Monday, September 29, 2008

America Nears Catastrophic Economic Collapse

America Nears Catastrophic Economic Collapse
for 24-Hours of Propaganda

"This isn't a crisis so much as it is a bonanza for state-sponsored enterprise."

The US stock market could suffer a devastating crash with shares losing a third of their value this week if Hank Paulson’s financial bailout plan fails, US Treasury officials have warned.

The financial system could face a meltdown of 1929 proportions unless US politicians succeed in their efforts for a $700bn rescue scheme, experts added.

The warning came as Republicans and Democrats met in Washington for a rare weekend debating session to attempt to seal agreement on the contentious plan, aimed at preventing a long-lasting recession in the US.

You will be seeing a lot of these now that the US Mint is ready to print off $900 Billion extra dollars.

Officials are privately painting a far bleaker portrait of the fragility of the global economy than that advanced by President George W Bush in his televised address last week.

One Republican said that the message from government officials is that “the economy is dropping into the john.” He added: “We could see falls of 3,000 or 4,000 points on the Dow [the New York market that currently trades at around 11,000]. That could happen in just a couple of days. What’s being put around behind the scenes is that we’re looking at 1930s stuff. We’re looking at catastrophe, huge, amazing catastrophe. Everybody is extraordinarily scared. It’s going to be really, really nasty.”

Peter Spencer, economic adviser to the Ernst & Young Item Club, said: “This is the time you have to bail people out and ask questions later. It is very difficult to see how the US banking system would survive without that.This has the potential to make 1929 look like a walk in the park.”

Senator Harry Reid of Nevada, the majority leader, said: “We hope sometime [Sunday] evening we can announce some kind of agreement in principle. We may not have another day.”

Rebel Republicans - who see Paulson’s proposals as socialism by the back door - were warned they will be responsible for causing an “amazing catastrophe” if they continue to oppose the plans, which would see taxpayers buy up the bad debts of failing banks. Instead they want an insurance scheme for banks, which would spread the cost to private enterprise.

WaMu couldn't hold on long enough for their piece of the $900 Billion Dollar Pie.

In what is by far the largest bank failure in U.S. history, federal regulators seized Washington Mutual and struck a deal to sell the bulk of its operations to J.P. Morgan.

The collapse of the Seattle banking giant, which was triggered by a wave of deposit withdrawals, marks a new low point in the country's financial crisis. But the deal, as constructed by the Federal Deposit Insurance Corp., could hold some glimmers of hope for the beleaguered banking system because it averts any hit to the bank-insurance fund.

Instead, J.P. Morgan agreed to pay $1.9 billion to the government for WaMu's banking operations and will assume the loan portfolio, which has $307 billion in assets. The full cost to J.P. Morgan will be much higher, because it plans to write down about $31 billion of the bad loans and raise $8 billion in new capital. All WaMu depositors will have access to their cash, but holders of more than $30 billion in debt and preferred stock will likely see little if any recovery.

The deal will vault J.P. Morgan into first place in nationwide deposits and greatly expand its franchise.

The seizure was another watershed event in a frenetic period for the U.S. banking system, and came while members of Congress wrangled over the Bush administration's proposed $700 billion bailout package. The tally of U.S. financial giants that have either been seized by the government or sold themselves off to stronger firms in recent weeks includes mortgage titans Fannie Mae and Freddie Mac, insurer AIG, and Wall Street firms Lehman Brothers and Merrill Lynch. The US Senate also approved $25 billion dollars in loan guarantees for the financially strapped US auto industry, intended to spark a wave of automotive innovation.

The failure of WaMu eclipsed what had long been America's largest bank bust on record, the 1984 collapse of Continental Illinois, which had $40 billion in assets.

The fact that no bank was willing to buy WaMu until it failed shows how badly confidence has eroded in a banking system awash with record profits just a few years ago. Faced with deepening losses on mortgages, credit cards and other loans, big and small banks across the country are struggling with what many bank executives say is a crisis far deeper than the savings-and-loan debacle.

Before the deal, J.P. Morgan ranked as the fourth-largest bank as measured by branches, ranking below Bank of America, Wachovia and Wells Fargo. Its network of more than 3,100 branches stretches across 17 states with deep penetration in New York, Illinois, Texas, Michigan and Ohio. The deal will expand J.P. Morgan's footprint westward and into the South. Most importantly, it will give J.P. Morgan an instant presence in two states where it is now virtually non-existent: California and Florida.

WaMu letting TPG Capital (which led a $7 billion cash infusion in the bank this spring and has now lost it all) know what they can go do to themselves.

The downfall of WaMu has been widely anticipated for some time because of the company's heavy mortgage-related losses. As investors grew nervous about the bank's health, its stock price plummeted 95 percent from a 52-week high of $36.47 to its close of $1.69 Thursday. On Wednesday, it suffered a ratings downgrade by Standard & Poor's that put it in danger of collapse.

Wachovia has begun preliminary talks with Citigroup about a potential merger, while also contacting Wells Fargo and Spain's Banco Santander. A week and a half ago, Wachovia began deal talks with Morgan Stanley, negotiations set against the backdrop of Lehman Brothers’s collapse. But nothing has resulted from those discussions.

Wachovia's current problems stem largely from its acquisition of mortgage lender Golden West Financial Corp. in 2006 for roughly $25 billion at the height of the nation's housing boom. With that purchase, Wachovia inherited a deteriorating $122 billion portfolio of Pick-A-Payment loans, Golden West's specialty, which let borrowers skip some payments.

All the idiots that lost literally trillions in investors--and now taxpayers--money do want charity. To the tune of about $900 billion.