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Big Banks: Keep The Taxpayer Money Coming

AIG, Fannie Mae, Freddie Mac and GMAC: “Long-Term Wards of the State”

Cryptogon
December 18, 2009

Via: New York Times:

Even as the biggest banks repay their government debt in what is being heralded as a successful rescue program, four troubled giants of the financial world remain on government life support.

These companies, the American International Group, Fannie Mae, Freddie Mac and GMAC, are not only unable to repay the government, they are in need of continuing infusions that make them look increasingly like long-term wards of the state.

And the total risk they pose to the taxpayer far exceeds that of the big banks. Fannie and Freddie, in the final days of the year, are even said to be negotiating with the Treasury about greatly expanding the money available to them.

Though the four are not in all the same businesses, they were caught in one of the same traps: They sold mortgage guarantees — in some cases to each other. Now when homeowners default, as they are doing in record numbers, these companies are covering the losses. Essentially, taxpayer money to these companies is being used partly to protect banks and other investors who own the mortgages.

 



Friction over weak dollar expected at G-7 meeting

Friction over weak dollar expected at G-7 meeting

Mcclatchy
October 17, 2007

WASHINGTON — When the finance ministers of six leading developed nations come to Washington later this week, they’ll bend Treasury Secretary Henry Paulson’s ear about the weak dollar and gripe that it’s hurting their exports.

They won’t find much sympathy.

Paulson will be in no mood to talk up the dollar, which has nose-dived against many leading currencies, because the weak greenback has sent U.S. exports soaring by almost 13 percent year over year through August. And that’s offsetting some of the economic pain from the crumbling U.S. housing sector.

What’s been good for U.S. exporters of airplanes, car parts and farm products hasn’t been so hot for rivals in Canada, Europe and parts of Asia, who now find their goods more expensive on the global market than U.S-made and U.S.-grown goods.

Group of Seven (G-7) ministers from Germany, France, Italy, Great Britain, Canada and Japan are expected to press Paulson on Friday to talk up the dollar in hopes that it will slow the dollar’s slide. The dollar has lost more than 8.1 percent of its value so far this year against the euro, the currency of 12 European Union nations, and that’s on top of last year’s drop of 8.2 percent.

For the first time in three decades, the U.S. and Canadian dollars are virtually on par. For Canadian energy companies and mining giants, whose commodities are priced globally in U.S. dollars, that means they earn less for their products when measured by their own currency. And although Canada’s online pharmacies still offer bargains to American prescription-drug consumers because of differing industry cost structures, dollar parity has hurt them, too.

“It has affected business negatively … the perception has decreased sales, for sure,” said Alan Flowers, a spokesman for Candrugstore.com in Vancouver, British Columbia.

Paulson has said repeatedly that a strong dollar is in the U.S. interest, but financial markets determine the value of freely traded currencies. The U.S. dollar’s value has eroded relative to other currencies because of the U.S. economic slowdown, the Federal Reserve’s recent half-point cut in lending rates and strong economic growth in Europe.

“I think Paulson may have to talk nice, but he won’t be forced to do anything more than that,” said Adam Posen, the deputy director of the Petersen Institute for International Economics, a think tank in Washington.

In fact, behind the scenes, Paulson is likely to tell the Europeans to look east, not west, to resolve their trade problems. European powers did little to help Washington make its case that China’s fixed exchange rate makes its products artificially cheap. Now Europeans are shouldering the brunt of the dollar-euro realignment while China’s exchange rate remains pegged to the dollar, so China doesn’t suffer.

“I think, if anything, he’s going to be sort of smirking and saying, ‘You guys could have gotten on board and helped us pressure the Chinese,'” Posen said. “I think the game is not going to be about coordinating or making any promises, but getting together to confront the Chinese.”

This year’s G-7 meeting in Washington stands out from past gatherings because finance ministers won’t be focused much on the outside world.

“For the first time, much of the agenda and problems come from inside the G-7, rather than outside,” said John Kirton, a lecturer at Canada’s University of Toronto and director of the G8 Research Center there.

Finance ministers will focus on problems in the U.S. credit and mortgage markets, he said, which have spilled across the Atlantic to banks in France and Germany and north to Canada, forcing central bankers to intervene with cash to keep markets functioning properly.

“It may have started in the U.S., but it’s a collective G-7 problem,” Kirton said.

 

Japan and China lead flight from the dollar
“Data from the US Treasury showed outflows of $163bn (£80bn) from all forms of US investments. “These numbers are absolutely stunning,” said Marc Ostwald, an economist at Insinger de Beaufort.”

Telegraph
October 18, 2007

Japan and China led a record withdrawl of foreign funds from the United States in August, heightening fears of a fresh slide in the dollar and a spike in US bond yields.

  • Fears of dollar collapse as Saudis take fright
  • China threatens `nuclear option’ of dollar sales
  • Ambrose Evans-Pritchard: This bear is not capitulating
  • Data from the US Treasury showed outflows of $163bn (£80bn) from all forms of US investments. “These numbers are absolutely stunning,” said Marc Ostwald, an economist at Insinger de Beaufort.

    Asian investors dumped $52bn worth of US Treasury bonds alone, led by Japan ($23bn), China ($14.2bn) and Taiwan ($5bn). It is the first time since 1998 that foreigners have, on balance, sold Treasuries.

    Mr Ostwald warned that US bond yields could start to rise again unless the outflows reverse quickly. “Woe betide US Treasuries if inflation does not remain benign,” he said.

    The release comes a day after the IMF warned that the dollar was still overvalued and likely to face “some depreciation in the medium term”.

    The dollar’s short-lived rally over recent days stopped abruptly on the data, increasing pressure on US Treasury Secretary Hank Paulson to shore up Washington’s “strong dollar” rhetoric at the G7 summit this week.

    The Greenback has already fallen below parity against the Canadian Loonie for the first time since 1976 and has touched record lows against a global basket. It closed at $2.032 against the pound.

    David Woo, an analyst at Barclays Capital, said Washington was happy to see the dollar slide. “They don’t care so long as the fall is not disorderly. They see it as a way of correcting the deficit. ” he said.

  • IMF raises spectre of UK house price correction
  • Market forces: stay tuned to the markets
  • Hedge funds target currency pegs
  • Mr Woo said a chunk of the August outflows may have come from foreigners borrowing in the US during the liquidity crunch to meet needs in euros. “We think it may be a one-off,” he said.

    The US requires $70bn a month in capital inflows to cover its current account deficit, but the key sources of finance are drying up one by one.

    BNP Paribas said America has relied on “hot money” from abroad to cover 25pc to 30pc of the US short-term credit and commercial paper market over the last two years.

    This flow is now in danger after the seizure in parts of the market over the summer and after the Federal Reserve’s half point rate cut, which has shaved the US yield advantage over other countries.

    Ian Stannard, a Paribas currency analyst, said the data was “extremely negative” for the dollar. “It exceeds the worst fears. It is not just foreigners who are selling US assets. Americans are turning their back as well,” he said.

    Central banks in Singapore, Korea, Taiwan, and Vietnam have all begun to cut purchases of US bonds, or signalled an intent to do so. In effect, they are giving up trying to hold down their currencies because the policy is starting to set off inflation.

    The Treasury data would have been even worse if it had not been for $60bn of inflows from hedge funds based in Britain and the Caymans, which needed to cover US positions at the height of the credit crunch.

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