Here’s Yves Smith, at Naked Capitalism, discussing the bailout, with excerpts from a WSJ article.
Where’s My Bailout? The Feeding Trough May Not Be Bottomless, After All
Excerpt: "Many years ago, when I was in business school, one of the courses was taught by George Cabot Lodge. He said he could remember distinctly the day in 1968 that it occurred to him that the US could not simultaneously end poverty, send a man to the moon, and fight a ground war in Asia, that there were limits to what the US could do.
Similar doubts are allegedly crossing the minds of the bailout overlords, or perhaps this is an excuse to draw the line with non-financial supplicants (but having allowed American Express, clearly NOT a systemically important player, to form two bank holding companies so as to get access to cheap funding, I don’t see how Detroit can be told "no"). We have said before that the Fed cannot shore up the entire financial system, or keep it from deleveraging…
The Wall Street Journal says today that the government plans to start saying no, allegedly out of necessity (but the necessity of scarce resources should have been apparent from the outset and led to more measured responses):
The U.S. government’s financial-system rescue plans are coming under pressure as a growing array of distressed companies signal the need for assistance.
On Monday, mortgage giant Fannie Mae said it is losing money so rapidly it may need a cash infusion from the Treasury Department by year’s end. The funds would come from a special $100 billion pool Treasury set aside back in September to aid the company. Fannie Mae had a loss of $29 billion for the third quarter…
General Motors Corp., which has been lobbying heavily for government aid, said Monday it might violate the terms of some of its debt by the end of the year…
The Treasury has committed all but $60 billion of the first $350 billion in funds granted by Congress under the TARP plan.That sum remains after accounting for Treasury’s planned investments in the banking sector and Monday’s additional $40 billion investment in troubled insurer American International Group Inc.
Yves here, This is no surprise. The whole point was to spend the dough before regime change, and with the possibility of an Obama victory, that meant dispensing as much as possible before the election.
The rescue efforts are "evolving in ways that I don’t think anyone anticipated," said Camden Fine, president and CEO of the Independent Community Bankers of America, a trade group. "Things are just hitting them from every single direction, every day, and I don’t think they know whether to spit or go blind."
Yves here. This is disingenuous. Recall that some of the nine banks that received equity infusions did not want it, others did not need it, but they were all force fed allegedly so as not to taint the ones who really needed it. Similarly, American Express, as we indicated in an earlier post, is simply not an essential financial player (and they are not at risk of going under, either)….
Back to the Journal:
The additional life jacket for AIG — plus the thrashing from Detroit — makes it increasingly likely that Treasury Secretary Henry Paulson will turn to Congress for the second half of its promised $700 billion….
The Treasury secretary is likely to face a hostile reception from lawmakers angry over Treasury’s reluctance to aid the auto industry as well as its decision not to force banks receiving government assistance to lend out those funds to consumers and small businesses…
Sen. Charles Schumer of New York said lawmakers want Treasury to put in place new requirements to encourage lending and to focus the program on struggling, not healthy, institutions. Mr. Schumer also wants Treasury to widen the scope of the program to include a greater variety of financial firms…"
Source: Strains Mount on Bailout Plans (WSJ, subscription required)
