by Calculated Risk on 9/29/2008 01:38:00 PM

Yes 205 No 228 ...
Dow off 500 points

The vote failed.

by Calculated Risk on 9/29/2008 01:01:00 PM

Here is the debate on C-SPAN.

Voting now ... will take about 15 minutes (so about 1:45 PM ET)

by Calculated Risk on 9/29/2008 10:11:00 AM

From the Fed:

In response to continued strains in short-term funding markets, central banks today are announcing further coordinated actions to expand significantly the capacity to provide U.S. dollar liquidity. Central banks will continue to work together closely and are prepared to take appropriate steps as needed to address funding pressures.

Meanwhile the TED Spread from Bloomberg is at a record 3.48! Ouch.

by Calculated Risk on 9/29/2008 09:46:00 AM

From MarketWatch: Mitsubishi UFJ buys 21% of Morgan Stanley for $9 billion

Mitsubishi UFJ Financial Group said Monday that they had reached a deal for the Japanese bank to buy a 21% stake in Morgan Stanley for $9 billion.

At least this is private capital ...

by Calculated Risk on 9/29/2008 08:36:00 AM

From the BEA: Personal Income and Outlays

Real DPI -- DPI adjusted to remove price changes -- decreased 0.9 percent in August, compared with a decrease of 1.5 percent in July.

Real PCE -- PCE adjusted to remove price changes -- increased less than 0.1 percent in August, in contrast to a decrease of 0.5 percent in July.

This report is strong evidence that the U.S. economy is in recession and that the change in Personal Consumption Expenditures (PCE) will be negative for Q3.

Although these numbers may be revised, or perhaps September was surprisingly strong (unlikely), based on the two month method, the change in real PCE in Q3 will be about minus 2.4%.

With PCE accounting for almost 71% of GDP, and real PCE declining in Q3, along with declining investment, the change in GDP for Q3 should be negative.

by Calculated Risk on 9/29/2008 08:13:00 AM

From the FDIC: Citigroup Inc. to Acquire Banking Operations of Wachovia

Citigroup Inc. will acquire the banking operations of Wachovia Corporation; Charlotte, North Carolina, in a transaction facilitated by the Federal Deposit Insurance Corporation and concurred with by the Board of Governors of the Federal Reserve and the Secretary of the Treasury in consultation with the President. All depositors are fully protected and there is expected to be no cost to the Deposit Insurance Fund. Wachovia did not fail; rather, it is to be acquired by Citigroup Inc. on an open bank basis with assistance from the FDIC.

"For Wachovia customers, today's action will ensure seamless continuity of service from their bank and full protection for all of their deposits." said FDIC Chairman Sheila C. Bair. "There will be no interruption in services and bank customers should expect business as usual."

Citigroup Inc. will acquire the bulk of Wachovia's assets and liabilities, including five depository institutions and assume senior and subordinated debt of Wachovia Corp. Wachovia Corporation will continue to own AG Edwards and Evergreen. The FDIC has entered into a loss sharing arrangement on a pre-identified pool of loans. Under the agreement, Citigroup Inc. will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will absorb losses beyond that. Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the FDIC for bearing this risk.

In consultation with the President, the Secretary of the Treasury on the recommendation of the Federal Reserve and FDIC determined that open bank assistance was necessary to avoid serious adverse effects on economic conditions and financial stability.

"On the whole, the commercial banking system in the United States remains well capitalized. This morning's decision was made under extraordinary circumstances with significant consultation among the regulators and Treasury," Bair said. "This action was necessary to maintain confidence in the banking industry given current financial market conditions."
emphasis added

by Calculated Risk on 9/29/2008 07:55:00 AM

From the NY Times Dealbook: Citigroup Nears a Deal for Wachovia

Citigroup executives are meeting to complete the deal Monday morning, people briefed on the matter said, cautioning that the talks could unravel. Wells Fargo, which had also been in talks with Wachovia, could also revive its bid.
...
Citigroup worked feverishly to cement a deal on Sunday night, with the discussions moving past the midnight hour, according to a person briefed on the talks. Officials from the F.D.I.C. and Treasury Department stayed up late to try to get the transaction done.

The NY Times suggests the price would be at best "a few dollars per share" for Wachovia. Meanwhile, Wachovia's share price is cliff diving this morning off over 60% from Friday's closing price.

by Calculated Risk on 9/28/2008 07:13:00 PM

Sunday is the new Monday ...

UPDATE 2: Der Hypo Real Estate droht die Insolvenz or in English from AFP: German mortgage bank near bankruptcy: report

Germany's Hypo Real Estate, a mortgage bank, is on the brink of bankruptcy, the daily Financial Times Deutschland reported in an advance copy of its Monday edition.

Update: From the Financial Times: Fortis thrown €11bn lifeline by governments (hat tip Alain)

Fortis was thrown an €11.2bn (£8.8bn) lifeline on Sunday night as the Belgian, Dutch and Luxembourg governments combined to inject capital into the embattled banking and insurance group in a last-ditch effort to shore up confidence among savers.

The partial nationalisation was announced in Brussels by Yves Leterme, Belgium’s prime minister, after a frantic weekend of talks involving ministers, central bankers and financiers.

In the U.K., Bradford & Bingley is being nationalized. From The Telegraph: Financial crisis: Bradford & Bingley nationalisation will cost taxpayers £150bn

British taxpayers will be liable for more than £150 billion of potentially toxic mortgage debt following the nationalisation of Bradford & Bingley, one of the country’s biggest mortgage lenders.

Alistair Darling, the Chancellor, will announce on Monday that the Government is taking over the bank’s mortgages and selling off the savings business and the branches. Savers are reassured that their money is safe although people owning shares in the bank will lose out.

The Government may merge the bank, which has mortgages worth more than £40 billion, with the nationalised Northern Rock. Every taxpayer in Britain will be exposed to the equivalent of £5,500 in mortgage debt as a result.

Meanwhile, as mentioned in the previous post, Citigroup and Wells Fargo are in negotiations today with regulators about a potential emergency takeover of Wachovia.

And the BIG story - the proposed bailout legislation was released earlier today. See: Emergency Economic Stabilization Act of 2008 Professor Krugman is being told there are "significant changes from this draft", so there is probably more to come.

by Calculated Risk on 9/28/2008 06:10:00 PM

From the NY Times: Citigroup and Wells Fargo Said to Be Bidding for Wachovia

Citigroup and Wells Fargo were locked in a bidding war on Sunday over a possible emergency takeover of the Wachovia Corporation ...

The government, led by the Federal Reserve and Treasury Department, has been involved in the talks as well ...

The government has ... opposed taking over Wachovia the way it did Washington Mutual earlier this week, these people said, unless its financial position deteriorates more rapidly.
...
Citigroup and Wells Fargo are unlikely to bid more than a few dollars per share for Wachovia

Wells and Citi would probably like a structure similar to the JPMorgan deal for WaMu assets (with the FDIC seizing WaMu first). Probably all they have to do is wait ...

by Calculated Risk on 9/28/2008 04:01:00 PM

From the House Financial Services Committee:

Emergency Economic Stabilization Act of 2008

Washington, DC - Click the following links to view documents:

Emergency Economic Stabilization Act of 2008

Summary of Emergency Economic Stabilization Act of 2008

Section-by-Section of Emergency Economic Stabilization Act of 2008

On suspending Mark-to-Market:

SEC. 132. SUSPENSION OF MARK-TO-MARKET ACCOUNTING.
(a) AUTHORITY.—The Securities and Exchange Commission shall have the authority under securities laws (as such term is defined under section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) to suspend, by rule, regulation, or oder, the application of Statement Number 157 of the Financial Accounting Standards Board for any issuer (as such term is defined in section 3(a)(8) of such Act) or with respect to any class or category of transaction if the Commission determines that is necessary or appropriate in the public interest and is consistent with the protection of investors.

And on allowing banks to earn interest and maintain a "zero reserve ratio":

SEC. 128. ACCELERATION OF EFFECTIVE DATE.
Section 203 of the Financial Services Regulatory Relief Act of 2006 (12 U.S.C. 461 note) is amended by striking ‘‘October 1, 2011’’ and inserting ‘‘October 1, 2008’’.

Here is the previous text (hat tip Falcor):

Financial Services Regulatory Relief Act of 2006 - Section 203.

"Interest on Reserves and Reserve Ratios

"Federal Reserve Banks are authorized to pay banks interest on reserves under Section 201 of the Act. In addition, Section 202 permits the FRB to change the ratio of reserves a bank must maintain relative to its transaction accounts, allowing a zero reserve ratio if appropriate. Due to federal budgetary requirements, Section 203 provides that these legislative changes will not take effect until October 1, 2011."

Here are some parts on pricing mechanism:

(d) PROGRAM GUIDELINES.—Before the earlier of the end of the 2-business-day period beginning on the date of the first purchase of troubled assets pursuant to the authority under this section or the end of the 45-day period beginning on the date of enactment of this Act, the Secretary shall publish program guidelines, including the following:
(1) Mechanisms for purchasing troubled assets.
(2) Methods for pricing and valuing troubled assets.
(3) Procedures for selecting asset managers.
(4) Criteria for identifying troubled assets for purchase.

So it's all up to the Secretary to establish the rules. Same with Warrants - it's up to the Secretary to negotiate.

Here is the section on transparency:

SEC. 114. MARKET TRANSPARENCY.
(a) PRICING.—To facilitate market transparency, the Secretary shall make available to the public, in electronic form, a description, amounts, and pricing of assets acquired under this Act, within 2 business days of purchase, trade, or other disposition.

(b) DISCLOSURE.—For each type of financial institutions that is authorized to use the program established under this Act, the Secretary shall determine whether the public disclosure required for such financial institutions with respect to off-balance sheet transactions, derivatives instruments, contingent liabilities, and similar sources of potential exposure is adequate to provide to the public sufficient information as to the true financial position of the institutions. If such disclosure is not adequate for that purpose, the Secretary shall make recommendations for additional disclosure requirements to the relevant regulators.

At least transactions will be made public online.