World economy talk

[tidus1203]

**BREAKING NEWS**

Citigroup will sell preferred shares to the government in exchange for $20B injection with an 8% coupon rate.

Also the government (GET THIS) will GUARANTEE $306B worth of toxic subprime related securties. Now that's is the hit taxpayers will pay. Remember the TARP plan is $700B and almost half of its worth is already the size of the guarantee for Citigroup's trash. This bank will never ever be the same again.

Info is still vague at this stage, I will post again as it become more clear.

[uls]

it's a hybrid

capital injection and US govt backstop on bad assets

---

there's talk that a "bad bank" will be created to absorb the toxic assets

[tidus1203]

And who's the "bad bank". Isa lang naman ang "bad bank" that can print enough money to cover the losses even though they are already heavily ladened by debt. The Federal Reserve System

The US stock futures is up. European markets looks to also go up. Typical move (which I believe will be short lived) after an announcement of some kind of bailout.

[uls]

haha

the bad bank will be named CITI BIOHAZARD WASTE MANAGEMENT

it will be funded by the US taxpayer

[tidus1203]

Uncle Ben's and Uncle Hank's trash incinerator funded by you the US taxpayer and of course all of us world citizens who hold US Dollars as we will again be diluted by the printing press of Uncle Ben.

[uls]

HEHEHE

[jeDi13]

some good news for the Citigroup:

Nov. 23 (Bloomberg) -- The U.S. government agreed to protect $306 billion of loans and securities on Citigroup Inc.‘s books against losses, as it seeks to shore up investor confidence in the bank.

Citigroup will, as a fee for the guarantee, provide preferred shares to the Treasury and Federal Deposit Insurance Corp., the regulators said in a statement. The government will also inject $20 billion into the bank from the Treasury’s $700 billion Troubled Asset Relief Program.

“We will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks,” the regulators said in the statement.

The Federal Reserve, the Treasury and other regulators have been negotiating with Citigroup throughout the weekend. Citigroup lost 60 percent of its market value last week as the company’s prospects faltered, rattling customers, counterparties and employees.

To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5*bloomberg.net.
Last Updated: November 23, 2008 23:57 EST

by the way, how are Citi CC holders affected by this crisis that Citigroup is facing? is it the same with the depositors/investors?

[uls]

^^^

yup

we were following that all weekend

[tidus1203]

some good news for the Citigroup:



by the way, how are Citi CC holders affected by this crisis that Citigroup is facing? is it the same with the depositors/investors?

I wouldn't worry with CC since loans yun, mas worried ako for people with money at Citibank either via deposits or investments.

[uls]

kung bumagsak sana ang Citi, wala ka na iisipin sa CC bills mo hehe

pero hindi hinayaan bumagsak eh

so sisingilin ka parin

[jeDi13]

sabagay loans nga ang CC. kaya lang baka sila ang balikan (i.e., higher monthly overdue fees, higher annual membership fees, etc.)..

U.S. financial industry is really messed up. nauna na yung biggest U.S. insurer, ngayon naman yung Citi. i doubt it if the Fed can save those two at the same time.

[tidus1203]

^^Oh they can! I wouldn't worry about saving those guys, I would be more worried about the debt taxpayers will shoulder and the depreciation of the money in the future.

[uls]

at this point, the Fed and US Treasury can save any financial institution they want to save, and allow any financial isntitution to fail if they want it to fail.

the fate of financial institutions is in their hands.

there are no rules now.

They make up the rules as they go.

[tidus1203]

And yet we always see the US as the bastion of capitalism for better or for worse, but now they are implementing government central planning just like a socialist country does. They decide who will be saved and who will fail rather than the market decide who lives and who fails. More zombie companies, more distrust, more lack of confidence in the end we will still suffer the pain but instead of a fast and painful end we are going to have an agonizing and slow pain.

[jeDi13]

ok, AIG and Citigroup have received guarantees and tons of cash from the Fed. and they may have been "saved". but what will happen in the future to these companies? if you are an investor (an ex-AIG/Citigroup or not), would you still invest in these companies which where were once almost-gone-bankrupt and Fed-saved financial institutions because of financial mismanagement? the Fed alone cannot save them. they need investors and depositors. if investors already don't trust them, then they'll eventually cease to operate. so Fed hasn't really saved them at all.

[tidus1203]

^^Well yeah if confidence fails and the company does not get any business any injection of money is meaningless. Just like AIG they have been bailout once and then bailed out twice but I am sure policy holders don't trust AIG anymore and have probably withdrew their money or even some people might have stop paying their premiums even if that meant forfeiting their policies, they just wanted to cut their losses. That is the fear, even with injections there is no guarantee these zombies will become healthy again. They could all throw in money on zombies but then throw money for nothing. I have always been an advocate of letting bad companies fail even at the expense of job losses and many people in Tsikot know my position on that very well...

[uls]

AIG is a freaking zombie

it is being kept alive for 1 reason only -- to protect its counterparties

AIG insured more than $400B worth of bonds from default

those bonds are being held by US and European banks

If the bonds lose AIG backing, the banks will have to writedown the value of their assets

that can't be allowed to happen

so AIG is being kept alive

[tidus1203]

It might be a never ending life support there has to be a time that this has to stop. The counterparties are old enough to understand the risks that they took and they too should pay for their mistakes and stop making the taxpayers save their behinds.

[uls]

yes, AIG could be on life support for a while

waiting for those bonds to mature (or more likely default)

and as the situation deteriorates, AIG will keep on receiving collateral calls from counterparties

yup the counterparties should just accept the losses

so AIG can be put out of its misery and be allowed to die.

[Monseratto]

Recession’s Grip Forces U.S. to Flood World With More Dollars

Nov. 24 (Bloomberg) -- The world needs more dollars. The United States is preparing to provide them.

In an all-out assault on capitalism’s worst crisis since the Great Depression, the U.S. is taking on the role of both lender and borrower of last resort for the global economy.

The Federal Reserve, which has already pumped out hundreds of billions of dollars, might formally adopt a policy of flooding the world financial system with even more money. The Treasury, on course to borrow some $1.5 trillion this fiscal year, may tap global capital markets for even more to finance a fiscal stimulus package of as much as $700 billion and provide additional bailout money for banks.

“You want to do everything you can when you’re facing the threat of a deflationary breakdown of the economy,” says Michael Feroli, a former Fed official who is now an economist at JPMorgan Chase & Co. in New York. He sees the central bank cutting the overnight lending rate to zero in January and holding it there throughout the year.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson are being forced to pull out the stops because the extraordinary actions they’ve taken so far have failed to gain much traction. Credit markets are collapsing, stock prices are plunging and the world economy is sinking into a recession.

As the economy deteriorates, deflation -- a sustained decline in wages and prices -- is emerging as a new threat. U.S. government figures last week showed that consumer prices excluding food and fuel costs fell in October for the first time since 1982.

Only the Start

That may be only the start if the Fed cuts its benchmark rate, now at 1 percent, to zero and adopts what economists call a policy of “quantitative easing.” Under such a strategy, it would concentrate on expanding the amount of reserves in the banking system because it could no longer reduce the cost of that money.

The Bank of Japan followed this policy in the early part of the decade as it struggled to rescue the world’s second-largest economy from the grip of deflation. Its balance sheet eventually rose to the equivalent of about 30 percent of gross domestic product, says Tom Gallagher, head of policy research for International Strategy and Investment Group in Washington.

“The Fed could blow through the BOJ’s ceiling,” he adds - - ballooning the central bank’s holdings to more than $4 trillion.

The Treasury is also heading into uncharted territory as it taps capital markets for cash to help finance its bailout fund for the banking system and plug holes in the federal budget caused by the weak economy.

Money From Abroad

Much of that money will come from abroad. “Foreigners don’t seem to be interested in any kind of risky U.S. asset,” says Brad Setser, a former Treasury official now at the Council on Foreign Relations in New York. So, “instead, they are buying Treasuries.” That includes China, which recently passed Japan as the biggest holder of Treasuries.

http://www.bloomberg.com/apps/news?p...7ZQ&refer=home