Monday, September 22, 2008

US Treasury Asks for 1.8 Trillion Dollars of Borrowing Authority

US Treasury Asks for 1.8 Trillion Dollars of Borrowing Authority.

As of today, we do not have a marked up copy of any legislation that has been proposed to Congress. However, we do have CNBC’s reporting of the Treasury’s proposed plan. And, it is staggering. Really, it is staggering.

The Iraq War has cost the US 500B in direct expenditures and a proposed 615B in interest payments on the 500B spent.

While I am not stating that some action should not be taken with regard to the meltdown in the mortgage industry, the commitment of 700B in the opening statement of the US Treasury proposal is just staggering.

Unless my math is off, it appears that the Treasury is seeking commitments of 1.8T (that is Trillion with a ‘T’) dollars. Not all of these funds are direct expenditures, but are potential borrowing limits to accomplish the goals sought by Treasury.

The details of the US Treasury Position are:

“Following are details of actions, proposals and amounts:
-Up to $700 billion to buy assets from struggling institutions. The plan is aimed at sopping up residential and commercial mortgages from financial institutions but gives Treasury broad latitude.
-Up to $50 billion from the Great Depression-era Exchange Stabilization Fund to guarantee principal in money market mutual funds to provide the same confidence that consumers have in federally insured bank deposits.
-The Fed committed to make unspecified discount window loans to financial institutions to finance the purchase of assets from money market funds to aid redemptions.
-At least $10 billion in Treasury direct purchases of mortgage-backed securities in September. In doubling the program on Friday, the Treasury said it may purchase even more in the months ahead.
-Up to $144 billion in additional MBS purchases by Fannie Mae and Freddie Mac. The Treasury announced they would increase purchases up to the newly expanded investment portfolio limits of $850 billion each. On July 30, the Fannie portfolio stood at $758.1 billion with Freddie's at $798.2 billion.
-$85 billion loan for AIG, which would give the Federal government a 79.9 percent stake and avoid a bankruptcy filing for the embattled insurer. AIG management will be dismissed.
-At least $87 billion in repayments to JPMorgan Chase [JPM 42.48 -4.57 (-9.71%)] for providing financing to underpin trades with units of bankrupt investment bank Lehman Brothers [LEH 0.19 -0.0251 (-11.67%)]. Paulson said over the weekend he was adamant that public funds not be used to rescue the firm.
-$200 billion for Fannie Mae and Freddie Mac. The Treasury will inject up to $100 billion into each institution by purchasing preferred stock to shore up their capital as needed. The deal puts the two housing finance firms under government control.
-$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 broad housing rescue bill.
-$4 billion in grants to local communities to help them buy and repair homes abandoned due to mortgage foreclosures.
-$29 billion in financing for JPMorgan Chase's government-brokered buyout of Bear Stearns in March. The Fed agreed to take $30 billion in questionable Bear assets as collateral, making JPMorgan liable for the first $1 billion in losses, while agreeing to shoulder any further losses.
-At least $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." CNBC 09222008

Democrats under Sen. Chris Dodd have proposed serious debt and capitalization restrictions on the US Treasury proposal. They have yet to be incorporated in the US Treasury response.

Hugh Wood, Atlanta, GA

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