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Official U.S. Bailout Thread

Start listing them here folks because there's going to be lots...

Here's a new one - Americans are going to be paying American Express, twice!

That's right, American Express just filed (and got approval from the Federal Reserve) to become a bank so that they can qualify for the government handout.
I'm actually furious for you guys down there!
(I have NO love for credit card companies)

quote:

American Express Wins Federal Reserve Approval to Become Bank By Ari Levy and Scott Lanman Nov. 11 (Bloomberg) -- American Express Co. won Federal Reserve approval to become a commercial bank, gaining access to funds as credit losses build and sales of asset-backed bonds plummet. The Fed waived a 30-day waiting period on the application ``in light of the unusual and exigent circumstances affecting the financial markets,'' according to a statement released yesterday in Washington. Chairman Ben S. Bernanke and his colleagues unanimously voted for the action. Credit-card holders failed to repay loans in the third quarter at almost twice the rate of a year earlier, New York- based American Express said last month. With defaults rising along with the unemployment rate, October marked the first month since 1993 that card companies were unable to sell bonds backed by customer payments. ``That business has totally dried up,'' said Frederic Dickson, who helps oversee about $20 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. ``If I were a shareholder, it wouldn't send a very warm and fuzzy message to me,'' he said in a phone interview. American Express, the largest U.S. credit-card company by purchases, joins former investment banks Goldman Sachs Group Inc. and Morgan Stanley, which were allowed by the Fed in September to become commercial banks. The company said the conversion won't require any ``significant divestitures.'' American Express fell $1.33, or 5.3 percent, to $23.98 yesterday on the New York Stock Exchange. It has tumbled 54 percent this year, the fourth-biggest decline in the Dow Jones Industrial Average. Company's Assets American Express has total consolidated assets of about $127 billion, the Fed said. The company already owns two bank units: American Express Centurion Bank, which operated as an industrial loan company under Federal Deposit Insurance Corp. supervision, and American Express Bank, which was regulated by the Office of Thrift Supervision. Each has assets of about $25 billion and controls deposits of about $7.2 billion, the Fed said. Centurion is being converted to a bank, the Fed order said. ``It puts them in a better position to shift activities to the bank and to gain additional resources through use of the Fed's discount window,'' said Gil Schwartz, a former Fed counsel and now a partner at law firm Schwartz & Ballen in Washington. In an Oct. 6 filing, American Express said that its bank units have access to the Fed's discount window and the company already had enough cash to last more than a year. Profit Is Declining The company has posted four straight quarterly profit declines and lost about half its market value this year as it set aside more funds for soured credit-card debt. American Express makes loans to consumers, exposing it to defaults fueled by more than 700,000 U.S. job losses this year, unlike Visa Inc., which just processes payments and said yesterday that quarterly adjusted profit doubled to $448 million. ``Given the continued volatility in the financial markets, we want to be best positioned to take advantage of the various programs the federal government has introduced,'' Chief Executive Officer Kenneth Chenault said in a statement. ``We will continue to build a larger deposit base to broaden our funding sources.'' American Express used the Fed's commercial paper facility for the first time on Oct. 29, joining a growing list of borrowers that have sold tens of billions of dollars of the short-term debt to the central bank as credit became more difficult to obtain. The move to become a commercial bank comes almost 15 years after American Express spun off investment bank Lehman Brothers Holdings Inc. to investors. American Express got into the brokerage business in the 1980s with acquisitions, including the purchase of Lehman Brothers Kuhn Loeb in 1984. Amid losses that stretched into the 1990s, the company shed its investment-banking operations.

>>Source<<

im no expert, but that sounds fucked.

A credit card company now becoming a bank? How many ways can a debtor be milked of interest?

quote:

Originally posted by Krypton A credit card company now becoming a bank? How many ways can a debtor be milked of interest?

Apparently more than once, and yes pkcRAISTLIN it's fucked indeed.

quote:

Originally posted by Krypton A credit card company now becoming a bank? How many ways can a debtor be milked of interest?

Maybe I'm missing something because I skimmed, but aren't most of the other credit cards already banks? The only other that I can think of that is similar (and I'm not even sure of this one) is Discover. They're not a processor like Visa or Mastercard and have always been exposed to losses from default. When someone defaults on a Visa or MC, JPM, Citi, BoA, Capital One, etc. takes the hit, and all of them are major banks.

Personally, I've never like Am Ex's business model and never understood why it's so successful. I guess it's great for business when you might need a really high line of credit for certain expenses, but I've never been interested in carrying them in my wallet.

To be honest, the biggest deal with this to me is that it took this long to announce after they'd taken from the Fed window. Shouldn't investors have been alerted to this major shift in the business plan a little sooner than 2 weeks after it'd happened?

You might want to add to that list the auto companies. This will be interesting to see.

In other news Fed refuses to identify over $2 trillion in bank loans

Yep..$2 trillion created out of thin air and lent out to God knows who..

Maybe that Ron Paul fella was onto something.

Who thinks the auto industry should receive a bailout? If so, why (and not just because it's cool or because everyone else is doing it)

quote:

Obama Asks Bush to Provide Help for Automakers By JACKIE CALMES WASHINGTON � The struggling auto industry was thrust into the middle of a political standoff between the White House and Democrats on Monday as President-elect Barack Obama urged President Bush in a meeting at the White House to support immediate emergency aid. Mr. Bush indicated at the meeting that he might support some aid and a broader economic stimulus package if Mr. Obama and Congressional Democrats dropped their opposition to a free-trade agreement with Colombia, a measure for which Mr. Bush has long fought, people familiar with the discussion said. The Bush administration, which has presided over a major intervention in the financial industry, has balked at allowing the automakers to tap into the $700 billion bailout fund, despite warnings last week that General Motors might not survive the year. Mr. Obama and Congressional Democratic leaders say the bailout law authorizes the administration to extend assistance. Mr. Obama went into his post-election meeting with Mr. Bush on Monday primed to urge him to support emergency aid to the auto industry, advisers to Mr. Obama said. But Democrats also indicate that neither Mr. Obama nor Congressional leaders are inclined to concede the Colombia pact to Mr. Bush, and may decide to wait until Mr. Obama assumes power on Jan. 20. Separate from his differences with Mr. Bush, Mr. Obama has signaled to the automakers and the unions that his support for short-term aid now, and long-term assistance once he takes office, is contingent on their willingness to agree to transform their industry to make cleaner, more energy-efficient vehicles. A week after Mr. Obama�s election, and more than two months before he takes office, the steadily weakening economy and the prospect of many more job losses are testing his effort to remain aloof from the nation�s business on the argument that �we only have one president at a time.� As the auto industry reels, rarely has an issue so quickly illustrated the differences from one White House occupant to the next. How Mr. Obama responds to the industry�s dire straits will indicate how much government intervention in the private sector he is willing to tolerate. It will also offer hints of how he will approach his job under pressure, testing the limits of his conciliation toward the opposition party and his willingness to stand up to the interest groups in his own. G.M.�s shares tumbled on Monday to 1946 prices, closing down 23 percent to $3.36, as analysts downgraded the stock on worries it would soon run out of cash and shareholders would be wiped out by any federal bailout. Mr. Obama has been far more receptive than Mr. Bush to having the government intervene to rescue another major sector of the economy. He called automakers �the backbone of American manufacturing� in his first post-election press conference last Friday, and many thousands of their employees belong to unions that are part of the Democratic Party�s base. But Mr. Obama�s stance raises the question, with the country in a worsening economic situation, where would the Democrat draw the line as president? Mr. Bush has drawn his line at the automakers� doors, having already been forced to shelve the free-market principles of his Republican Party to bail out the financial industry over the past two months. But Republicans say he would acquiesce in aid to automakers in return for Congress�s ratification of the Colombia pact and pending trade agreements with Panama and South Korea. The outgoing and incoming presidents met at the White House in private, without staff. The Democratic leaders in Congress, the speaker of the House, Nancy Pelosi, and the Senate majority leader, Harry Reid, have declined to call a lame-duck session for next week, as they had hoped, without assurance that Mr. Bush would support a stimulus package. Mr. Obama has called on the Bush administration to accelerate $25 billion in federal loans provided by a recent law specifically to help automakers retool. Late in his campaign, Mr. Obama proposed doubling that to $50 billion. But industry supporters say the automakers, squeezed both by the unavailability of credit and depressed sales, need unrestricted cash now, simply to meet payroll and other expenses. On Friday, Mr. Obama said he would instruct his economic team, once he chooses it, to devise a long-range plan for helping the auto industry recover in a way that is part of an energy and environmental policy to reduce reliance on foreign oil and address climate change. While Mr. Obama campaigned on a promise of bipartisan conciliation, his choice for his White House chief of staff, Representative Rahm Emanuel, indicated on Sunday that no such deal linking auto-industry aid and a stimulus package with trade pacts was in the cards. �You don�t link those essential needs to some other trade deal,� Mr. Emanuel said on ABC�s �This Week.� Democrats close to both Mr. Obama�s transition team and to Congressional leaders seemed willing to call Mr. Bush�s bluff, calculating that he would not want to gamble that G.M. � an iconic, century-old American corporation with business tentacles in every state � would fail on his watch and add to the negative notes of his legacy. Also, economists as conservative as Martin Feldstein, an adviser to a long line of Republican presidents and candidates, have called more broadly for stimulus spending of up to $300 billion. The major automakers � G.M., Ford and Chrysler � are each using up their cash at unsustainable rates. The Center for Automotive Research, which is based in Michigan and supported by the industry, released on Election Day an economic analysis of the impact of one or all of them failing. If the Big Three were to collapse, it said, that would cost at least three million jobs, counting autoworkers, suppliers and other businesses dependent on the companies, down to the hot-dog vendors and bartenders next door to their plants. The center also concluded that the cost to local, state and federal governments would reach to as much as $156.4 billion over three years in lost taxes and higher outlays for things like unemployment and health care assistance. Separately, some economists say the demise of even one of the automakers could tip the current recession toward a depression. For Mr. Bush, however, the hard-line approach is his only leverage to make the trade agreements part of his legacy. The Colombia deal, especially, is strongly opposed by organized labor groups, which are a major force in the Democratic Party, and by human-rights activists. In the Senate and during his nomination race against Senator Hillary Rodham Clinton, Democrat of New York, Mr. Obama opposed the pacts and especially the Colombia agreement, given that country�s reported human rights abuses against unionists. He insists he favors free trade, but only if trading partners agree to protections for their workers and the environment � reflecting the standard Democratic Party line since President Bill Clinton�s administration. On his campaign Web site, Mr. Obama said he would oppose the Colombia pact �if President Bush insists on sending it to Congress because the violence against unions in Colombia would make a mockery of the very labor protections that we have insisted be included in these kinds of agreements.� Organized labor is not the only interest group with influence in the Democratic Party that is weighing in as Mr. Obama plans his transition. Environmentalists are adamant that any aid be conditioned on the auto industry�s dropping of its opposition to higher fuel-efficiency standards and investing more in new technology. That puts them at odds with unions, who oppose any strings, leaving it to Mr. Obama to mediate. Both as a candidate and now as president-elect, Mr. Obama has been in contact with former Vice President Al Gore, who last year won the Nobel Peace Prize for his work on climate change. In a column published in Sunday�s New York Times, Mr. Gore wrote that �we should help America�s automobile industry (not only the Big Three but the innovative new start-up companies as well) to convert quickly to plug-in hybrids that can run on the renewable electricity that will be available.� Mr. Obama has said that he wants to meet with the Big Three auto executives, but advisers say no meeting is scheduled. Among his advisers who have communicated with the industry chiefs and their representatives are Jason Furman, the Obama campaign�s economic policy director; John D. Podesta, the head of Mr. Obama�s transition; and former Treasury Secretary Lawrence H. Summers, an Obama adviser who is under consideration to be Treasury secretary again.

quote:

Originally posted by Groundhog Boy Maybe I'm missing something because I skimmed, but aren't most of the other credit cards already banks? The only other that I can think of that is similar (and I'm not even sure of this one) is Discover. They're not a processor like Visa or Mastercard and have always been exposed to losses from default. When someone defaults on a Visa or MC, JPM, Citi, BoA, Capital One, etc. takes the hit, and all of them are major banks.

Discover has credit risk and doesn't own a bank that I'm aware of. Capital One bought Southcoast bank a couple of years ago. I think conventional wisdom has been that banks often have card divisions, but a card company doesn't just up and become a bank (Capital One aside, they bought Southcoast to give them access to low cost deposits for funding). I'm not sure what Amex's plans are to start up some sort of depository.

Nothing better than rewarding failure. If the auto industries need a bailout, then they need to surrender their equity and the executive management needs to be completely replaced.

quote:

Originally posted by Shakka Who thinks the auto industry should receive a bailout? If so, why (and not just because it's cool or because everyone else is doing it)

the only problem with allowing auto manufacturers to go out of business is that the pieces will be picked up by PE firms that will sell off the parts to foreign manufacturers, leaving the US without a significant presence. The auto industry in the US supports so many jobs (e.g., parts manufacturing, natural resource extraction, electronics, etc...). Unfortunately, I think we should extend some sort of credit line to the company (in exchange for preferred equity interests with soft management oversight).

quote:

Originally posted by jerZ07002 the only problem with allowing auto manufacturers to go out of business is that the pieces will be picked up by PE firms that will sell off the parts to foreign manufacturers, leaving the US without a significant presence. The auto industry in the US supports so many jobs (e.g., parts manufacturing, natural resource extraction, electronics, etc...). Unfortunately, I think we should extend some sort of credit line to the company (in exchange for preferred equity interests with soft management oversight).

jerZ07002 is right - the spinoffs from this industry are massive and will even have a huge impact here in Canada (at least here in Ontario were a lot of the manufacturers are)...

That's it, lets incorporate TA into a bank and stick our hand out!
We'll be sure to include in the fine print that Swamper & mods get a no golden parachute clause though...

yeah Amex could have done this before, most credit cards are issues by banks anyway, it just didn't make financial sense for them to be chartered as a bank prior to all the financial trouble. it sucks a lot of companies are switching to bank status like goldmannnnnnn. mark to market accounting is sort of the problem because securities needed to be priced daily and that is reflected in balance sheets and margin calls, and then all yo cash goes out the window

the bailout is such a crap shoot. bail out lehman but not bear stearns? now we're probably going to send more money to ford and GM too. sickkkkkk. nancy pelosi you are so hotttt. obama better stand strong when he gets into office. why don't they just retool their factories to make subway cars or buses for our cities

quote:

Originally posted by Capitalizt Yep..$2 trillion created out of thin air and lent out to God knows who..

all money is created out of thin air you asshat.

quote:

Originally posted by pkcRAISTLIN all money is created out of thin air you asshat.

Also, gold/silver only have value because we believe they do, just as we believe a dollar has value. If a dollar had no value, then you wouldn't be able to exchange gold for dollars.

uh huh... so....

i have an idea: how about we create an international currency to price oil (and other commodities, maybe...but certainly oil)? currency would then take on a 'real' value

quote:

Originally posted by diesel_tron3000 i have an idea: how about we create an international currency to price oil (and other commodities, maybe...but certainly oil)? currency would then take on a 'real' value

currency already has a 'real' value. its value is determined by the market.

Re: Official U.S. Bailout Thread

quote:

Originally posted by Fir3start3r Start listing them here folks because there's going to be lots... Here's a new one - Americans are going to be paying American Express, twice! That's right, American Express just filed (and got approval from the Federal Reserve) to become a bank so that they can qualify for the government handout.

Good thinking starting this thread, I've been meaning to keep track of who's tapping uncle sam but I've been to busy.

quote:

I'm actually furious for you guys down there! (I have NO love for credit card companies)

+1

About as ethical as cigarett companies.

Re: Re: Official U.S. Bailout Thread

quote:

Originally posted by atbell +1 About as ethical as cigarett companies.

Why? Because both allow people to engage in excess risk that everyone should be able to manage, but doesn't? How about Miller-Coors or InBev?

I'm sorry, but I've about had it with hearing about evil, predatory banks that lent money to those that asked for it, whether it was for a home or the $20k in credit card debt that they racked up buying HD TVs, PS3s and iPhones (note, Comscore has said that the $25-50K crowd has increased their iPhone contracts by 48% since June). And now it's all the banks' fault?

Edited to make sense...

Re: Re: Re: Official U.S. Bailout Thread

quote:

Originally posted by Groundhog Boy And now it's all the banks' fault?

A distinct lack of self discipline and sense of entitlement in 1st world countries has come to a crux at least, maybe that's a good thing as the last true depression has left mostly living memory and people need to be reminded that the only one who will look after themselves, is themselves.

Oh it will hurt.
People will hurt more than they have in 3 generations but frankly a dose of pain is the only way it will sink in as the worlds 'finest' education systems, social support and all the comparatively cheap, readily available sources of information and media have been ignored.

There is a couple of good reason why big industries get bailed out.
Mostly it is because of the employment base they, themselves support and will wipe out very large areas of middle classes, secondary industries that are associated with the industry.
The fallout of a large industry collapse is huge, everyone gets it in the neck in some form or another.
There is also some confidence and show of face that needs to be made to support what is there and functioning because if everyone grabs their bucket and starts bailing, the bomb there is just as big.

If you're looking for justice for the 'idiots' that caused this, chances are you can probably find a contributing one nearby or the seat you're sitting in as he/she aren't all conveniently in the board rooms of big business.

quote:

Originally posted by Shakka Discover has credit risk and doesn't own a bank that I'm aware of.

Discover used to be a subsidiary of Morgan Stanley

quote:

Capital One bought Southcoast bank a couple of years ago. I think conventional wisdom has been that banks often have card divisions, but a card company doesn't just up and become a bank (Capital One aside, they bought Southcoast to give them access to low cost deposits for funding). I'm not sure what Amex's plans are to start up some sort of depository.

Yes most other card issuers are banks. Visa and Mastercard are simply payment processors. So when one is talking about credit card issuers they need to differentiate between issuers that are actually extending credit (banks, amex, discover, et al) and those that are simply payment processors (visa and mastercard). Amex is more like a bank than people realize. The reason why we (amex) became a bank holding company is because we're extremely conservative as a company. And it kinda makes sense to be risk adverse in this environment. We've tapped the fed CP short term auction facility to fund our business (when we could have sustained operations for a year even if the credit markets COMPLETELY seized up), and we're converting to a bank holding company to take advantage of TARP if we need to. As an additional conservative measure the plan is to build a depository base ... like I said, I haven't really seen such conservativeness anywhere else ... particulalry one of the traditional banks.

That said I'm employed by amex so take what i have to say with a grain of salt.

Bush Weighs �Orderly� Bankruptcy for Automakers

Yikes!!

Even to be considering this doesn't look good...

quote:

December 19, 2008 Bush Weighs �Orderly� Bankruptcy for Automakers By DAVID STOUT and MICHELINE MAYNARD WASHINGTON � The White House said on Thursday that an �orderly� bankruptcy was one option being considered to try to rescue General Motors and Chrysler, which are seeking billions of dollars to avoid a shutdown. President Bush�s spokeswoman, Dana Perino, confirmed growing speculation within legal circles that the president and Treasury Secretary Henry M. Paulson Jr. were considering the step as part of an overall rescue package for the automobile industry. The action would be unusual, and would require concessions by the United Automobile Workers union, suppliers, investment banks, the federal pension board, bondholders and other stakeholders in the two auto companies. Ford Motor, which does not face an urgent need for capital, is not likely to be part of any rescue package. Under one possibility that has been discussed, the government would give G.M. and Chrysler enough financing to operate for several months. Then a government-selected overseer would bring together company executives and other representatives to map out steps that would be taken once the two companies file for Chapter 11 protection. �It�s not going to be easy, it�s not going to be pleasant, or palatable, but it�s the only solution that makes the least bit of sense,� said Hugh M. Ray, head of the bankruptcy practice at the Houston law firm Andrews & Kurth, who has participated in many major bankruptcy cases. Major banks would provide debtor-in-possession financing for the companies to operate while under bankruptcy, with federal funds as security. �I will tell you this: the president is not going to allow a disorderly collapse of the companies,� Ms. Perino said Thursday at a news briefing. �Disorderly collapse would be something very chaotic that is a shock to a system,� Ms. Perino said. �There�s an orderly way to do bankruptcies that provides for more of a soft landing. I think that�s what we would be talking about. That would be one of the options.� She quickly added that no final decision had been made. She said she could not be definite about the timing of a White House announcement, but that administration officials wrestling with the crisis were �nearing conclusion� of their deliberations. �Any scenario that comes forward after this decision-making process, all the stakeholders are going to have to make tough decisions,� Ms. Perino said. �I would just say that we want a robust auto industry in America, and we think that they can be competitive and viable,� Ms. Perino said. �But they�re going to have to make tough decisions to get there.� President Bush said Thursday during an appearance that he was �worried about a disorderly bankruptcy� and the psychological implications it would have for an economy already staggering under the weight of a severe recession. He said he also felt an obligation not to saddle President-elect Barack Obama with �a major catastrophe� on his first day. But, Mr. Bush, answering questions at the American Enterprise Institute, said he was concerned about �putting good money after bad.� Ms. Perino said Chrysler�s announcement Wednesday that it would shut down production for at least a month was one factor driving the White House deliberations. The car companies typically close for a couple of weeks over the year-end holidays, but Chrysler�s decision to close for a month or more because of plunging sales was seen as ominous. Negotiations involving the White House, Treasury Department, General Motors and Chrysler on an emergency loan package of more than $14 billion have been going on for days. Legislation on a rescue plan for Detroit stalled last week in the Senate, essentially leaving it up to the administration to decide what to do. The prospect of a managed bankruptcy for one or more of the companies has been explored for several weeks, dating back to an original request by the car makers to the Treasury Department for money from the Troubled Assets Relief Program. Mr. Paulson rejected that request, prompting the auto companies to appeal to Congress. G.M. has retained Harvey R. Miller, a long-time bankruptcy lawyer, as its adviser. It is also being advised by William Repko, a long-time expert in restructuring with Evercore Partners who has worked with companies like United Airlines. And, G.M. is working with Arthur B. Newman of the Blackstone Group, another experienced restructuring adviser. Chrysler has retained the law firm of Jones, Day to provide restructuring expertise, while several law firms in Washington and across the country also have been retained by companies that might be involved in a bankruptcy proceeding. However, any filing by either of the automakers would not be imminent. It could take three months or more to reach the type of agreements the government might require before the companies seek bankruptcy protection. That time could give consumers used to the idea of dealing with a car company operating under court protection. Some analysts have warned that Americans might be leery of buying cars from any company that was operating in bankruptcy. But other studies have shown that consumers would be assured if the companies received federal assistance, even if they end up in bankruptcy protection. Ms. Perino took issue with arguments advanced by some conservatives that the car companies, which have been widely criticized for poor management decisions over several decades, should be allowed to collapse. �Just to step back for a minute, if you thought that our economy today could handle the collapse of the American auto industry, then you might come to the conclusion that doing nothing was an option,� Ms. Perino said. �In a strong economy, we would probably come to that conclusion as well. But we don�t have a strong economy today. We�re in the middle of a recession, and we have continued credit and financial market issues that we�re trying to work through.� David Stout reported from Washington and Micheline Maynard from Detroit.

>>Source<<

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