Posted tagged ‘Federal Reserve’

Government Optimistic on State of Economy

August 13, 2009

The Federal Reserve said yesterday that it appears that the economy in the US has halted the longest period of decline since the Great Depression, although it has cautioned that economic activity is likely to remain weak in the near term.

From CNN:

The central bank left its key overnight interest rate at a 0% to 0.25% range, as expected. Its statement at the conclusion of its two-day meeting said “economic activity is leveling out.”

That is the Fed’s most bullish assessment of the economy in more than a year, and suggests that a recovery may have started.

It said it still expects “inflation will remain subdued for some time” and said that it expects rates to remain near zero percent “for an extended period.”

The Fed cut interest rates to the record low range at its December meeting in an effort to spur the struggling U.S. economy at that time.

It also pumped about $1 trillion of cash into the economy during the last year through a number of extraordinary programs, including the purchase of Treasurys and mortgage-backed securities, as well as new programs to get banks and other lenders to extend credit to consumers.

White House Goes After AIG Bonus Payments

March 16, 2009

President Barack Obama is going after the bonuses paid to employees of insurer AIG, expressing outrage that taxpayer money was used to reward executives at the bailed-out firm.

From the Washington Post:

“It’s a mob effect,” one senior executive said. “It’s putting people’s lives in danger.”

Politicians and the public spent yesterday demanding that AIG rescind payouts that they said rewarded recklessness and greed at a company being bailed out with $170 billion in taxpayer funds. But company officials contend that the uproar is scaring away the very employees who understand AIG Financial Products’ complex trades and who are trying to dismantle the division before it further endangers the world’s economy.

“It’s going to blow up,” said a senior Financial Products manager, who spoke on condition of anonymity because he was not authorized to speak for the company. “I have a horrible, horrible, horrible feeling that this is going to end badly.”

President Obama yesterday vowed to “pursue every legal avenue to block these bonuses.” But that pledge might have come too late. About $165 million in retention payments started to go out Friday to employees at Financial Products, after numerous discussions with the Treasury Department and the Federal Reserve.

From Reuters:

Though the insurance giant is being kept alive on a government bailout of up to $180 billion, it is now paying out $165 million in bonuses.

“This is a corporation that finds itself in financial distress due to recklessness and greed,” Obama said.

“Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay,” he said at the White House.

“How do they justify this outrage to the taxpayers who are keeping the company afloat?”

Obama said he had ordered Treasury Secretary Timothy Geithner to pursue “every single legal avenue” to cancel the bonuses and a Treasury official said later it would modify a planned $30 billion capital infusion for American International Group to try to recoup the bonuses.

White House spokesman Robert Gibbs said the Treasury could impose rules on the $30 billion loan facility for AIG but declined to go into specifics or spell out ways the legal avenues available to the administration to block the payments.

Obama said Geithner was working on the problem.

“I want everybody to be clear that Secretary Geithner’s been on the case. He’s working to resolve this matter with the new CEO, Edward Liddy, who, by the way, everybody needs to understand, came on board after the contracts that led to these bonuses were agreed to last year,” Obama said.

Liddy told Geithner in a letter the insurer was legally obliged to fulfill 2008 employee retention payments but had agreed to revamp its system for future bonuses.

Obama said overall financial regulatory reform was vital to ensure this did not occur again.

He said the government needed “some form of resolution mechanism in dealing with troubled financial institutions, so that we’ve got greater authority to protect American taxpayers and our financial system in cases such as this.”

Pausing to cough, Obama said he was “choked up with anger.”

“We don’t have all the … regulatory power that we need. And this is something that I expect to work with Congress to deal with in the weeks and months to come.”

Citibank Hardship Reaches the Consumer (Me)

November 25, 2008

How surprised was I last Friday to get a notice in the mail from my credit card company, Citibank, who was raising my APR to 15.99%. I have been a Citibank customer for ten years and just a few months ago, finally got my APR down to 9.99%.

I contacted Citibank to see about this change and was hoping to keep my APR at 9.99%.

Here is the response that I got:

The change proposed to your purchase APR was due to a reexamination of our policies was needed given the severe changes in the financial markets. Our costs in borrowing the money we use to lend have gone up significantly.

In addition we are seeing dramatically higher loan losses and delinquencies for many of our customers. We must manage to the dramatic changes we are seeing by changing some of our rates and fees in order to continue to provide you with products, benefits and services we have today.

More information on the proposed changes can be found online at http://www.federalreserve.gov.

Thank you for using our website.

Well thank you Citibank for explaining that YOUR financial problems are the reason that MY APR is going up. I’m so glad to be doing business with you.

For now, I will NO LONGER be using my credit card for any purchases, and as soon as I can transfer my balance to another company, you will lose a customer of ten years.

Economy Is Shrinking and Home Prices Continue to Drop

November 25, 2008

The economy shrank more than expected in the third quarter and home prices fell to levels not seen since early 2004 as the government announced new plans to provide $800 billion to boost consumer spending and home buying. Things keep looking bleaker and bleaker each day for the US economy. When will we hit rock bottom?

From the Associated Press:

Treasury Secretary Henry Paulson said key markets for consumer debt such as credit cards, auto and student loans essentially came to a halt in October, and that the new programs are aimed to get lending back to more normal levels.

Meanwhile, data released Tuesday provided further proof the country is almost certainly in the throes of a painful recession.

The Commerce Department’s updated reading on the economy’s performance showed gross domestic product shrank at a 0.5 percent annual rate in the July-September quarter, weaker than the 0.3 percent rate of decline first estimated a month ago, and the worst showing since the third quarter of 2001.

GDP measures the value of all goods and services produced within the U.S. and is considered the best barometer of the country’s economic fitness.

Meanwhile, the Standard & Poor’s/Case-Shiller national home price index released Tuesday tumbled a record 16.6 percent during the quarter from the same period a year ago. Prices are at levels not seen since the first quarter of 2004.

In an effort to increase the availability of home loans to borrowers, the Federal Reserve said it will purchase up to $100 billion in direct obligations from mortgage giants Fannie Mae and Freddie Mac as well as the Federal Home Loan Banks. The Fed also will purchase another $500 billion in mortgage-backed securities, pools of mortgages that are bundled together and sold to investors.

The $600 billion effort on mortgages came as the Fed also unveiled a new program to help unfreeze the market that backs consumer debt such as credit cards, auto and student loans.

AIG Suspending Millions in Executive Payouts

October 23, 2008

It’s about time! American International Group has agreed to suspend payments to executives from a $600 million bonus fund as well as $19 million in payments to its former chief executive, this according to New York’s attorney general Andrew Cuomo.

From the New York Times:

The moves are the latest steps in an effort by the attorney general, Andrew M. Cuomo, to prevent bonuses and other compensation to former executives at A.I.G., which in recent weeks has received tens of billions of dollars in loans from the Federal Reserve. “There should not even be any contemplation of bonuses for executive performance because I find it hard to conceive of a situation that you could justify a performance bonus for management that virtually bankrupted the company,” Mr. Cuomo said on a conference call with reporters on Wednesday afternoon.

According to a letter Mr. Cuomo sent to A.I.G.’s current chief executive, Edward M. Liddy, the company has agreed to freeze $19 million in remaining payments to Martin J. Sullivan, the company’s former chief executive who was ousted in June. Mr. Cuomo said he did not know how much Mr. Sullivan might have already been paid under his employment contract.

The company also agreed not to make any payments from a $600 million deferred compensation and bonus fund for executives of A.I.G.’s financial products unit, which undertook many of the complex financial transactions that pushed the company to the brink of collapse. Mr. Cuomo said that Joseph Cassano, who headed that unit, stood to receive $70 million from the fund.

“We have received the letter and the letter is consistent with our discussions with the attorney general and with actions we have taken,” said Joe Norton, a spokesman for A.I.G.

Mr. Cuomo has already called on A.I.G. to assist in efforts to recover payments already made to executives at the company. On the call with reporters, Mr. Cuomo suggested that his actions offered a template for dealing with executive compensation at companies now receiving taxpayer money through the bailout approved by Congress this month.

AIG Throws Another $86,000 Executive Party

October 17, 2008

AIG is back in the news yet again today for spending thousands of dollars on its executives, even as the New York-based insurer asked for an additional $37.8 billion loan from the Federal Reserve. This time instead of a spa treatment, a number of top executives attended an English hunting trip.

From the Associated Press:

The news comes as New York Attorney General Andrew Cuomo on Wednesday told the insurance giant to do away with golden parachutes for executives, golf outings and parties while taking government money to stay afloat.

Cuomo said he has the power under state business law to review and possibly rescind any inappropriate AIG spending as long as the Federal Reserve is propping up the huge insurer with almost $123 billion in loans announced since Sept. 16.

“This was an annual event for customers of the AIG property casualty insurance companies in the U.K. and Europe, and planned months before the Federal Reserve Bank of New York’s loan to AIG,” company spokesman Peter Tulupman said Wednesday morning.

In a prepared statement later in the day, the company said, “We will continue to take all measures necessary to ensure that these activities cease immediately. AIG’s priority is to continue focusing on actions necessary to repay the Federal Reserve loan and emerge as a vital, ongoing business.”

AIG officials declined to say which AIG executives attended the trip, which reports have said racked up an $86,000 tab. News of the hunting trip surfaced just days after AIG received an additional $37.8 billion loan from the Federal Reserve, on top of a previous $85 billion emergency loan granted last month.

The company said last week it would stop “all non-essential conferences, meetings and activities that do not clearly maximize value and service given the current conditions.”

Last month, and just days after the U.S. government stepped in to save AIG with a $85 billion taxpayer-funded loan, the company picked up a $440,000 tab for a week-long retreat at a posh California resort for top-performing insurance agents.

Lawmakers investigating AIG’s meltdown said they were enraged that executives of AIG’s main U.S. life insurance subsidiary spent a lavish amount on the retreat, complete with spa treatments, banquets and golf outings. Last week, White House Press Secretary Dana Perino called the event “despicable.”

Government Considering Ownership in Banks

October 9, 2008

Hmmmm. This might not be a good thing. The Bush administration is considering taking ownership stakes in certain U.S. banks as an option for dealing with a severe global credit crisis.

From the Associated Press:

An administration official, who spoke on condition of anonymity because no decision has been made, said the $700 billion rescue package passed by Congress last week allows the Treasury Department to inject fresh capital into financial institutions and get ownership shares in return.

This official said all the new powers granted in the legislation were being considered as the administration seeks to deal with a serious credit crisis that has caused the biggest upheavals on Wall Street in seven decades and continues to roil global markets.

Supporters of this approach, such as Sen. Charles Schumer, D-N.Y., argue that injecting fresh capital into U.S. banks who want to participate in the program would be an effective way to bolster banks’ balance sheets and get them to resume lending. Taxpayers would benefit because the government would receive an equity stake in the bank in return for providing the capital.

“This idea would, at a minimum, complement the administration’s planned approach of buying up troubled assets and may prove to be the most promising tool of all in Secretary Paulson’s kit,” Schumer said in a statement.

A decision to inject capital directly into financial institutions in return for ownership stakes would be similar to a plan announced Wednesday by Britain.

Stocks Drop Sharply as Dow Jones Drops Below 10,000

October 6, 2008

The selling on Wall Street began at the opening bell on Monday and only intensified as the morning went on. Shares moves sharply lower as the banking crisis tightened its grip on the global economy.

The Dow Jones industrial average fell below 10,000 for the first time since 2004 after losing more than 500 points in the first hour of trading. The index has lost more than 1,100 points in the past two weeks and no end seems to be in sight. It appears that whoever wins the election one month from now, Barack Obama or John McCain, will have to step up and find a way to end this crisis.

From the Associated Press:

The markets have come to the sobering realization that the Bush administration’s $700 billion rescue plan won’t work quickly to unfreeze the credit markets, and that many banks are still having difficulty gaining access to cash. That’s caused investors to exit stocks and move money into the relative safety of government debt.

Over the weekend, governments across Europe rushed to prop up failing banks. The German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG, while France’s BNP Paribas agreed to acquire a 75 percent stake in Fortis’s Belgium bank after a government rescue failed.

Dow Plummets Again; People “Scared to Death” of the State of the Economy

September 18, 2008

The Dow plunged once again today, finishing the trading day down about 450 points. Traders are very nervous about the financial system still ran high after the government’s bailout of insurer AIG.

From the Associated Press:

While stocks plummeted, investors sought the safety of hard assets and government debt sent gold, oil and short-term Treasurys soaring.

The Federal Reserve is giving a two-year, $85 billion loan to AIG in exchange for a nearly 80 percent stake in the company after it lost billions in the risky business of insuring against bond defaults. Wall Street had feared that the conglomerate, which has its tentacles in various financial services industries around the world, would follow the investment bank Lehman Brothers Holdings Inc. into bankruptcy. The ramifications of the world’s largest insurer going under likely would have far surpassed the demise of Lehman.

“People are scared to death,” said Bill Stone, chief investment strategist for PNC Wealth Management. “Who would have imagined that AIG would have gotten into this position?”

He said the fear gripping the markets reflects investors’ concerns that AIG wasn’t able to find a lifeline in the private sector and that Wall Street is now fretting about what other institutions could falter. Over the past year, companies including Lehman and AIG have sought to reassure investors that they weren’t in trouble, and now the market isn’t sure who can and can’t be trusted.

“No one’s going to be believing anybody now because AIG said they were OK along with everybody else,” Stone said.

The two independent Wall Street investment banks left standing — Goldman Sachs Group Inc. and Morgan Stanley — remain under scrutiny, as does Washington Mutual Inc., the country’s largest thrift bank. Morgan Stanley revealed its quarterly earnings early late Tuesday, posting a better-than-expected 7 percent slide in fiscal third-quarter profit. It insisted that it is surviving the credit crisis that has ravaged many of its peers.

Government Bails Out AIG

September 17, 2008

Glad to see that my money is going to a good cause. Hey, can you bail me out of debt too! In the most far-reaching intervention into the private sector ever for the Federal Reserve, the government stepped in Tuesday to rescue American International Group Inc. with an $85 billion injection of taxpayer money.

From the Associated Press:

Under the deal, the government will get a 79.9 percent stake in one of the world’s largest insurers and the right to remove senior management.

AIG’s chief executive, Robert Willumstad, is expected to be replaced by Edward Liddy, the former head of insurer Allstate Corp., according to The Wall Street Journal, citing a person it did not name. Willumstad had been at the helm of AIG since June.

A call to AIG to confirm the executive change was not immediately returned.

It was the second time this month the feds put taxpayer money on the hook to rescue a private financial company, saying its failure would further disrupt markets and threaten the already fragile economy.

AIG said it will repay the money in full with proceeds from the sales of some of its assets. It will be up to the company to decide which assets to sell and the timing. The government does, however, have veto power.

Under the deal, the Federal Reserve will provide a two-year $85 billion emergency loan at an interest rate of about 11.5 percent to AIG, which teetered on the edge of failure because of stresses caused by the collapse of the subprime mortgage market and the credit crunch that ensued. In return, the government will get a 79.9 percent stake in AIG and the right to remove senior management.

AIG shares sank $1.34, or 36 percent, to $2.41 in morning trading Wednesday. They traded as high as $70.13 in the past year.

The government’s move was similar to its bailout of Sept. 7 of mortgage giants Fannie Mae and Freddie Mac, where the Treasury Department said it was prepared to put up as much as $100 billion over time in each of the companies if needed to keep them from going broke.

From CNN:

In an unprecedented move, the Federal Reserve Board is lending as much as $85 billion to rescue crumbling insurer American International Group, officials announced Tuesday evening.

The Fed authorized the Federal Reserve Bank of New York to lend AIG (AIG, Fortune 500) the funds. In return, the federal government will receive a 79.9% stake in the company.

Officials decided they had to act lest the nation’s largest insurer file bankruptcy. Such a move would roil world markets since AIG (AIG, Fortune 500) has $1.1 trillion in assets and 74 million clients in 130 countries.

An eventual liquidation of the company is most likely, senior Fed officials said. But with the government loan, the company won’t have to go through a tumultuous fire sale.

“[A] disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance,” the Fed said in a statement.

The bailout marks the most dramatic turn yet in an expanding crisis that started more than a year ago with the mortgage meltdown. The resulting credit crunch is now toppling not only mainstay Wall Street players, but others in the wider financial industry.


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