U.S. Bailout Ready, Europeans Rescuing Firms, Wachovia Deal Nears
- Sep 29, 2008
The monster 110-page bailout bill has been finalized. The proposed legislation would allow Treasury Secretary Henry Paulson (pictured) to start buying bad mortgage-backed assets — or any other assets — from any firms at any price. Various strings have been attached, or at least they seem to be strings, including the government taking an equity interest in the companies it helps, and allowing the Treasury department to modify some of the troubled loans, partly by forgiving outstanding debt. Congress will vote on it in short order. Will it work? As a financial leap of faith, no one can say. Across the Atlantic, the governments of the Benelux countries — Belgium, the Netherlands and Luxembourg — agreed to pump 11.2 billion euros ($16.2 billion) into Fortis, the Belgian-Dutch banking and insurance giant that took ill this year after catching the credit-crisis contagion. Under the terms of the deal, Fortis will be required to sell its share of ABN AMRO. In Britain, the government has nationalized (a term the British aren’t shy about using, unlike Wall Street) Bradford & Bingley, one of the nation’s leading “buy-to-let” lenders. In British financial parlance, buy-to-led lenders originate mortgages for investors in rental properties, and it has been a booming business until recently. Currently, the bank is sitting on a good many bad mortgages created during the boom, which the British government will now have to deal with. Banco Santander, Spain’s biggest lender, will pay $1.1 billion to buy its branches and deposits.”Recent events are magnifying the challenges of the investment markets,” Jamie Hadac, vice president of Foresite Realty Partners L.L.C. and CREW member, told CPN this morning. “Lack of debt liquidity requires the experience of seasoned professionals who have been through down cycles before and understand that patience and consistency are valuable tools. One needs to apply unemotional standards to highly volatile situations.” In Germany, Hypo Real Estate received a loan guarantee, according to Bloomberg News. It will be saved from insolvency by an infusion of cash from its rescuers in two allotments of 14 billion euros and 21 billion euros.Here in the United States, we might not speak freely of nationalization, but of course that isn’t the only tool available to the government when it comes to dodgy financial institutions. There’s also the shotgun wedding, which regulators seem to be pressing for in the case of Wachovia, which has been crippled by bad mortgages. And who will be Wachovia’s partner in this marriage of distressed circumstances? As of this morning, the New York Times was reporting either Wells Fargo or Citigroup. It might be that this month will be remembered as the Great Consolidation in the banking industry — after Wachovia bites the dust, there may be only three banks controlling a third of the deposits in the nation.