by Calculated Risk on 10/11/2008 09:03:00 AM

David McCormick, the Treasury undersecretary for international affairs, was on ABC News this morning. The WSJ has a summary of his comments:

Mr. McCormick said the G-7 held "an absolute common view on the urgency of the situation" and on the steps needed to "work on immediately to try to being some stability to the market."

Asked about investor frustration with leaders in Washington and too much talk about action, Mr. McCormick said he agrees with the sentiment that actions are more important than words.

"The good news is the outlines of those actions are beginning to become more clear," he said. "As we take those actions, we hope that they begin to bring confidence back to the market."

On Friday, U.S. Treasury Secretary Henry Paulson announced plans for a standardized government program to buy equity in a wide range of financial companies.

Mr. McCormick said the specifics of the plan will be unveiled in coming days and it will be put into place within weeks.

by Calculated Risk on 10/11/2008 01:59:00 AM

This segment aired Thursday night October 9th (hat tip Jon):

by Calculated Risk on 10/10/2008 10:38:00 PM

The WSJ reports that GM has recently talked with Cerberus about acquiring Chrysler's automotive operations in exchange for GM's remaining 49% stake in GMAC.

Cerberus would keep Chrysler's financing arm - and probably would combine it with GMAC.

According to the WSJ, GM would expect about $10 billion in savings by combining the automotive operations.

This actually might make sense ...

UPDATE: Same story from the NY Times: G.M. and Chrysler Explore Merger

The talks between G.M. and Cerberus Capital Management ... began more than a month ago, and the negotiations are not certain to produce a deal. Two people close to the process said the chances of a merger were “50-50” as of Friday and would most likely still take weeks to work out.

by Calculated Risk on 10/10/2008 07:21:00 PM

From Bloomberg: Paulson Says Will Buy Bank Equity `Soon as We Can'

U.S. Treasury Secretary Henry Paulson said the U.S. will buy equity ``as soon as we can'' in banks and other financial institutions to restore market stability and revive economic growth.

The Treasury is ``working to develop a standardized program that is open to a broad array of financial institutions,'' Paulson said at a press conference ...

``We're going to do it as soon as we can do it and do it properly and do it effectively and right,'' Paulson said. ``Trust me, we are not wasting time; people are working around the clock to deal with this.''

Paulson was also asked if Morgan Stanley and Goldman Sachs qualified as banks that are too big to fail. Paulson replied that the G-7 didn't discuss specific banks.

As usual, Paulson was short on specifics.

Update: Paulson also seemed to say buying equity provided a bigger bang for the buck than buying troubled mortgage assets. (I'm looking for the transcript of the Q&A for the exact quote). Update: the WaPo quotes Paulson during the Q&A:

"We can use taxpayer money more effectively, more efficiently, it will go farther, they will get more for their dollars and more protection if we develop a standardized program" for buying equity stakes, Paulson said.

So maybe he was just saying a standardized program is better - I thought he was comparing buying equities to buying troubled assets. (Still looking for transcript).

by Calculated Risk on 10/10/2008 06:57:00 PM

G-7 Finance Ministers and Central Bank Governors

Plan of Action

Washington— The G-7 agrees today that the current situation calls for urgent and exceptional action. We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth. We agree to:

1. Take decisive action and use all available tools to support systemically important financial institutions and prevent their failure.

2. Take all necessary steps to unfreeze credit and money markets and ensure that banks and other financial institutions have broad access to liquidity and funding.

3. Ensure that our banks and other major financial intermediaries, as needed, can raise capital from public as well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses.

4. Ensure that our respective national deposit insurance and guarantee programs are robust and consistent so that our retail depositors will continue to have confidence in the safety of their deposits.

5. Take action, where appropriate, to restart the secondary markets for mortgages and other securitized assets. Accurate valuation and transparent disclosure of assets and consistent implementation of high quality accounting standards are necessary.

The actions should be taken in ways that protect taxpayers and avoid potentially damaging effects on other countries. We will use macroeconomic policy tools as necessary and appropriate. We strongly support the IMF’s critical role in assisting countries affected by this turmoil. We will accelerate full implementation of the Financial Stability Forum recommendations and we are committed to the pressing need for reform of the financial system. We will strengthen further our cooperation and work with others to accomplish this plan.

by Calculated Risk on 10/10/2008 06:49:00 PM

It's Friday. From the FDIC:

Main Street Bank, Northville, Michigan, was closed today by the Michigan Office of Financial and Insurance Regulation, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC approved the assumption of all the deposits of Main Street Bank, by Monroe Bank & Trust, Monroe, Michigan.
...
Main Street Bank had total assets of $98 million in total assets and $86 million in total deposits as of October 7, 2008.

Monroe Bank & Trust has agreed to pay a total premium of 1 percent for the failed bank's deposits. In addition, Monroe Bank & Trust will purchase approximately $16.9 million of Main Street's assets, and have a 90-day option to purchase approximately $1.1 million in premises and fixed assets. The FDIC will retain the remaining assets for later disposition.

The FDIC estimates that the cost to its Deposit Insurance Fund will be between $33 million and $39 million. Monroe Bank & Trusts' acquisition of all deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to all alternatives because the expected losses to uninsured depositors were fully covered by the premium paid for the failed bank's franchise.

Main Street Bank is the first bank to be closed in Michigan since New Century Bank, Shelby Township, Michigan, on March 28, 2002. This year a total of fourteen FDIC-insured institutions have been closed.

And also:

Meridian Bank, Eldred, Illinois, was closed today by the Illinois Department of Financial Professional Regulation-Division of Banking, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC approved the assumption of all the deposits of Meridian Bank by National Bank, Hillsboro, Illinois.
...
Meridian Bank had total assets of $ 39.18 million in total assets and $ 36.88 million in total deposits as of September 25, 2008. National Bank will purchase approximately $7.55 million of Meridian's assets, and did not pay the FDIC a premium for the right to assume all of the failed bank's deposits. The FDIC will retain the remaining assets for later disposition.
...
The FDIC estimates that the cost to its Deposit Insurance Fund will be between $13 million and $14.5 million. National Banks' acquisition of all deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to all alternatives.

Meridian Bank is the first bank to be closed in Illinois since Universal FSB, Chicago, Illinois on June 27, 2002. This year a total of fifteen FDIC-insured institutions have been closed.

by Calculated Risk on 10/10/2008 04:31:00 PM

From Bloomberg: G-7 Meets on Crisis as Italy Splits Over `Weak' Draft

Finance ministers and central bankers from the Group of Seven nations met for crisis talks in Washington amid an unprecedented public split over what to say in their joint statement.

The draft communiqué under consideration is ``too weak'' and fails to reflect the gravity of the financial turmoil, Italian Finance Minister Giulio Tremonti told reporters in Washington before the talks began. ``We won't sign it.''

While Britain has pushed for a coordinated agreement to guarantee loans between banks, one official from a G-7 member said it was unlikely the G-7 would endorse their proposal. Two European officials said earlier that the group was considering saying that no systemically important bank would be allowed to fail, and laying out principles for all nations to follow.

The G-7 hopes to release a statement around 6 PM ET followed by comments from Secretary Paulson.

by Calculated Risk on 10/10/2008 02:28:00 PM

The TED spread (the difference between the LIBOR interest rate and the three month T-bill) has increased to a record 4.65 today. Completely off the recent charts! Here is the TED Spread from Bloomberg.

Here is a graph via Macroblog that shows a long term view of the TED spread (doesn't include the recent spike to 4.65).

There are a few earlier periods when the TED spread was higher than today (like during the '73-'75 recession).

But 4.65 is pretty close to the all time high.

And the following graph is the A2/P2 spread from the Fed's commercial paper report. The A2/P2 Spread hit 459 bp yesterday.

When the A2/P2 spread spiked to 160 last year that was considered shocking; now that spike looks minor.

Click on graph for larger image in new window.

This is the spread between high and low quality 30 day nonfinancial commercial paper.

These is still no relief in the credit markets.

by Calculated Risk on 10/10/2008 12:08:00 PM

From CNBC: Radical Measures May Be In The Wings

... Treasury Secretary Henry Paulson is prepared to take extraordinary steps through the extensive authority granted to him under emergency rescue legislation.

With the legislation’s main mechanism—an auction system to purchase bad mortgage-based securities—still weeks away from implementation, Paulson is now expediting plans to inject capital into banks, CNBC has learned.

According to senior government officials, the plan is to offer a term sheet, offering capital injections to all banks. An announcement won't happen for several days.

by Calculated Risk on 10/10/2008 11:28:00 AM

From the WSJ: Germany Considers Plan to Recapitalize Its Banks

Germany is working on a plan to prop up its major banks that could include taking government stakes and measures to guarantee banks' access to liquidity ... No final decision had been taken on Friday, but Chancellor Angela Merkel's government could take a decision on the plan and announce it as early as this weekend ...

The German plan could resemble the U.K. government's move to recapitalize major banks by taking government stakes ...