$3.18 trillion — Already been tapped by banks and other financial institutions

$2.4 trillion — Set aside to buy short-term notes, or commercial paper, that companies use to pay bills

$1.4 trillion — Used by the FDIC to guarantee bank to bank loans

$29 billion — To help with the Bear Stearns takeover by JP Morgan Chase and Co

$123 billion — Bailout for AIG

$306 billion — Guaranteed of CitiGroup debt

$20 Billion — Citibank liquidity loan

$200 billion — Promised to Fannie Mae and Freddie Mac

$139 billion — Loan guarantees for GE’s finance unit

The article continues to talk about how this is the worst crisis to hit America – ever – and that the only difference between this and the great Depression is that now we have these tools – the ability to promote liquidity – even though great risk exists.  They do provide quite a bit of both sides – good and bad – for these programs, but they also leave out some of the fundamentals.  In order for these dollars to be realized:

1. All the loans and short-term lending would go bad.  All the banks fail without repaying any of the loans.  Collateral becomes value-less and none of the investment is recovered.
2. All the banks and other companies go under and the preferred stock and investment dollars go bad.  The assets are valueless and no dollars are returned.
3. All the mortgages owned by all the banks go to zero value.  Houses are determined to be worthless, and no value is returned.

Obviously, it’s impossible to imagine a scenario where every company goes under and every home goes to $0 value, so these numbers aren’t real.  There is, of course, a lot of money spent and a lot of money at risk, but even with some losses it’s equally likely that some of these companies will survive and even prosper, in which case there will be an upside realized by the government.  It’s a waiting game, and frankly I do think that the alternative in some of these cases might be a lot worse.

Would love to hear some other opinions.

Ranter

Trump International Hotel and Tower slated for completion in mid-2009.

It’s becoming more and more obvious that the problems with the American economy are going to continue for the next several years.  If for no other reason then the knee-jerk reaction that banks and financial institutions are taking to limit their exposure to real estate related investments.  There is no greater example of this then the recent lawsuit filed by Donald Trump against lenders looking to reduce their exposure on the Trump International Hotel and Tower – a 92 story hotel and condominium high-rise architected to be the second-tallest building on United States soil.

Unlike most Trump stories – this isn’t really about Trump or his ego or even about some grandiose plan to expand his empire.  This story is about terminology, bank loans, and whether you believe that the “unprecedented financial crisis in the credit markets” is equivilent to a force majeure equal to an act of war or a natural disaster.  If you believe Trump (or anyone looking at the first page of a foreclosure document), you would consider the financial markets some sort of natural disaster, and that would require an extension and additional funding as provided in the original Trump loan package.

No matter how you slice it – we’re talking about a lot of money and Trump’s suit includes him asking for $3 billion in damages.  What’s written in between the lines is the reality that the original lending group, led by Deutsche Bank, is partly responsible for creating the “unprecedented financial crisis in the credit markets” that the entire world is suffering through today.  Not solely responsible of course, but definitely not innocent, either.  It should be up to them to help groups like Trump (God forbid another government bailout) and hold true with the terms of their agreement.  Beyond that, it’s their moral obligation at this point to make every effort to sustain theri customers, integrity, and position as a lendor in the community.  If they drop out now it’s a sure sign that more problems are looming on the horizon.

Ranter

Some experts contend, and I would assume that they are correct, that the 158 year old Citigroup is simply postponing the inevitible if things don’t change in the economy as a whole.  Of course, it will curb the ever increasing number of foreclosures, but until the underlying problems get resolved its impossible to know what the long-term benefits of this halt will be.

From my chair, the government’s bailout (still be referred to as only $700 billion) is focusing too much on bailing out the financial institutions, which isn’t going to help the economy or, as is becoming increasingly obvious, the average American family.  People can’t get loans, jobs are being lost, and there is a tremendous amount of fear about what is going to come next.  The Mortgage Bankers’ Association recently revealed that 4 million borrows are at least one payment behind and 500,000 are in the process of losing their home.  These are the people that should be benefiting from government intervention.  It’s not going to fix the banks or solve their problems, but it will certainly save homes and families while benefiting the economy as a whole.

Unfortunately, that’s a lot more work, and we already know how the government feels about work.  It’s much easier to sit back and help your cronies so you can keep your dead-wood-ass in office to continue bilking the American public of their hard earned money.

Ranter

AIG's $85 billion bailout package quickly becomes $150 billion. Will it ever end?

Most of us can clearly remember the day – way back in September – when they woke up to hear that they were loaning AIG $85 billion to keep it from failing.  There was a tremendous amount of debate as analysts went back and forth about whether or not this would be good for the American people or not.  Apparently AIG was too big to fail, and apparently that remains true today, but now the terms are a little different and the potential benefit to the American consumer is significantly less than it was before, and if you think that’s bad, keep reading, it gets worse.

So the original terms were pretty good – assuming that AIG could repay – but with very little fanfare the original $85 billion line of credit was supplemented by another $38 billion which was then added to additionally when AIG was allowed to sell another $21 billion of commercial paper to the US Government.  These are big numbers, we’re talking about nearly $150 billion in since September, and some economists are questioning if this will be enough!  But this is where it gets really good…

According the Edward M. Liddy, the insurance executive brought in to lead AIG through the crisis, the original terms of the agreement are not sustainable.  He was of course referring to the 10% interest that had originally been agreed to, which has subsequently been reduced.  Adding insult to injury they completely restructured the loan resulting in an added layer of confusion to the point that most Americans should just bury their head in the sand when it comes to AIG because in my opinion, that money is gone.

Where this gets even more frustrating is when you look at the counterparties to AIG – the other financial institutions and banks in the United States and Europe.  These companies are not bearing any of the loses on their investments in AIG – we, as taxpayers, are essentially bailing them out, too.  As if they weren’t rich enough and the American people weren’t suffering enough.  Liddy even went on to say that “it’s not exactly a bailout” because AIG is being asked to pay interest on the money that they’re loaned.  I guess he didn’t recognize that without that “bailout” AIG would have joined Enron.

Finally, AIG decided that a little salt on the wounds of the American public might be in order, and continued with hosting a $340,000 conference for independent financial planners at the Pointe Hilton Squaw Peak resort in Pheonix.  AIG says that sponsors coverd most of that investment, but it stills opens AIG up to questions about why?  It’s like someone borrowing money to throw their bankruptcy party – just doesn’t make sense.

“AIG is coming to the government claiming to be in critical condition and asking to be placed under intensive care, but they are still going out and partying and acting as healthy as ever,” U.S. Rep. Elijah Cummings, D-Md., a member of the House Oversight and Government Reform Committee, said in a statement. “It is even harder to sympathize when this company’s executives continue to wade by luxury pools while the everyday American whose taxpayer dollars are being used to save the company are hard at work.”

Just to drive their point home – AIG also reported a $24.47 billion, or $9.05 per share loss in the third quarter.  Based on the bailout play – 79.9% of that loss goes to the American publics bottom line.  Thanks guys.

Ranter