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Banks to set up $80 billion to limit credit crunch.

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  • Banks to set up $80 billion to limit credit crunch.

    http://news.yahoo.com/s/nm/20071014/...nVRsmYZptkM3wV

    8/13/07 Reuters.

    NEW YORK/WASHINGTON (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.

    "Banks made unwise business decisions, and now they're scrambling to save themselves," said Steve Persky, chief executive at Dalton Investments in Los Angeles, which has $1.2 billion under management.
    Citigroup (C.N), JPMorgan Chase & Co. (JPM.N) and Bank of America Corp. (BAC.N) are involved in the discussions, according to people familiar with the situation. The three banks declined to comment.

    The U.S. Treasury is involved in the discussions, but taxpayer money is not expected to be used.

    The Financial Services Authority, the U.K. market regulator, has suggested U.K. banks consider participating in the fund, the Wall Street Journal reported on Saturday, citing a person familiar with the situation.

    Details concerning the fund the banks are setting up, including its size, are still being hammered out and may change as other banks and investors become involved, sources said.

    The fund that is being contemplated would bail out funds known as "structured investment vehicles," or SIVs.

    SIVs bought assets like mortgage securities from banks, and financed their purchases using short-term debt known as commercial paper. They make money by earning more from their investments than they have to pay to fund them.

    But if SIVs cannot sell commercial paper, they must sell their assets, and many of the assets do not trade often and would be hard to sell.

    The idea for a fund was first broached at a meeting at the U.S. Treasury on a Sunday in mid-September in Washington, D.C., according to a person familiar with the details of the meeting.

    That meeting was led by Robert Steel, U.S. undersecretary for domestic finance, and Anthony Ryan, U.S. assistant secretary for financial markets.
    The informal meeting lasted four and a half hours as banks came up with ideas to jump-start the short-term lending markets.

    Outstanding commercial paper has dropped since the summer. According to the U.S. Federal Reserve, there was $1.865 trillion in commercial paper outstanding in the week ended October 10, down from $2.187 trillion outstanding in July.

    The government-led discussions are similar to conversations the Federal Reserve Bank of New York conducted in 1998 to help organize the bail-out of hedge fund Long-Term Capital Management. Taxpayer funds were not used to bail out Long-Term, either.

    Banks including Citigroup, Merrill Lynch & Co (MER.N), and UBS (UBSn.VX) have in recent weeks announced billions of dollars in asset write-offs and are still struggling to sell off billions of dollars in loans that financed acquisitions globally.

    "We are coming off the greatest lending bubble ... in U.S. history. We will feel its impact for a very long time," said Robert Arnott, Chairman of Research Affiliates LLC in Pasadena, California, earlier this month.
    I don't know what will be the outcome of such an endeavor if it is real and if it comes to fruition. You note the blue highlights I made in the article. There is not one named source in the report--what kind of shit are news services willing to allow--it must be that anything written by a reporter is worthy of printing--and what kind of shit are American readers willing to accept as possible news? I guess the authors feel good about getting their paychecks.
    Jim 69 y/o

    "...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)

    Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.

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  • #2
    Re: Banks to set up $80 billion to limit credit crunch.

    Throwing good money after bad money? Like what BoA did to Countrywide, meanwhile it's CEO is desperately dumping his shares the past week. Will $80billion be enough?

    Why not raise a $2 trillion fund to buy out all the foreclosures? This will surely work.

    Comment


    • #3
      Re: Banks to set up $80 billion to limit credit crunch.

      Originally posted by Jim Nickerson View Post
      http://news.yahoo.com/s/nm/20071014/...nVRsmYZptkM3wV

      8/13/07 Reuters.



      I don't know what will be the outcome of such an endeavor if it is real and if it comes to fruition. You note the blue highlights I made in the article. There is not one named source in the report--what kind of shit are news services willing to allow--it must be that anything written by a reporter is worthy of printing--and what kind of shit are American readers willing to accept as possible news? I guess the authors feel good about getting their paychecks.
      Jim: I think this is the same thing Fred came across and alerted us to here:
      http://www.itulip.com/forums/showthread.php?t=2197

      Concur with your views on unnamed sources for something this potentially explosive. Where there's smoke...

      Comment


      • #4
        Re: Banks to set up $80 billion to limit credit crunch.

        Originally posted by GRG55 View Post
        Jim: I think this is the same thing Fred came across and alerted us to here:
        http://www.itulip.com/forums/showthread.php?t=2197

        Concur with your views on unnamed sources for something this potentially explosive. Where there's smoke...
        We posted the rumor at 03:06 PM, before close of market. Did anyone spend any iTulip Credits to place any bets in financial stocks?
        Ed.

        Comment


        • #5
          Re: Banks to set up $80 billion to limit credit crunch.

          A lot depends on how leveraged the assets are, and who is ultimately left holding the bag. My gut feel is that they hope that the $ 80B will cover the Apex of the Ponzi scheme (which is what leveraging is!) while they can deflate the bubble, and have the cost of that deflation be borne by the bottom of the Pyramid -- in other words -- spread out the pain and allow the players to survive.

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