It is astounding the differences that you can find in opinion regarding this bailout. Often those differences are shown in the news sources and the target audience thereof.

Here are examples A and B:

The American Institute of Economic research gives a reasoned and balanced assessment of bailing out big auto and why we shouldn’t. Read it at: Bailing Out Big Auto is a Bad Idea.

Meanwhile, the Chicago Tribune is pleading that we should bail out the auto industry. Here is their plea bargin here: Carmakers Should Get Their Share of Bailout.
Amazing the difference in ideas propelled by institutions with different audiences.

Now that Fannie Mae is owned by the U.S. government as part of the FHFA, the bailouts will probably never stop for them. Failing government programs tend to have long shelf lives.

Fannie Mae, the troubled US mortgage finance giant, has said that the $100 billion bailout it recieved from the US government may not be enough to keep it solvent.

The company issued the warning after posting a $29 billion profit loss in its third financial quarter on Monday.

…

“If current trends in the housing and financial markets continue or worsen, and we have a significant net loss in the fourth quarter of 2008, we may have a negative net worth as of December 31, 2008,” it added.

(Full article here)

So What Now for Fannie Mae?

Since Fannie Mae has been propped up as an essential backbone to this economy, there will very likely be another round of funding coming out of the federal budget. Prior to September of this year, FNMA was not backed by any sort of federal guarantee. They rose to through the ranks of financial institutions simply based on the belief that the federal government would not let them fail.

Now that Fannie Mae is on the verge of failure, the taxpayers finally “own” the company. In order to back this agency, the Congress had to raise the deficit spending ceiling to $800 billion. Now, after the additional bailouts across the sector, the deficit ceiling is well over a trillion dollars. It’s a good thing we set these “ceilings” in Congress, since every time they need more money, it’s just a simple addendum to “bump” the ceiling a little higher.

Any thoughts on where our “ceiling” will go to next?

The Wall Street Journal is reporting that GM is in talks to expand its Chinese operations, fresh on the heels of the multi-billion dollar bailout by the U.S. government.

General Motors Corp., which is lobbying for a bailout from the U.S. government, is in talks to increase its stake in a Chinese joint venture that makes small, inexpensive cars and vans, people familiar with the situation said.

(Full article here – subscription required)

I sincerely doubt that this is what the U.S. politicians had in mind when they lobbied for the first bailout.

Now, to be fair, GM is a multi-national private corporation. So, however GM decides to spend its money to stay afloat is completely up to them (and their various agreements with other companies and unions). But, now that they are expecting the U.S. taxpayers to foot the bill for their business ventures, it seems awfully arrogant of them to take away more jobs from an already faltering U.S. economy.

Thank you, Washington. You’ve truly shown your brilliant economic knowledge is far superior to the outraged citizens who were overwhelmingly against all of these bailouts.

Why is this type of logic in the minority these days?

Michael Geoghegan has sprung to the defence of HSBC suggesting that the company’s more conservative lending policies over the years have now proved to be perfect with HSBC relatively untouched in balance sheet terms from the ongoing worldwide slowdown. He also suggested that the UK government’s £37 billion bailout package will encourage banks to return to more risky lending operations in due course as they now have the added backup of government assistance.

(Full article here)

Strange… A company that makes wise decisions with its money, plans appropriately, and doesn’t bet their future on extraordinary risks… I wonder why they are still prosperous?

This political mentality of rewarding those companies who fail needs to stop. It is an immoral and corrupt system doomed to failure. Congratulations, HSBC, on your fiscal responsibility and smart investments.

This is a debate between Jonathan Hoenig from CapitalistPig.com and Brian Fredline from the UAW about the auto industry’s latest bailout proposal. Probably the funniest part is when Mr. Hoenig calls GM a “Ponzi scheme”.

In a record bailout of a private company, the government on Monday provided a new $150 billion financial-rescue package to troubled insurance giant American International Group, including $40 billion for partial ownership.

Read the rest here.

An employee from Bloomberg News contacted me to follow up on the whole story regarding their lawsuit against the Federal Reserve. He sent this link for the full story:

The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn’t require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.

“The collateral is not being adequately disclosed, and that’s a big problem,” said Dan Fuss, vice chairman of Boston- based Loomis Sayles & Co., where he co-manages $17 billion in bonds. “In a liquid market, this wouldn’t matter, but we’re not. The market is very nervous and very thin.”

Bloomberg News has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.

Please go to Bloomberg’s site and read the whole article, as it is definitely enlightening and shows how non-transparent the Federal Reserve is being. Even if the Federal Reserve is being 100% honest and corruption-free, establishing a baseline of transparency needs to be a priority. If the next person who takes over at that position knows that they can do whatever they want, we are just asking to be ripped off [even more].

I fully support Bloomberg’s decision in suing the Federal Reserve.

Our European friends aren’t immune to corporate fraud either, it seems. Shouldn’t this be a lesson to all of us that handing out public money to private corporations (especially with no strings attached) is simply a recipe for failure and public outrage?

The Royal Bank of Scotland has blown £300,000 on a secret champagne junket for executives – less than a month after being given a £20billion handout by the taxpayer.

Bankers and their partners enjoyed the lavish party to mark their ‘success’ after a year in which the collapse of the banking industry led to global financial meltdown.

The supposedly stricken bank laid on the celebration amid extraordinary secrecy to try to prevent details reaching the public, even cancelling the original venue, a top hotel in Hampshire, and transferring the party 350 miles north to Edinburgh.

…

Last night an RBS spokesman said: ‘This was an entirely appropriate staff event to recognise outstanding performance by a small number of our staff.’

The spokesman would not be drawn on the cost of the cancelled booking at Chewton Glen. The previous night 300 executives-from another bank, HBOS – bailed out with £11.5billion of public cash – enjoyed a £330,000 party at an Edinburgh hotel.

Read the full article here.

Remember the “profit” that the taxpayers were supposed to make off of AIG’s bailout loan? This was because the government was charging a decently high interest rate and AIG had to pay that interest on the entire loan amount of $85 billion instead of taking the loan in installments.

Well, two things went wrong… 1) Within weeks, we increased the size of their loan by another $37 billion. 2) They are now renegotiating the terms with us to give them a more favorable interest rate…

Remember your first mortgage? How do you think your bank would have responded if you walked in a month after closing and said, “Hey… I’m having trouble repaying this loan you just gave me… How do you feel about dropping my interest rate and maybe doubling how long I have to pay this back? Here, I’ll give you some of my worthless paper as ‘collateral’.”

For some reason, the taxpayers have just unwittingly become a pushover banking institution. Welcome to the USSA, comrades…

The initial credit line has a two-year term, carrying a steep interest rate. AIG also had to grant the government warrants for a nearly 80 percent stake in the company.

As of November 5, the insurer owed $81.2 billion — $61.3 billion under the $85 billion credit facility, and $19.9 billion under a subsequent $37.8 billion securities lending agreement.

The terms being discussed include a reduction in the interest rate and increasing the term of the existing loan, which could be extended to five years, the source said. Currently the loan carries an interest rate of 8.5 percent over the London Interbank Offered Rate, which sets the cost of borrowing between banks.

An equity injection through preferred shares may also come with a reduction in the size of the $85 billion facility, the source said.

(Read the full Reuters article here)

The Wall Street Journal is reporting that the Democratic leadership is pushing hard for more auto industry bailouts (which we reported on earlier).

The question I always ask whenever a politician is pushing for a bill is who “owns” the politician. Speaker Pelosi’s 2nd largest campaign funding source is from labor unions, including the AFL-CIO (source).

Senator Reid has received millions from the transportation, labor, and finance industries over the years (source), and one of the largest segments of General Motors is GMAC, which is a financial entity that makes loans and mortgages.

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid sent to send a letter to Treasury Secretary Henry Paulson urging him to assist the Big Three auto makers by considering broadening the $700 billion Troubled Asset Relief Program to help the troubled industry.

The two top Democratic leaders in Congress are likely to make the request in a letter to the White House, which could be forwarded as soon as Saturday afternoon, said individuals familiar with the matter. President-elect Barack Obama is generally supportive of the appeal, but at the moment is moving on his own track to assist the industry, these individuals said.

Mr. Obama is scheduled to meet with President George W. Bush at the White House Monday.

The White House has been reluctant to broaden use of the $700 billion program, which was created by Congress just ahead of the election to deal improve credit flows and calm turmoil in financial markets incited by the downturn in the housing economy.

“It was not set up for anything else,” said Bush spokesman Tony Fratto, noting the only assistance authorized by Congress for the auto industry is a $25 billion loan package meant to help the industry retool to meet higher fuel economy standards.

(Read the rest of the article here)

Aren’t you glad that political bribery pays well?