failure would have been devastating, Bernanke said. Read the speech.
It’s not that Bear Stearns was too big to fail, it was too interconnected.

Bernanke suggested that the Fed and other bank supervisors need to use a holistic approach, rather than look at each institution in isolation. The explosion of securitization and derivatives in the past few decades has shifted risks in ways that aren’t immediately apparent. A risk that would be manageable for one bank would be unbearable if it applied to all, because systemic risks tend to create illiquid markets.

The regulators also have to clearly explain when and under what conditions financial institutions will be allowed to fail and when they will be bailed out, Bernanke said. To limit moral hazard, bailouts should be structured so that shareholders are wiped out, similar to the way failing banks are now treated by the Federal Deposit Insurance Corp.

Imposing systemwide supervision and regulation won’t be easy to design or cheap to implement. Unintended consequences are certain to appear. But the alternative of doing nothing would consign us to periodic costly boom and bust cycles that could leave us all poorer.

Just… wow. The organization that is the biggest nonfree component of the current economy and who is looking daily to increase its power doesn’t have faith in the market’s ability to handle things. What a shock. I love that last sentence too. “But the alternative of doing nothing would consign us to periodic costly boom and bust cycles that could leave us all poorer.” Is this guy serious? Has this guy ever opened an economics book or thought critically on the subject? Making us poorer? The Fed’s massive inflation has helped do that. So has the socialization of so many aspects of our lives. We have periodic costly boom and bust cycles BECAUSE they refuse to do nothing. The bust doesn’t make us poorer. It makes us wealthier in the end. The bust is the liquidation of bad investments. If you continue on with the malinvestment you’re continuing on with an inefficient system and not investing in the things with the highest priority. The boom shouldn’t be happening in the first place. Spurred on by cheap debt and other manipulations. Some debt so cheap, like today, that they in fact are paying people to take money. Price inflation being higher than interest rates. Even if you don’t believe Mises and Rothbard on that one show me where the Fed has stopped the cycle? Please. Once you’re finished show me how well government regulation and interference in healthcare, education, housing, the poor, drugs, etc. has done.