So unlike the SLC bail-out that you referred to, the institution is not acquired in toto, but rather the low quality assets, with the proportion of equity in public hands determined by how much over the eventual disposal value the public institution pays for the asset.
Obviously $700b that would suffice to allow institutions with 3-month loans from the Fed using repo's of assets of dubious quality to meet their obligations to the Fed and avoid collapse before Christmas, or else acquire Treasuries to use to roll-over the lending, so that if the institution then goes bankrupt the Fed's books do not look so bad. So it would get Paulson off the hook for collaborating in collecting a pile of toxic waste on the asset side of the balance sheet of the Fed. As its speculated that there may be around $600b in toxic waste in the hands of the Fed as the collateral for short term lending, that would explain the $700b figure ... $600b to clean up the Fed balance sheet plus some additional funds to clean up the balance sheets of financial instutitions considered to be strategic in avoiding an immediate collapse.
Sorry about triggering a definition dump. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
The figure $600b was raised by a correspondent of Jerome a Paris that he quoted (but whom probably did not want to be quoted by name), so I don't know how firm it is ... but it sure as heck would make sense of the $700b figure.
Dodd's plan is, go ahead and hide up the mess you have made of the Fed's balance sheet in a series of band-aids to cover an expanding infection, but shareholders in the short term and executives who do not get out in time in the long term shoulder some of the cost of the bail out of Paulson's and Bernanke's incompetence.
I'm not a legislative lawyer, but reading it just now, I got the impression that Dodd's plan allows executives to get out while the getting's good, in that Treasury does not own any shares until the corresponding asset is diposed of or matures, therefore revealing the "true" value, and that the exercise of restraint on executive salaries happens once the Treasury owns shares ... perhaps if Treasury owns a controlling interest.
All of this is why the US needs a growth industry in the productive sector of the economy, since otherwise there's no way for the finance sector to muddle through as it downsizes. As you know, I propose a New Energy Economy crash program to jump start that growth industry. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
In neither instance were firms "acquired" in either form of assets or corporate securities. In fact purchasing an assets does not convey any firm shareholder privileges; it conveys only ownership of the asset.
The definition of an asset is simply a person, process, or thing that produces income. The definition of equity is in itself reciprocal: a firm liability (future expense), a shareholder asset (future income).
In the S&L case, assets not corporate equities were confiscated to repay, to resolve, creditors FDIC, FSLIC, FICO.
In the case of the Banking Act of '34, credit was awarded by purchasing restricted shares with cash not treasuries. Credit did not convey ownership of the firm; it secured a claim to repayment. Then borrowers repurchased the restricted shares.
Dodd can put any price (transaction value) he wants on the assets of these beggars --corporate and derivative securities outstanding and available for sale-- but that "investment" will not be recovered any time soon. Because (1) the assets do not generate income and (2) the assets are not marketable because they do not generate income. They will not generate income because these CMOs, CDOs, and RMBS are dependent on continuous, reliable mortgage payments made by insolvent borrowers, US and UK citizens.
Confront the reality --the US federal government is not an entrepreneurial organization-- or concede your fealty to "Bush doctrine."
As you explain Dodd's "plan" it is the worst business decision ever, barring uncontested abrogation of Article I of th US Constitution to the FRB, agent of the Executive branch. He's advising his colleagues to buy worthless assets now --on margin!-- hoping some day they will produce income for US Treasury, "for the people."
Does anyone have a link to this draft bill? Diversity is the key to economic and political evolution.
I search thomas.gov. Has not introduced any "legislation", a bill. Therefore, I cannot read pp44 of provisions. I cannot comment on any text other than what politico.com --Bush PR organ-- has its writers editorialize.
I locate Dodd's senate URL. The only document is an HTML summary. And I note that Dodd is still pushing HOPE for Homeowners (enrolled), and the "summary" places no, zero, quantitative constraints on Paulson's bailout valuation, $700B.
Perhaps the full draft --which I can't read-- expressly limits expenditures or expressly establishes audit "controls"? (see GAO audit of RTC above. "Automated controls" failures figure prominently in underestimation of expenses and unaudited payments.)
#5 Warrants? "the government took warrants in the companies in exchange for our assistance." No. The government did not take warrants in AIG. But Treasury FHFA seized the Fannies as conservator (Ch.11 measure).
The warrents attached to AIG bonds ("credit facility") permit the FRB to confiscate 79.9% of common shares "to obtain" uncontested voting rights in AIG operations in the event AIG defaults on "convenants." In effect the FRB board and its shareholding member banks would than operate an insurance agent --paid by inflationary US treasuries-- to compete with FDIC --at an extra-legal advantage-- to guarantee and supervise forementioned FRB banks.
19 Sep Item 1.01. Entry into a Material Definitive Agreement. On September 18, 2008, American International Group, Inc. ("AIG") made a filing on Form 8-K with respect to a revolving credit facility with the Federal Reserve Bank of New York ("NY Fed"). This Form 8-K/A filing corrects certain errors in, and supersedes, yesterday's filing. The summary of terms of the revolving credit facility provides that AIG may borrow up to $85 billion from the NY Fed. AIG's borrowings under the revolving credit facility will bear interest, for each day, at a rate per annum equal to three-month Libor plus 8.50%. The revolving credit facility will have a 24-month term and will be secured by a pledge of assets of AIG and various subsidiaries. The revolving credit facility will contain affirmative and negative covenants, including a covenant to pay down the facility with the proceeds of asset sales. The summary of terms also provides for a 79.9% equity interest in AIG. The corporate approvals and formalities necessary to create this equity interest will depend upon its form. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K/A and is incorporated by reference herein.
On September 18, 2008, American International Group, Inc. ("AIG") made a filing on Form 8-K with respect to a revolving credit facility with the Federal Reserve Bank of New York ("NY Fed").
This Form 8-K/A filing corrects certain errors in, and supersedes, yesterday's filing.
The summary of terms of the revolving credit facility provides that AIG may borrow up to $85 billion from the NY Fed. AIG's borrowings under the revolving credit facility will bear interest, for each day, at a rate per annum equal to three-month Libor plus 8.50%. The revolving credit facility will have a 24-month term and will be secured by a pledge of assets of AIG and various subsidiaries. The revolving credit facility will contain affirmative and negative covenants, including a covenant to pay down the facility with the proceeds of asset sales.
The summary of terms also provides for a 79.9% equity interest in AIG. The corporate approvals and formalities necessary to create this equity interest will depend upon its form.
A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K/A and is incorporated by reference herein.
Never, ever underestimate Harvard-educated attys.
18 Sep Item 1.01. Entry into a Material Definitive Agreement. On September 16, 2008, American International Group, Inc. ("AIG") issued a press release announcing it has entered into a revolving credit facility with the Federal Reserve Bank of New York ("NY Reserve Bank"). Under the terms of the revolving credit facility, AIG may borrow up to $85 billion from the NY Reserve Bank. AIG's borrowings under the revolving credit facility bear interest, for each day, at a rate per annum equal to three-month Libor plus 8.50%. The revolving credit facility has a 24-month term and is secured by a pledge of all of the assets of AIG and its Material Subsidiaries. The revolving credit facility contains affirmative and negative covenants, including a covenant to pay down the facility with the proceeds of asset sales by AIG. In connection with the revolving credit facility, AIG issued a warrant to the Board of Governors of the Federal Reserve ("Federal Reserve") that permits the Federal Reserve, subject to shareholder approval, to obtain up to 79.9% of the outstanding common stock of AIG (after taking into account the exercise of the warrant). AIG anticipates calling a special meeting for such purpose as promptly as practicable. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference herein.
On September 16, 2008, American International Group, Inc. ("AIG") issued a press release announcing it has entered into a revolving credit facility with the Federal Reserve Bank of New York ("NY Reserve Bank").
Under the terms of the revolving credit facility, AIG may borrow up to $85 billion from the NY Reserve Bank. AIG's borrowings under the revolving credit facility bear interest, for each day, at a rate per annum equal to three-month Libor plus 8.50%. The revolving credit facility has a 24-month term and is secured by a pledge of all of the assets of AIG and its Material Subsidiaries. The revolving credit facility contains affirmative and negative covenants, including a covenant to pay down the facility with the proceeds of asset sales by AIG.
In connection with the revolving credit facility, AIG issued a warrant to the Board of Governors of the Federal Reserve ("Federal Reserve") that permits the Federal Reserve, subject to shareholder approval, to obtain up to 79.9% of the outstanding common stock of AIG (after taking into account the exercise of the warrant). AIG anticipates calling a special meeting for such purpose as promptly as practicable.
A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference herein.
Dodd is extending US DEBT --in exchange for limits on borrowers'CEO's compensation-- to finance the "modernization" of FRB regulatory structure, according to this model.
NOTE: (1) AIG must default, fail, bankrupt in order for FRB to exercise its option, or "warrant," for common shares; and (2) terms of the bond --extortionary LIBOR plus 8pts, greater than TED by any measure-- imply huge risk for AIG debt service if LIBOR panelists cannot reset among themselves.
Say, buh bye to legitimate, "reformed" competition among depository and investment institutions for US consumer "savings." Diversity is the key to economic and political evolution.
I downloaded PPM41_ayo08b28.pdf on Monday when you published. It transmitted to a blank pp44 doc.
Sorry I can't help you any further. A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
If not, I can wait for it to be introduced on the floor and text submitted to the clerk. Neither Frank nor Dodd have introduced anything this week. Perhaps someone else will. Diversity is the key to economic and political evolution.
Millions of people on the internet have machines with different capabilities -- packaged software such as MSFT Office of different vintage/versions or operating systems which do not execute. They may use browser that are not "supported" by certain internet publishers, e.g. politico.com, for one or more released. Similarly, corporate IT standards require conformation of all machine capabilities to communications permissions, according to internal and external license.
Further, certain www publishers manufacture interactive, web-based applications and static products using custom software or customized versions of packaged software. In that case, the "portability" of documents and run-time of applications is not reliable across all operating systems. Transmittal failure could be determined by XML checks of OS.v*, browser.v*, or pdfReader.v* from server-side.
open source file formats are solutions to facilitate cross-platform transmitals of data. A *.pdf is puportedly an open source file format as is ASCII. Let us assume either (1) politico.com published the draft bill using custom *.pdf print format or (2) my browser was unable to reconcile the politico.com digital coding of the pdf.
I've rarely retrieved a blank *.pdf document, believe it or not, in 20 years of internet access --despite the fact none of machines have ever been WINbox and none of my package software is "current" version. Diversity is the key to economic and political evolution.
I'll email the document and if the .pdf can be read, its some bug in the active .html page at politico. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
