[Marxism] Obama's Wall Street bailout scheme could rob taxpayers of $4 trillion

[Duane Roberts <duaneroberts92804@xxxxxxxxx>]

It should be noted that the Obama administration has recently been floating the 
idea of establishing a government-run "bad bank" whose sole mission is to 
basically purchase worthless securities from Wall Street's biggest banking and 
financial institutions.

Senator Charles Schumer, a Democrat from New York, quite frankly admits that 
the Obama administration's scheme to bailout banks owned and controlled by 
America's richest *white* people could rob millions of working class taxpayers 
upwards of $4 trillion.

Sincerely,

Duane J. Roberts
duaneroberts92804@xxxxxxxxx



http://uk.reuters.com/article/ousiv/idUKTRE50S6VT20090129?sp=true

Cost of shoring up U.S. banks may be in trillions
Thu Jan 29, 2009 9:56pm GMT
By Emily Kaiser - Analysis

WASHINGTON (Reuters) - The cost of restoring confidence in U.S. financial firms 
may reach $4 trillion if President Barack Obama moves ahead with a "bad bank" 
that buys up souring assets.

The figure far exceeds even the most pessimistic estimates of how great the 
loan losses might be because there is so much uncertainty about default rates, 
which means the government may need to take on a bigger chunk of bank debt to 
ease concerns.

Goldman Sachs economists said ideally the public sector would step in to remove 
the hardest-to-value assets, which would alleviate nagging worries about future 
losses and hopefully help get lending going again.

"Unfortunately, with an unprecedented meltdown in mortgage credit and a deep 
recession in the broader economy, there is a great deal of uncertainty about 
the value of almost every asset," they wrote in a note to clients.

Obama and his economic advisers are expected to lay out their policy plan as 
early as next week. One idea that seems to be gaining traction is setting up an 
entity to buy troubled assets and hold them until they mature or resell them.

The hope is that once banks get rid of those bad loans, they can attract 
private investors, get back to the business of lending, and help revive the 
economy.

Vice President Joe Biden said on Thursday that Treasury Secretary Timothy 
Geithner was considering all options to restart normal lending, but that no 
decisions had been made.

Goldman Sachs estimated that it would take on the order of $4 trillion to buy 
troubled mortgage and consumer debt. That number could shrink if the program 
were limited to only certain loans or banks, but it could also grow if other 
asset classes such as commercial real estate loans were included.

New York Sen. Charles Schumer has said that a number of experts thought that up 
to $4 trillion may be needed to buy the bad assets, an estimate that a Senate 
aide said was based on informal conversations with people in the industry.

The Wall Street Journal said government officials had discussed spending $1 
trillion to $2 trillion to help restore banks to health, citing people familiar 
with the matter.

At $4 trillion, that would be the equivalent of nearly 1/3 of U.S. gross 
domestic product. If the government had to fund that amount by issuing 
additional debt, it would intensify investor concerns about massive supply 
scaring off demand.

Depending on how the plan is structured, the government may not have to put up 
the full amount, and since the majority of people are still paying their 
mortgages and credit card bills, there is a reasonable expectation that 
taxpayers would recoup a substantial portion of the cost.

However, the potential loss is huge, and if more public money is needed to 
boost capital even after the bad assets are removed, the total would 
undoubtedly climb.

The International Monetary Fund said on Wednesday that worldwide losses on 
U.S.-originated loans may hit $2.2 trillion, well above its October estimate of 
$1.4 trillion. It said banks in the United States, Europe and elsewhere 
probably needed to raise $500 billion to cover losses coming this year and next.

CUTTING OUT A ZERO

For U.S. lawmakers who are already taking grief from voters over a $700 billion 
bailout approved last fall, passing another big spending measure carries 
significant political risk.

At the same time, Obama's team wants to take action that is bold enough to fix 
the problem once and for all, hoping to avoid the sort of ad hoc approach that 
has been criticized for adding to investor uncertainty.

Time is not on Obama's side. The more the economy weakens, the longer the list 
of potentially dodgy debt grows. That is why he faces enormous pressure from 
Wall Street to act fast.

The government would not necessarily have to spend the full $4 trillion to buy 
the assets. If it follows the model used in a Federal Reserve program to 
support consumer and small business loans, the government could potentially put 
up just 10 percent of the total.

Spending $400 billion would certainly be more palatable to Congress than $4 
trillion. It may not even require that much additional funding. Economists 
estimate that perhaps $250 billion of what remains in the $700 billion bailout 
fund could be devoted to the "bad bank."

That money could buy bad assets, which would then be repackaged and sold to 
investors to raise more money which could then by recycled to buy more assets.

Stephen Stanley, chief economist at RBS Greenwich Capital, said although that 
sounds similar to the sort of financial engineering that spawned the credit 
crisis in the first place, it would be structured so that the central bank or 
whichever agency oversees the program is last in line to take losses.

"If things turn out so bad that the Fed ends up on the hook for $1 trillion in 
losses, then the financial sector, the economy, and everything else will be 
dead anyway," he said.

(Additional reporting by Susan Cornwell, Patrick Rucker, Karey Wutkowski and 
John Poirier, Editing by Chizu Nomiyama)


      

________________________________________________
YOU MUST clip all extraneous text when replying to a message.
Send list submissions to: Marxism@xxxxxxxxxxxxxxxxxxx
Set your options at: 
http://lists.econ.utah.edu/mailman/options/marxism/archive%40archives.econ.utah.edu