Print Until They Run Out Of Ink Bail Out

[Mrs. Sharon B. Hodge]

WE GOT GOOD NEWS FOR YOU!!!

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US gets busy printing money
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Financial Post
Jacqueline Thorpe, Financial Post, With Files From Wires
Published: Thursday, September 18, 2008

http://www. financialpost. com/story. html?id=798161

The loan to AIG is the latest in a string of manoeuvrings by the U. S.
Federal Reserve

The U. S. Treasury cranked up its printing press yesterday to help the Federal Reserve extend an US$85-billion loan to American International Group Inc., the latest in hundreds and billions of dollars of government assistance that will undoubtedly end up in the lap of U. S.
taxpayers

But while anxiety is rising over the United States' ability to foot the gargantuan bill for the credit crisis, analysts say the US$14-trillion U. S.
economy should be able to absorb the shock

The key risk is the threat to inflation posed by the seemingly endless expansion of the government's balance sheet if several more financial institutions go belly up

"Clearly this will widen the deficit by quite a bit," Nariman Behravesh, chief economist of Global Insight, said at a presentation in Toronto yesterday

"But let's be honest, the U. S.
is a very, very rich country"

The U. S.
Treasury swung into action yesterday, selling US$40-billion of cash-management bills to transfer to help cover the Fed's loan to AIG

The borrowing is separate from the Treasury's ongoing borrowing program and marks a departure from the Fed's strategy thus far of taking private debt in exchange for treasuries.
John Chambers, chairman of Standard & Poor's sovereign ratings committee, said the rescue weakened the fiscal profile of the United States and put pressure on its AAA credit rating

"There's no God-given gift of a 'AAA' rating, and the U. S. has to earn it like everyone else," Mr.
Chambers told Reuters in an interview, though S&P reaffirmed the rating yesterday

The loan to AIG is only the latest in a string of manoeuvrings by the Fed and the Treasury to ward off financial disaster. The Fed has already announced it will inject up to US$200-billion into mortgage agencies Fannie Mae and Freddie Mac; it has taken on at least US$200-billion of loans to banks through its term auction facility and extended US$29-billion in financing for JP Morgan Chase's buyout of Bear Stearns & Co.
On the fiscal stimulus side, the government has doled out US$168-billion in stimulus cheques, given US$300-billion to help refinance failing mortgages and US$4-billion in grants to local communities to help them buy up abandoned homes

The government has also assumed control of Fannie and Freddie, exposing it to some US$3-trillion in outstanding mortgage debt and will take a 79.9% stake in AIG in return for the loan. The numbers are undoubtedly huge but there are caveats.
Fannie and Freddie have huge liabilities but they also have huge assets

In the case of AIG, the US$85-billion is a loan, at a punitively high interest rate. While AIG had liabilities of close to US$1-trillion at its latest accounting -- mainly in the form of benefits due to policyholders and long-term borrowings --it too has assets of about US$1-trillion, which should also be added to the government's balance sheet, Capital Economics said in a note. All in, Mr.
Behravesh expects global subprime losses to total up to US$650-billion, of which US$475-billion will be in the United States

While the federal deficit may well head toward US$600-billion from a projected US$407-billion this year, as a percentage of GDP losses should still only come in around 3.3%. Still, the question is how many more skeletons there may be in the cupboard. "We don't know how many bailouts are ahead of us," said Alex Jurshevski, CEO of Recovery Partners, a risk management advisory.
"There are several that are high probability and there are many, many more that are a non-trivial probability"

So far, though, the market seems to be putting faith in the government's ability to eventually pay up, as the safe-haven rush into U. S. treasuries yesterday proved. Three-month T-bill yields sank to just 0.023%, the lowest since daily data began in 1954, according to Bloomberg News. Sherry Cooper, chief economist at BMO Capital Markets, said the U. S. government's bailout strategy will work until foreign investors turn tail. "It's all about whether the world can continue to finance the U. S. deficit," she said.
"And there has been a flight to quality into treasuries, so right now it's cheaper than ever for the treasury to cover all this and that will be the case until it isn't"

ReutersBIG BAILOUTS

The total tab for rescues and special loan facilities this year by the U. S. government and Federal Reserve Board has passed US$900-billion: - US$200-billion for Fannie Mae and Freddie Mac. - US$300-billion for the Federal Housing Administration to refinance failing mortgage into new, reduced-principal loans with a federal guarantee, passed as part of a housing rescue bill. - US$4-billion in grants to local communities to help them buy and repair homes abandoned due to mortgage foreclosures. - US$85-billion loan for AIG, which would give the Federal government a 79.9% stake and avoid a bankruptcy filing for the embattled insurer. - At least US$87-billion in repayments to JPMorgan Chase & Co. for providing financing to underpin trades with units of bankrupt Lehman Brothers . - US$29-billion in financing for JPMorgan Chase's government-brokered buyout of Bear Stearns & Co. in March.
- At least US$200-billion of currently outstanding loans to banks issued through the Fed's Term Auction Facility, which was recently expanded to allow for longer loans of 84 days alongside the previous 28-day credits.