Latest news has it that the Treasury Dept. is thinking really, really hard about maybe using some of the $700 billion from the Troubled Assets Relief Program (TARP) to do something about home foreclosures.
Neel Kashkari, who has to administer the Troubled Assets Relief Program, told Senators, “We continue to aggressively examine strategies to mitigate foreclosures and maximize loan modifications.” It is well worth noting Kashkari offered no actual details as to what this might mean.
This doesn’t seem to indicate any change in Henry Paulson’s willingness to consider an FDIC plan to help homeowners. “Under the FDIC proposal, the government would seek to encourage lenders to modify loans by offering to share the cost of any defaults. The FDIC has said its proposal could prevent about 1.5 million foreclosures.” Paulson has said that use of TARP money for this would be a misuse of the funds. This is odd given his willingness to spend the money on just about anything except homeowners.
On the bright side: He’s only got 47 more days on the job.
BTW, now that the extension of unemployment benefits has passed the Senate expect to see a sharp increase in the unemployment rate — which only counts people who are collecting unemployment insurance. You are no longer officially counted as unemployed if you are not collecting insurance. A lot of people who used up their benefits but aren’t employed will now re-appear magically on the roles. They will just as magically disappear in seven weeks when their benefits are used up and the rate will go down again. However, those people won’t be any more employed.
Many people are concerned this will mean a continuation of the Paulson strategy of throwing good money after bad. (”Am I the only one worried that by the time Obama is sworn in on January 20th, the Paulson Treasury will have run through almost a trillion dollars to little or no effect?“) Currently there are attempts to qualify GM as a bank so it can get a cut of the bailout money (LOL!!!). A similar request by GE makes more sense to me because GE is a well-run company. Several large cities are also making requests for funds. Personally, I’d give funds to Wasilla before I’d hand a dime to GM.
The Federal Reserve gets to make the decision about who gets to be a bank. Since the Fed has already decided to leave us all holding the bag for bank companies, it seems only fitting that we should also get a chance at being a bank holding company as well.
The markets continue to stagger around like drunks after last call and with every bit as much connection to reality. As I write this, a half hour before the final bell, the Dow is up 11%, nearly 900 points for the day. The NASDAQ and S&P 500 are both up around 10%. All this despite reports of consumer confidence and home prices dropping faster than President Bush’s approval ratings.
Simply put, Glass-Steagall prevented the mingling of investment and commercial bank activities. If you did one, you couldn’t do the other. This happened because way back then it was thought that commercial banks were way too speculative – both with where they were investing their assets and also because they were buying stocks for resale to the public.