U.S. Gives Banks Urgent Warning to Solve Crisis

[Pale Blue Dot]

Source: New York Times

As Lehman Brothers teetered Friday evening, Federal Reserve officials summoned the heads of major Wall Street firms to a meeting in Lower Manhattan and insisted they rescue the stricken investment bank and develop plans to stabilize the financial markets.

Timothy F. Geithner, the president of the New York Federal Reserve, called a 6 p.m. meeting so that bank officials could review their financial exposures to Lehman Brothers and work out contingency plans over the possibility that the government would need to orchestrate an orderly liquidation of the firm on Monday, according to people briefed on the meeting.

Flanked by Treasury Secretary Henry M. Paulson Jr. and Christopher Cox, the chairman of the Securities and Exchange Commission, he gathered the executives in person to impress on them the need to work together to resolve the current crisis.

Mr. Geithner told the participants that an industry solution was needed, no matter what, and that it was not about any individual bank, according to two people briefed on the meeting but who did not attend. They said he told them that if the industry failed to solve the problem their individual banks might be next.

A spokesman for the New York Federal Reserve Bank in New York confirmed the meeting but declined to provide details on the discussions. The Wall Street executives included the following chief executives: Lloyd Blankfein of the Goldman Sachs Group, James Dimon of JPMorgan Chase, John Mack of Morgan Stanley, Vikram Pandit of Citigroup and John Thain of Merrill Lynch. Representatives from the Royal Bank of Scotland and the Bank of New York Mellon were also present. Lehman Brothers was noticeably absent from the talks.

Read more: http://www.nytimes.com/2008/09/13/business/13rescue.html?_r=1&partner=rssnyt&emc=rss&oref=slogin

---

I'm speechless.

[frogcycle]

1. so we are privatizing government bailouts now?

makes sense - they told the oil companies back in 2000 to solve the energy crisis, and started a war at their behest.

Now I guess the banks will tell them to invade China to go get our money back.

[soothsayer]

2. Not privatizing---piratizing. These gov't funded hostile takeovers are a consolidation of power

by the shadow gov't. The rich are going to get very, very, very rich, and the Fed is in a perfect position now to totally rig wall st. It's much more fun to gamble, er, invest, when you already KNOW if a stock is going to go up or down -- because you CONTROL it. Very scary times.

[Lucky Luciano]

7. More like the rich are trying not to lose their wealth...

If Lehman goes down without some kind of plan to handle counterparty obligations, it is very likely that more failures will occur - Merrill would probably be next...now AIG is looking to be close to its final death throes...same with WaMu. I have met plenty of former millionaires that used to work for Bear Stearns...now I know a bunch of former millionaires that, as of today, still work for Lehman...thing is the employees get paid with lots of stock...often it has to vest over several years, so they cannot just sell it easily to diversify their net worth....even if they are diversified, stocks tend to be very correlated when the shit hits the fan...and if Bear, Lehman, and Merrill were to go down, it would be very nasty...much like Japan in the 1990's - they have never recovered. You might get a few winners though, like John Paulson who shorted subprime mortgages in a monster way and took home $3.7B personally...but most of the rich got poorer in the past year...hence the emergency meeting...

Now...as to why there is no emergency meeting to help those who can't pay for their mortgages...well...that is the thing that sucks about this.

[AndyTiedye]

20. Not Just the Rich, Could Cost You Your Pension Too

Pretty likely some pension funds are invested in this mess too.

[Lucky Luciano]

23. yep

...as mentioned at the end of this spoofy video:
http://www.youtube.com/watch?v=mzJmTCYmo9g&feature=related

Also funny:
http://www.youtube.com/watch?v=hXBcmqwTV9s

[dixiegrrrrl]

22. ty for AIG info

I just googled the financial news on it.
Had all my 401-k in it for years, but got out last April.

My brokerage has cut Pershing loose, btw, we got a letter saying the brokerage funds were being moved to several banks, out of Pershing, but they did not say why.

[ooglymoogly]

26. Think great depression with the same players now involved ready to buy

up everything for pennies on the dollar. Morgan, Roket-feller et al, a few generations later but still playing the same deadly game with not a thought of the devastation they cause.

[FreakinDJ]

3. Ya - Stop foreclosing on homes and give those people REAL Loans

It didn't take a degree in Economics to figure out a disaster was eminent

[PSPS]

16. Loans they can't hope to qualify for?

There's trillions of dollars worth of no-doc option-arm "liar loans" set to recast starting in the 4th quarter through 2011. If someone "bought" a $750,000 house making $25,000 a year, the last thing I want is for "these people" to be given "real loans." Those houses need to be foreclosed. That's the only way the bubbled-up housing prices will retreat to their proper level -- far lower than the 20 - 40% (depending on area) they've already declined.

[readmoreoften]

38. Right, like the problem is people who made 25K buying a 750K house.

The problem is people making 25K buying a 110K house and then losing their jobs or getting scammed by fake mortgage companies like "Homecomings Fin.'l" (which pretends to be Homecomings Financial).

The problem is always the greedy American people, never the greedy banks.

[InkAddict]

35. Loans? Some of us need real FT w/benefit JOBS

It's criminal what the GOP Admin(s), their corrupt M/I corporations, their oblivious bean counters/ bankers, and their media PR shills, have done to the American people.

Once upon a time, we had educations (so what?), we had seniority in jobs (so what?), we had healthcare (so what?), and we had safety nets available so that those that did make their own mistakes or became ill could make a way thereafter that didn't involve prison and/or homelessness.

[mrJJ]

4. GOP screwed America

The GOP Scewed America

Gramm-Leach-Bliley Financial Services Modernization Act.

53 Republican Senators plus one Democrat - AYE

44 Democrats no Republicans - NAY

The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, Pub. L. No. 106-102, 113 Stat. 1338 (November 12, 1999), is an Act of the United States Congress which repealed the Glass-Steagall Act, opening up competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services.

The Gramm-Leach-Bliley Act (GLBA) allowed commercial and investment banks to consolidate. For example, Citibank merged with Travelers Group, an insurance company, and in 1998 formed the conglomerate Citigroup, a corporation combining banking and insurance underwriting services. Other major mergers in the financial sector had already taken place such as the Smith-Barney, Shearson, Primerica and Travelers Insurance Corporation combination in the mid-1990s. This combination, announced in 1993 and finalized in 1994, would have violated the Glass-Steagall Act and the Bank Holding Acts by combining insurance and securities companies, if not for a temporary waiver process <1>. The law was passed to legalize these mergers on a permanent basis. Historically, the combined industry has been known as the financial services industry.
...
Economist Robert Kuttner has criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis.<6> Economists Robert Ekelund and Mark Thornton have made similar criticisms, arguing that while "in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance" the Financial Services Modernization Act would have made "perfect sense" as a legitimate act of deregulation, under the present fiat monetary system it "amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly".

"John McCain voted FOR the bank laws that led to the current credit crisis. John Mccain's economic advisor WROTE the law. 53 Republicans voted YES to the law. When you're in danger of losing your house, can you take a chance on more of the same from those who wrecked out economy?"

[bronxiteforever]

5. Nice work!

[Citizen Kang]

32. uhhh.....

who signed that bill into law????

Like Michael Moore said, Bill Clinton was the best Republican President we've ever had.

[JimDandy]

34. I didn't vote for Clinton. I warned everyone I knew that he was

a corporateer in democrat's clothing. His policies proved me out. My family voted for him, not once, but TWICE! I think I wrote in "none of the above" that year. Until 2004, I'd been a life-long independent. I was Bushed (pun intended), by then, and joined the Dems, unofficially, at first, and then officially. It's good having a team of similar-minded people to work with on issues.

[Hawkowl]

33. Thanks!

I was looking for this citation. This is THE major reason for our banking crisis. Unfortunately, it was signed into law by Clinton.
Deregulation is economic suicide and historians will point to this Act as a proximate cause of the Century 21 Great Depression.

[bronxiteforever]

6. k &r -one sentence says it all-

"One observer briefed on the situation described the session as a “game of chicken” between the government and the heads of the major banks."

[54anickel]

8. And the banks have the upper hand in that game - they are global, multi-national entities; the gov't

- not so agile...Hope they had the foresight to put shock collars on the beasts.

[crazylikafox]

10. There are no shock collars in place.

That's why we are on the edge of potential hugh bank failures.

[crazylikafox]

12. This is the one big issue for the campaign, in my opinion. It affects everyone.

If we can find a way to present it in a simplified way that people can understand. It may well be much worse by election day, and taxpayers will be on the hook for billions, if not trillions of dollars.

All brought to you by the Republicans. It can be tied directly back to Phil Graham, (whose wife has ties to Enron, by the way). Through Phil, to John McCain.

Do we need an ad with boarded up communities full of for sale signs, and people lined up at failed banks to get their money out, saying "brought to you by John McCain and the Republican party"????

[mrJJ]

14. Tough Luck... Deal with it

The FDIC DOES NOT have enough funds in "their" reserves to cover insured depositor accounts. An estimated (low) 100 banks are on the precipice of failure. Depositors are protected. But the FDIC will have to go back to the FED to get the funds. Of course those "funds will not show up on the "books" of our deficit. Taxpayers are screwed. Were getting clobbered.

NO ONE has called the Republicans out on this fiasco.

[debbierlus]

24. Yes, we do

[Demeter]

9. Ditto That Speechlessness

So, the smartest guys in the room are morons?

GAME OVER,BUDDIES! You broke it, your bought it.

[safeinOhio]

11. Time for the billionaires

to pull up their big girl panties and deal with it on their own. Hell, I've been yanking on my bootstraps for a couple of years.

[natrat]

13. US gives warning after the most lax period of oversight and legislation ever? wtf?

[Tutonic]

15. This would be funny if it weren't so freaking outrageous!!!!!

A solution!!!! The Feds are providing welfare to every big bank or investment firm and thumbin their nose to the little guy and gal. Lehman Brothers paper is worthless--if you're holding some it is about to take a serious dive down. And B of A will eat off of its stinking carcass when it hits the bottom. So look for unemployment levels to rise. And Citi Group--they're coming up next. If you have money invested in that Ponzi Scheme get it out on Monday. I've said this about Lehman and Citi and Freddie/Fannie for the last seven months. The federal banking system is a house of cards at this point. It won't get any better this year and Bush /Cheney are intent on leaving the next white house occupant a roomful of vomit to clean up. They don't much care for Obama and hate McCain--so you figure it out. And Sarah Palin--the Republicans are laughing their asses off over this nimwit. Them Texas boyz did what they do best they hog tied that turncoat John McCain. They don't want to see him running the mens room at the Waldorf Astoria. Problem this year was that pesky Obama getting the nod instead of Hillary. They had it all worked out. And now what? Come November if the economy is still heading south (and it will be) and the occupation in Iraq is going bad (and it will be), the big boys will put an end to this. Because what good is it to steal an election and find that your dollar is worth two pennies. You think the Bushes and Bakers worked all these years to see their fortunes consumed by some ignorant trash from Alaska?! When you hear people say the world is waiting on us to make the right decision--what they're really telling you is that if you pick that cancer-riddled womanizing two bit hustler McCain you are surely going to get your asses bombed inside of two years. But if you pick that guy with the funny sounding name Obama--the world might just cut you some slack and forgive your billions of debt owed. Come November 5th if we wake up to a McCain victory, the first thing you need to do is prepare yourselves mentally for the attacks that will come. In 2009, the US will allow thousands of Iraqis to resettle in the US. How many of those Iraqis will soon find dissatisfaction here and attach themselves to the growing cells around the country? Fight them over there so that we don't have to fight them over here? Bush has already made his plans to be far from the US when the real attacks begin. The same for Cheney. So when this clown from the Fed Reserve uses big words to try and convince Joe Six pack that the economy is sound and that the government is here to help--remember that the government that was here to help left us about 25 or 30 years ago. And it probably ain't coming back. My morning rant.

[defendandprotect]

17. Capitalism is not about competition ...it's about killing the competition--

If we had a free press, this would be the end of capitalism --!!!

[on point]

18. A Failure of Supply Side Economics

When the recession hit early in Bush's term, it was a failure of demand.

The right medicine would have been to pump up demand by short term deficit spending on investment in infrastructure and the like. INSTEAD, we got long term supply side deficit spending on the wealthy through tax cuts. Instead of investing in new things, we had excess money chasing the same assets, the result was inflation in the price of those assets, such as housing, stocks and commodities. This economic mess is nothing more than the supply side lunacy exploding. As much as I feel for the people loosing their houses, the median price of a house must come down to the point where a median income can afford it. And if median wages here have to be competitive with median wages in the third world, then prices may have to fall a lot more...

Or to put it another way, the only way out of the Bush fiscal disaster is 1) devalue the dollar, 2) translate asset price inflation into wage inflation, 3) tax the very wealthy at higher rates than they were paying before Bush came into office in order to pay off the debt, or a combination of all three.

There will be more failures as the supply side, derivative based fantasy unwinds.

[crazylikafox]

28. good summary.

Welcome to DU!

[fedsron2us]

31. Testify brother

You have got it.

The credit crunch is really very simple. People do not earn enough to pay their debts so they default and the banks go bust. Perhaps if the corporate bosses and their political cronies had spent less time screwing the working man and woman for the last 30 years then this might not have happened. Now some of the rich list are getting their turn on the gurney and are not liking it one bit. The endless squealing from Wall Street for more bail outs is laughable. Even now they do not seem to realize that the people they want to rescue them (e.g the ordinary taxpayer) is pretty much tapped out. Of course, they could get more money by making taxation more progressive on the wealthy but somehow I do not think that is the medicine they want. Perhaps Santa will turn up with sack loads of Japanese and Chinese money to rescue them but somehow I doubt it.

[AlphaCentauri]

19. and we can't get universal health care or education, what a shame

[Javaman]

21. the repukes are going overtime to give corporate welfare to Lehmen brothers

because the repuke spin masters know as sure as shit, if lehmen goes down, it puts a fine point on morons* failed economic policy that mcinsane is trying to push on the American public. they are panicking.

[Yavin4]

25. Lehman, and the Rest of Wall Street, Are All Going Down

They bought bad mortgages, and there's nothing that no one can do about it.

[defendandprotect]

27. Fed + banks mtg ... Congress on vacation ... !!! ???

Fed is not "government" ..!!

[defendandprotect]

29. "Deregulation" once again moves us to disaster ,,,

unregulated capitalism is merely organized crime --

wake up, America ... capitalism + democracy are NOT synomous -- !!!

[Mesteryo]

30. they aren't thinking...

If the govt. thinks it's too risky and not worth pouring billions into these failing companies why do they think private firms should be willing to do it?

It's going to make the problem wors when these firms lose money by investing in these failing companies.

[natrat]

36. maybe the religous freaks let this all happen to facilitate killing the beast

[sarcasmo]

37. It is all holding on by a thread, and the Federal Government knows how close.

A tip, Don't have all of your eggs in one basket.

[Imagevision]

39. Bush; "I'm just going to sprint to the finish line" (January 20th)