Friday, October 2, 2009

Next round of bailouts getting started

Logo of the Federal Housing Administration.
Image via Wikipedia
by Bearish News
CIT is on life support again, even sooner than expected. Taxpayers have already “loaned” them $2.3b, which may be wiped in an upcoming debt cleansing. Will we chuck good money after bad? Probably.
FHA is a bailout timebomb. They have effectively taken on the role of sub-prime lenders in the market, and allowed banks to profit from risky loans without taking on risk. See this piece for more.
FDIC is desperately seeking cash from its healthy banks. Many have dismissed concerns about the FDIC’s health, saying that banks will pick up the tab. I’m skeptical. Question for those who dismiss concerns about the FDIC: over the last 2 weeks Citigroup alone has raised $10b in new FDIC-backed bonds. Are they good for it? No, not without eternal debt guarantees and propping up.
It they eventually fail, who will pay the bill? Healthy banks? Seems likely they’ll balk. I would, considering Citigroup’s massive off-balance sheet assets and toxic assets.
Next round of bailouts getting started
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