Tuesday, November 25, 2008

Night of the Living Bailouts

Just when you thought it was over...

The Fed has pledged another $800B today hoping to keep the credit monster alive. $600B will be used to purchase troubled mortgages from Fannie Mae and Freddie Mac. Of this, $500B would buy mortgage backed securities, and another $100B would buy debt directly; I take it, the Fed would become homeowners. I can understand them not going to Congress for this money because they just approved $700B for that exact thing last month, and then the Treasury Department went ahead and did something completely different.

On top of that $600B, another $200B will be available for the general credit industry, which includes car, student, small business, and credit card loans. Non-recourse loans would be provided to these agencies, with (supposedly) highly rated securitized debt as collateral; if banks default on them, the Fed cannot recoup the money. The Treasury department will throw in $20B of TARP money to back the Fed in the event of defaults.

Obama is speaking as well of a $500B stimulus package. Given the pace of financial events, I'll wait until he takes office and this is passed before commenting in more detail.

...Actually, probably nobody thought it was over. That $700B lasted all of a month before the economy is in hot water again.

We're talking tens of thousands of dollars from every taxpayer going to the private interests of highly unprofitable and misguided financial firms. Currently, the justification is that this is all just loans, and the Fed and Treasury Department anticipate it will be reimbursed. We'll have to see how long this fantasy lasts.

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