Banks to set up $80 bln fund to limit credit crunch

[RamboLiberal]

Source: Reuters

Major banks including Citigroup Inc are looking at setting up a roughly $80 billion fund to buy ailing mortgage securities and other assets, in a bid to prevent the credit crunch from further hurting the global economy, sources familiar with the matter said.

Representatives from the U.S. Treasury have organized conversations among top global banks, sources said, as financial institutions grow increasingly concerned that a certain type of investment fund linked to banks may have to dump billions of dollars of repackaged loans onto financial markets.

A fire-sale of assets could lift borrowing costs globally, trigger big losses from investors and force banks to further write down some holdings on their balance sheets. Such sales could trigger huge losses for banks, and in the worst-case scenario tip the U.S. or Europe into recession.

The fund is the latest response to a global credit hangover after at least three years of easy credit that fueled massive mortgage lending in the United States and spurred record levels of leveraged buyouts.



Read more: http://www.reuters.com/article/topNews/idUSN1328788720071014?feedType=RSS&feedName=topNews&rpc=22&sp=true

[NMDemDist2]

1. hell, we haven't even hit the worst of it yet

wait til next spring......

[Andy Canuck]

2. gonna be fugly...

[Purveyor]

3. Their deluded if they think $80 billion will do the job. They haven't enough paper nor ink to

prevent this major economic recession or perhaps depression.

[InkAddict]

5. I was leaning that way too.

I'm no economist, but I thought one of the problems with the SIVs was that "they" were having a hard time putting a value on what was being held in their precious little bundles. The dollar itself has seen better days, and then what if The Big One moves California out to sea, New Madrid reconstructs the Mississippi, or another Category 5 chews off another major Gulf/Atlantic city??????? The infrastructure seems so dependent on the status quo, inflation be damned. Then, there's always the wet war dreams of *Co and his pals who have a real knack for...well, you know...

Another ?: Will the FDIC be involved via their examinations of the fund members...even those outside the US?

[cliss]

11. I agree. It's a pittance and it won't make

any difference. In March of 2008, around $110 billion dollars worth of subprime mortgages will reset to higher interest rates. But each month leading up to March, there will be billions worth of subprime mortgages reset every month.

As if that isn't bad enough, there are commercial loans which are being reset which we don't hear about. This week, there will be $440 billion dollars worth of commercial notes which will be reset.

This is a drop in the bucket. It's just Desperation PR.

[OrangeCountyDemocrat]

4. But Wait....I Thought It Was All Over

Haven't we turned the corner?

Hasn't the recovery begun?

Didn't housing already bottom out?

I don't know why they're so concerned. Everything's fine.

:sarcasm:

[Joe Bacon]

6. C'mon Republicans, CLAP HARDER

CLAP HARDER and Tinkerbelle will sprinkle her special Ayn Randian LAISSEZ FAIRYLAND DUST® all over the banks and make the big bad meltdown go away.

[maxkeiser]

7. i.e. slush fund

to fund this slush fund; more credit creation, less baning reserves, and so.... more inflation. To bail out the rich; anyone with less than 80% of the net worth in assets benefiting from this hyperinflation will sink into the muck of the gulag

don't fret; protect yourself; GulagWealthFund.com

[mcscajun]

8. This reminds me of J.P. Morgan (the person, not the company)

In 1895, at the depths of the Panic of 1893, the Federal Treasury was nearly out of gold. President Grover Cleveland arranged for Morgan to create a private syndicate on Wall Street to supply the U.S. Treasury with $65 million in gold, half of it from Europe, to float a bond issue that restored the treasury surplus of $100 million. The episode saved the Treasury...
http://en.wikipedia.org/wiki/J.P._Morgan

and again in the Panic of 1907:
Complete ruin of the national economy was averted when J.P. Morgan stepped in to meet the crisis. Morgan organized a team of bank and trust executives. The team redirected money between banks, secured further international lines of credit, and bought plummeting stocks of healthy corporations. Within a few weeks the panic passed, with only minimal effects on the country.
http://en.wikipedia.org/wiki/Panic_of_1907

History repeats itself, particularly in finance. In any case, scary comparisons.

[Javaman]

13. I don't think there will be anyone to come to the rescue this time, though. nt

[Massachusetts]

9. Gotta keep the wheels greased.

[Trillo]

10. I don't love how this article claims "taxpayer money is not expected to be used"

and near the bottom of the article, it is repeated, "Taxpayer funds were not used to bail out Long-Term".

The article claims the fund will be used to "bail out" SIVs or Structured Investment Vehicles. SIVs are used for tax avoidance, though that may not be their only use.

If "taxpayer funds" will not be used, and the SIVs were used to avoid taxes, perhaps among other uses, then why does the repeated claim make sense? If SIVs were used to avoid taxes, then "taxpayer funds" were used, because "taxpayer funds" were made a greater percentage of taxes as big firms used SIVs to reduce their taxes at the time they were created.

My tentative conclusion is that we're being lied to by sophisticated pigs feeding at the public trough. I wonder how many other citizens will come to the same conclusion as me.

[fasttense]

12. Things I wonder about.

These are banks. Why don't they simply put the extra money in their reserves to cover losses on loans, like banks use to?

From reading the article, I get that banks like Citigroup, that has 7 structured investment vehicles (SIVs) with supposedly over $100 million in overinflated assets, wants banks that are not playing around with ponzi schemes to put money into the fund. In other words the banks that were playing games and made very bad business decisions, wants the banks that didn't play around to help them cover their losses. Just like the Fed does. Hmm, perhaps if the fees and interest were high enough. But then if the fees and interest were high enough to attract conservative banks, it may not be worth it to Citigroup to borrow from the fund when they can go to the Fed to borrow. So, I suspect the purpose of the fund is to spread the risk and losses of the subprime fall out to banks that didn't play around in order to save the game and continue to play. I wonder if the other banks will fall for it and if they do, will that put your savings at risk?

Also, in todays day and age, I can't see banks sitting on such a large fund without it itching their hand. Citigroup and others have gotten into this mess because they like to play around with other people's money. I can't imagine them knowing that money is there for the taking and they are not able to get their hands on it to invest. I don't see investment bankers changing their risky behavior overnight.

[TexasLawyer]

14. Prelude to a federal bailout?

Hmmmm...

[gtar100]

15. Silly people. Money doesn't make money, work makes money

Or more to the point, work creates value.

They're just playing games shuffling around the accumulated value of the outcome of production.

If they wanted real prosperity and real wealth, they'd fund work, not debt. But they've lost sight of that in the pursuit of easy money.