credit crisis

Three years later and still nothing has been learned

Submitted by on

Three years ago this past Saturday the economic crisis struck.

That's why the comments by Alan Greenspan on the very same day on Meet the Press are worth noting.

"There is no doubt that the federal funds rate can be fixed at what the Fed wants it to be but which the government has no control over is long-term interest rates and long-term interest rates are what make the economy move. And if this budget problem eventually merges to the point where it begins to become very toxic, it will be reflected in rising long-term interest rates, rising mortgage rates, lower housing. At the moment there is no sign of that because the financial system is broke and you can not have inflation if the financial system is not working."

UPDATE 5: NEWSFLASH: RTC/RFC proposal, also new FDIC for MMFs

This just in, Treasury Secretary Paulson now confirming that the government is pursuing a plan similar to what happened to the savings and loan.

While the exact details haven't been released. I will be updating this as more news comes out. For those who aren't aware of what a Resolution Trust Corporation or RTC is, basically it's an outfit that buys the bad loans from failing banks to supply capital. Well, it's a lot more complicated than that. I will be posting a primer on this tonight. Anyways, below is an excerpt from CNBC's site.

Treasury Secretary Henry Paulson is working on a plan that would set up a government facility to take on bad debts from financial institutions, preventing a worsening of the global credit crisis, Wall Street sources have told CNBC.

The facility would be similar to the Resolution Trust Corporation, which was set up in the late 1980s to take on all the failed thrift assets during the savings and loan crisis, these sources said.

Updated: NEWSFLASH: Gov't to offer "loan" to AIG

Not all the details have been released, so I will update this as new things come forth.
Bottom line, the government is going to offer American International Group (AIG) a bridge loan. The amount of the loan will be to the tune of $85 billion. In return, from what we know now, AIG will begin to sell assets ASAP to serve as collateral for the loan. Also, the company will grant the government Warrants.