Bailout
The Greek Bailout: Why I'm Mostly Bullish about the Eurozone
Last week's news that Eurozone GDP declined by 0.3% in the fourth quarter of 2011 set all the usual pundits moaning about the inevitable decline of Europe.
Even Andrew Roberts, a wonderful historian with whom I almost always agree, wrote in the Financial Times that "Europe's fire has gone out."
Today, the markets may welcome the Greek bailout deal, but behind the scenes they still dread the fact it won't work.
Meanwhile, hushed whispers are still being muttered about a Greek default as being "worse than Lehman."
On this subject I am a firm contrarian.
If Greece does default and is thrown out of the Eurozone, then I think Europe is actually due for a rebound – not a collapse.
It's only if they decide to bail out Greece again that I would become less optimistic.
If that is the case, they would be devoting hundreds of billions of taxpayer dollars (or euros, as it were) to propping up an inevitable failure. Even then, Greece is relatively small compared to the growth drivers in the Eurozone, which are strong.
The Problem with the Greek Bailout
What the Greek crisis has shown is that European leaders in Germany and Scandinavia have their heads properly screwed on, but they are not yet a majority of EU opinion.
The EU bureaucracy simply gave in far too easily to Greece's first demand for a bailout, then suggested further bailouts for the entire Mediterranean littoral, all of which had over-expanded their governments on the back of low interest rates in the first decade of the euro.
Now reality is returning rapidly to the discussion.
Taxpayers Ring Up $12.3 Billion Profit on Citigroup Bailout
The U.S. Treasury on Monday will complete the sale of warrants of Citigroup Inc. (NYSE: C), allowing it to realize a $12.3 billion profit from its bailout of the banking giant.
The United States will record a net $312.2 million from the sale of its final 465.1 million warrants to purchase common shares of Citigroup, the Treasury Department said Wednesday. Last year, Treasury sold its 34% stake in Citigroup common shares.
The warrant sale is the latest step in disposing of the bank's assets after the government lent the company $45 billion in Troubled Asset Relief Program (TARP) funds during the height of the financial crisis in 2008.
Irish Bailout Threatens to Reignite Euro Debt Crisis
Ireland's reeling banking system, and the government's reluctance to accept outside help, is threatening to reignite the European debt crisis that nearly led to the demise of the European Union (EU) and its currency last spring.
EU officials are trying to persuade Irish officials to shore up the country's devastated banking sector with a possible $100 billion (73.5 billion euros) aid package as Irish policymakers continue to insist that the financially troubled nation doesn't require a bailout.
Just six months after EU governments established a $1.02 trillion (750 billion euros) rescue fund with the International Monetary Fund (IMF) to backstop Greece and other troubled members of the 16-nation euro currency area, cracks are once again emerging in the group's financial infrastructure.
AIG and Government Looking to Accelerate Exit Strategy
Government officials are huddling with executives from American International Group Inc. (NYSE: AIG) to hatch a scheme to accelerate the company's plan to regain its independence and repay in full what the insurer owes U.S. taxpayers, according to a report from The Wall Street Journal.
Under the plan, the Treasury Department is likely to convert $49 billion of AIG preferred shares it holds into common shares, a move that could bring the government's ownership stake in AIG to above 90%, from 79.8% currently, The Journal reported, citing sources familiar with the matter.
The common shares would then be gradually sold off to private investors, a move that would reduce U.S. ownership and potentially earn the government a profit if the shares rise in value.
Cost to Fix Fannie Mae and Freddie Mac May Reach $1 Trillion
The cost to fix Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), the government-backed mortgage companies that bought or guaranteed three-quarters of all U.S. home loans last year, could run as high as $1 trillion, according to a report by Bloomberg News released yesterday (Tuesday).
The minimum amount required to keep them afloat will be $160 billion, or $15 billion more than they have already drawn from an unlimited line of government credit granted to keep the home mortgage market functioning. That exceeds the amount already spent on bailouts for American International Group Inc. (NYSE: AIG), General Motors Co. or Citigroup Inc. (NYSE: C).
"It is the mother of all bailouts," Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry told Bloomberg.
Fannie and Freddie own or guarantee 53% of the nation's $10.7 trillion in residential mortgages, according to a June 10 Federal Reserve report. Their books are loaded with millions of bad loans, and delinquencies are on the rise.
AIG Bailout Second-Guessed by Government Watchdog
A bipartisan Congressional watchdog panel reviewing the government's bailout of American International Group Inc. (NYSE: AIG) has raised doubts about whether U.S. taxpayers "will ever be repaid in full," and concluded that the U.S. Federal Reserve didn't act aggressively enough during the 2008 rescue.
In a lengthy report, the Congressional Oversight Panel also said the bailout had a "poisonous" effect on the U.S. financial system because it demonstrated the government would protect Wall Street firms from their own risk-taking.
The Federal Reserve could have acted earlier to find a privately funded solution for New York-based AIG before deciding on a rescue that transformed banks' financial bets into fully guaranteed government obligations, the panel said.
Banks and Investors Both Rattled by European Debt Concerns
European debt concerns continued to weigh on investor sentiment today (Thursday) as rumors circulated that the European Central Bank (ECB) was planning an intervention into the continent's banking sector.
The ECB is buying government bonds and increased its lending to banks, but that has done little to alleviate concern that the nearly-$1 trillion (750 billion euros) Eurozone bailout package announced last month won't be enough to prevent a collapse in the banking industry.
The ECB said on Monday that European banks will have to write off more loans this year than they did in 2009. The region's banks are expected to write off some $237 billion (195 billion euros) in bad debt by 2011.
Money Morning Mailbag: Wall Street Expects Money to Arbitrate Financial Reform
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Financial regulation overhaul cleared another hurdle last week when the Senate approved its financial reform bill. However, the inclusion of a derivatives trading restriction left Wall Street wondering why its political contributions weren't doing the talking.
The financial industry was surprised when a provision created by Sen. Blanche Lincoln, D-AR, requiring banks to spin off their derivatives trading arms remained in the Senate's proposal. Wall Street lobbyists are now reaching out to the members of the Senate and House conference committee who will reconcile the two bills. The Senate named its committee appointees Tuesday, which included Lincoln.
The Financial Services Roundtable, a lobbying group representing financial companies, has already started meeting with House members who it believes will be involved in the final process and could help cut the provision.
Investors See Caution Flags as Spain Bails Out Struggling Savings Banks
Spain's central bank has decided to bail out regional savings bank CajaSur with $621.75 million (500 million euros), causing investors to worry that Spain's savings banks are in more trouble than the country can handle.
Spain's savings banks drastically increased lending when the economy was booming, leaving them highly exposed to a precipitous decline in housing prices. The unlisted banks have granted about $341 billion (243 billion euros) in real estate/construction loans.
Now savings banks – often criticized for their lack of accountability – are refusing to price the mortgage-related assets on their books to accurately calculate their losses. Estimates put the banks' exposure as high as $408.4 billion (300 billion euros). The savings banks' ownership models make it difficult to raise money as they are controlled by local politicians and cannot easily sell shares.
Will the Financial Reform Bill Really Rein In Wall Street?
The Senate on Thursday approved an extensive financial reform bill that would give Washington broad new powers over Wall Street. However, there's still a question over whether the bill will really be able to rein in Wall Street, or if it will simply become another broken barrier tripping up the free market. The legislation is [...]
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