Two major stories on our economy are breaking late tonight, from the Wall Street Journal and Bloomberg Media, respectively: "
New Bank Bailout Could Cost $2 Trillion," and "
Fed Warns of Global Slowdown That Adds to U.S. Deflation Risk."
From the Wall Street Journal, "New Bank Bailout Could Cost $2 Trillion," it appears that President Obama's economic team may be seeking as much as $1 to $2 trillion additional dollars for its proposed "Bad Bank" in coming days, above and beyond the requested "T.A.R.P. II" funding now being ushered through Congress.
New Bank Bailout Could Cost $2 Trillion
By DEBORAH SOLOMON, DAVID ENRICH and JON HILSENRATH
WASHINGTON -- Government officials seeking to revamp the U.S. financial bailout have discussed spending another $1 trillion to $2 trillion to help restore banks to health, according to people familiar with the matter.
President Barack Obama's new administration is wrestling with how to stem the continuing loss of confidence in the financial system, as it divides up the remaining $350 billion from the $700 billion Troubled Asset Relief Program launched last fall. The potential size of rescue efforts being discussed suggests the administration may need to ask Congress for more funds. Some of the remaining $350 billion of TARP funds has already been earmarked for other efforts, including aid to auto makers and to homeowners facing foreclosure.
TARP Participants
--SNIP--
The administration, which could announce its plans within days, hasn't yet made a determination on the final shape of its new proposal, and the exact details could change. Among the issues officials are wrestling with: How to fix damaged financial institutions without ending up owning them.
The aim is to encourage banks to begin lending again and investors to put private capital back into financial institutions. The administration is expected to take a series of steps, including relieving banks of bad loans and distressed securities. The so-called "bad bank" that would buy these assets could be seeded with $100 billion to $200 billion from the TARP funds, with the rest of the money -- as much as $1 trillion to $2 trillion -- raised by selling government-backed debt or borrowing from the Federal Reserve.
The article continues on to mention the various options under discussion, while quoting Treasury Secretary Geithner's comments about "avoiding nationalizing banks, if possible."
Among the options under consideration:
--the government wants to avoid outright ownership of major banks, at least for any extended period of time;
--"the government may shift how it injects money into banks, choosing to buy common shares;"
--injecting cash into banks via the purchase of convertible bonds, giving the banks a chance to pay back the bonds as they improve their financial condition;
--insuring bank assets against further losses (much like the government's already done with Citigroup and Bank of America)
--creation of a "bad bank"
I can hear the Republican heads exploding already...maybe some Blue Dog Dems in that cacaphony, as well.
And, then there's this recap of a most interesting Federal Reserve meeting from late Thursday, just reported upon by Bloomberg Media late last night: "Fed Warns of Global Slowdown That Adds to U.S. Deflation Risk."
If you read the story, it sure looks and sounds like the Fed's concerns about deflation combined with their references to a very prolonged recession, complete with major decreases in our GDP, are all adding up to an overshadowing concern of matters morphing into a Depression.
Fed Warns of Global Slowdown That Adds to U.S. Deflation Risk
By Scott Lanman and Craig Torres
Jan. 29 (Bloomberg) -- Federal Reserve officials warned of a prolonged global economic slowdown that may push the U.S. to the brink of deflation.
For the first time during the credit crisis, the Federal Open Market Committee's statement yesterday indicated concern about the worldwide economy weakening "significantly," with "some risk" that inflation would remain below ideal rates. The Fed signaled it's moving closer to buying long-term Treasuries and expanding its $600 billion program to buy home-finance debt.
--SNIP--
`Gradual Recovery'
The Fed statement yesterday said its prediction of a "gradual recovery" in the U.S. economy later this year has "significant" risks of failing to materialize. At their meeting, central bank officials gave updated forecasts for gross domestic product, inflation and unemployment that will be released with meeting minutes on Feb. 18.
"It sounds like the worry is not so much recession as it is depression," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. "We can only hope that the famous long and variable lags of monetary policy will eventually kick in."
--SNIP--
`Pumping Credit'
--SNIP--
"They are doing everything they can to resist deflation," said David Resler, chief economist at Nomura Securities International Inc. in New York. "The risk they'll see deflation or very low inflation is a reality."
So, I guess when President Obama and Treasury Secretary Geithner warned us about the economy getting much worse, this was what they were thinking about.
Thursday should be a very interesting day in Washington, at least as far as our economy's concerned.
Now, if we could only figure out how to harness the rising blood pressure of those Herbert Hoover devotees still on the Hill, we might be able to solve a good portion of our energy crisis at the same time we work out the ills of our economy, too! How economically-minded is that for an idea?