The Prevention, of The Collapse of The U. S. Financial Markets When Fannie Mae and Freddie Mac, came tumbling down the hill, very close to the bottom, like Jack and Jill, the Federal Reserve, thought it very prudent, to step in and try to cushion the fall, by pumping liquidity into two of the largest mortgage backers, in the country. The Federal Government took over, rid the companies of their CEO's, replaced them, and began a process of stabilization. The sub-prime mortgage crisis was creating, very bad problems, and was effecting many, many firms. Then Lehman Brother's, in real trouble financially, had to quickly go searching, for a “white knight”, to rescue the company. Those who reviewed the company books, said thanks, but no thanks, to coin a phrase. No other company, wanted to go out on a limb, and help to rescue the firm. The alternative was that Lehman Brother's was forced to file Chapter 11, bankruptcy papers.
AIG, another huge company, who backs up the firms, who have to write down mortgages which default, with insurance, was on the edge of filing bankruptcy. They needed a bridge loan to continue with their operations, the Federal Reserve reluctantly stepped in to help the company stay afloat. The loan was granted, because, to not grant the loan would have been devastating to the markets.
Washington Mutual, the largest Savings and Loan, in the United States, whose stock fell to forty-eight cents per share, in the past week, found itself on the verge of bankruptcy as well. The company was taken over by J. P. Morgan Chase, shareholders lost everything. Many offices will be closed and many employees will probably be laid off.
At this moment, another large bank, Wachovia, is in preliminary talks with Wells Fargo, Citi-group, and a Spanish bank, for a possible merger. Wachovia's stock price has fallen, to ten dollars a share.
The wheels came off of giant corporations, in a time period of a few months. This has culminated, in the last week or so, to a point where the Federal Reserve and the FDIC, could see that there might be a collapse of the entire financial structure, in the United States, which would ultimately affect global markets as well.
Up to the Hill, the Federal Reserve Chairman and the Secretary of the Treasury went, information in hand, explaining that, the country was on the verge of a total collapse, of the financial markets, unless there was a huge infusion of liquidity into the system. The plan they had, was that a seven hundred dollar bailout plan, be approved, which included funds to purchase defaulted, sub-prime mortgages, which were bogging down the large banks and mortgage companies, which in turn shut down the cash flow to borrowers, and lowered the credit status of the banks, causing them not to be able to borrow money.
In fact, during the past week, banks stopped lending over-night funds to other banks, based on the idea that the Federal Reserve might not come to their rescue. In effect causing a credit freeze. The lawmakers in the House and the Senate, wrestled with the three page document submitted to them by the White House, along with the Secretary of the Treasury and Federal Reserve Chairman.
After meeting with Fed Chairman Bernanke and Secretary of the Treasury Paulson, the lawmakers on the Hill realized they were indeed dealing with a major crisis, and set out to review and revise the three page plan given to them to pass, in order to deal with the impending financial crisis.
They announced a tentative deal on one day and it fell apart the next day. They went back to the table, bringing along the “Young Turks” as some of the Republicans in the House, are called, who were not in agreement with the tentative plan.
As of today, Sunday, there appears to be an agreement, which includes some of the provisions requested by the House Republicans and most of the original points required by the Democrats and Senator Obama. The bill will be posted on the internet, for review, one place to find the text, would be CNN money.com, should you wish to read it. Now the whipping will come into play, to bring as many Representatives and Senators, along, as the leaders can, to vote for, and pass the bill. There is not an assurance that the bill will pass. After two days and nights of trying to get a passable bill, Speaker Pelosi has inferred that the particulars of the bill, are now closed.
The final points included in the bill are:
Seven Billion dollars - total package
Two Hundred and Fifty Billion dollars- first installment
The President will release the second installment of One Hundred Billion dollars.
The final Three Hundred and Fifty Billion dollars, will have to be approved by Congress for release, after review Curbs will be placed on executive pay for some firms Oversight Board will be put in place An insurance component will be included Individuals with foreclosed properties, will be able to renegotiate their rates, and possibly stay in their homes The agreement is now one-hundred and ten pages, there will be a review of the agreement, by those House members and Senators, and we will see if the bill passes.
Senator's Obama and McCain, are said to be cautiously backing the bill. Some lawmakers do not think anything will happen, but the trouble is, many negative things are already happening.
My question would be, with the value of the dollar so low, and the devalued credit worthiness of the United States' financial system, in play, what country will be interested in holding, United States' Treasury Bills and Bonds? The financial unraveling of the U. S. markets, may be a perceived crisis, already too late to be contained.
