Greek Bailout – Who Is Really Getting Rescued?

As events unravel in Europe, one might want to ask himself why nobody suggested that those who loaned money to Greece simply work out debt settlements on their own, and take responsibility for the financial risk they took with their loans.

Of course, in a world where individual accountability, free markets, and consistency are a such completely weird and laughable ideas to people, such a thing is unthinkable! :)

Who is it that ultimately benefits from this and all future Greek rescue packages? This post has some helpful information:

German financial institutions may have the third-largest exposure to Greece but are set to ride out the storm as long as the country’s fiscal crisis does not spread outside its borders, analysts said.

Lenders to public-sector borrowers — such as Commerzbank unit Eurohypo and Hypo Real Estate — as well as some landesbanks have billions of euros in exposure.

German creditors have a combined $43 billion outstanding with Greek borrowers, behind only French and Swiss lenders with $75 billion and $64 billion, respectively, data from the Bank for International Settlements (BIS) show.

Greece owes $302 billion to all foreign lenders, the most recent figures from the Bank of International Settlements (BIS) show — half the debt Wall Street investment bank Lehman Brothers had when it collapsed, which triggered massive writedowns as the value of banks’ assets plummeted.

Germans and other European citizens who will be footing this bill should be aware of this: Ultimately the rescue for Greece is nothing but another free ride for the banks who have already been bailed out on behalf of the hapless taxpayers.

The article also points out something else:

Greece’s economy is smaller than that in the southern German state of Bavaria and its banking system does not play a large international role. German exposure to Spain, in contrast, is six times bigger than lending to Greek borrowers.

“If the Spaniards get into trouble then the fallout from the Lehmann collapse will look like peanuts,” said one analyst who asked not to be named.

Aaah yes … the next disaster to look forward to :)

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CIT Files For Bankruptcy; Taxpayers Lose $2.3 Billion

The New York Times writes:

Three months ago, the CIT Group barely averted what it considered to be a ruinous bankruptcy filing that would likely have put the 101-year-old lender out of business.

On Sunday afternoon, the company filed for Chapter 11 — but under a so-called prepackaged bankruptcy plan that will enable it to emerge from court protection by the end of the year, under the control of its debtholders. (Read the filing after the jump.)

The filing, made in a federal court in Manhattan, will still mean much pain for many parties, beginning with taxpayers. CIT received $2.3 billion in government aid last year, a bailout that came in the form of preferred stock. That will almost certainly be wiped out in the bankruptcy process, the first realized loss in the government’s rescue of the financial system.

While several firms that have received bailout money, including Goldman Sachs and Morgan Stanley, have repaid the government, others — including the American International Group, General Motors and Chrysler — are expected to lead to losses.

CIT’s filing will test whether a financial company can survive the Chapter 11 process. Bankruptcy has long been considered a death knell for lenders, whose very existence depends on the confidence of its creditors and customers. The company’s struggles have been watched with interest and trepidation by analysts and the thousands of small and midsize businesses that borrow from CIT.

CIT was the nation’s largest provider of what is known as factoring, a type of lending used heavily by retailers. The company has spent months trying to reassure its clients that it will remain open for business as stores ramp up for the holiday season. Relatively few other companies serve as factors, and among them are other embattled lenders like GMAC.

The filing on Sunday capped months of efforts by CIT to stay alive. After being denied another bailout by the federal government, the company bargained with its creditors over a restructuring plan that would keep it operating and cut $10 billion in unsecured debt.

“The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy,” Jeffrey M. Peek, CIT’s outgoing chairman and chief executive, said in a statement. “This market-based solution allows CIT to enter into the reorganization process well-prepared and positioned for a swift emergence.”

While CIT had hoped to stay out of bankruptcy court through a bond exchange offer, that plan failed to win enough support from bondholders, the company said in a statement.

With $71 billion in assets and nearly $65 billion in liabilities, CIT is among the largest corporate bankruptcies on record, though it is dwarfed by the likes of Lehman Brothers and Washington Mutual. The company said in its bankruptcy petition that it had $800 million in bonds maturing from Sunday through Tuesday.

CIT said that only its holding company would file for bankruptcy, and that most of its important operating subsidiaries, including its Utah bank, would continue to operate normally.

Mr. Peek, the architect of its push to grow beyond its sleepy industrial-lending roots into a major new financial player, will step down by the end of the year. People briefed on the matter said the search for his replacement was continuing and ultimately remained up to the company’s new board of directors.

Bondholders will receive about 70 cents on the dollar through the prepackaged bankruptcy, though the company warned that investors could receive as little as 6 cents on the dollar in the alternative, a free-fall bankruptcy that lacked a preapproved reorganization plan.

Last month, CIT unveiled its debt-exchange offer, which would have let bondholders tender their holdings for new, longer-dated bonds and preferred stock. But it also began soliciting votes for the prepackaged bankruptcy option. Under federal bankruptcy law, approval of such a plan requires the support of more than 51 percent of the number of creditors voting and more than two-thirds of the dollar value of those bonds.

CIT said in a statement that holders of about 85 percent of its $30 billion in bond debt participated in the voting. Those investors voted almost unanimously to support the prepackaged bankruptcy plan.

Last week, the company secured several important agreements to aid its prepackaged bankruptcy plan. It obtained a $4.5 billion loan from several investors, including bondholders who lent it $3 billion in the summer. It also reached an accord with Goldman Sachs that would preserve a $2.13 billion loan even through bankruptcy protection, while paying only a portion of a $1 billion termination fee.

CIT also ended a fight with the investor Carl Icahn, who had offered to pay bondholders 60 cents on the dollar if they rejected the company’s prepackaged bankruptcy offering. Mr. Icahn instead offered a $1 billion loan, although people close to CIT said the company did not expect to use the financing.

The company will be represented in bankruptcy by the investment bank Evercore Partners, the law firm Skadden, Arps, Slate, Meagher & Flom and the turnaround consulting firm FTI Consulting.

The most important piece of information to get out of this: This is the first honest and outright example of how TARP taxpayer money is beginning to evaporate.

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AIG – Sinking Money in a Hole

It’s time for our dear politicians to act surprised again. It’s time for Congress again to complain about the results of false policies that they themselves recklessly approved, against all warnings. It’s time again for Ben Bernanke to fire off mindless blather, platitudes and predictions that will, as always and without exception, turn out to be abysmally false.

The AP has a shocking surprise for us, Taxpayers unlikely to be fully repaid in AIG mess:

As the cost of the rescue swells, experts says it’s becoming harder to envision a scenario in which the government could recoup its full investment. Even though the AIG payouts to major banks have angered critics of the bailout, it might be legally impossible to claw back any of the billions already doled out.

Of course the taxpayer won’t get any of this money back. Is there a living creature with more than one brain cell that seriously expected the taxpayer would ever see this money come back? Of course it will be legally impossible to get the billions handed out back in any way. Congress and the Fed shouldn’t have been so stupid to throw it at them in the first place.

The government agreed to uphold those contracts when it seized control of American International Group in September. It argued that failing to repay the debts of the globally interconnected company could cause catastrophic losses at big international banks, potentially toppling the financial system.

…and the problem with that is what exactly? Toppling the financial systen? Does that mean the people who were instrumental to the credit expansion and the ensuing credit crisis would have gone out of business and we wouldn’t have to deal with their incompetence, greed, irresponsibility, and arrogance? Great! Anyone who has a problem with that should speak out and explain precisely why that would be such a terrible thing to happen. Especially he should explain why it is, on the flip side, good when instead the taxpayer who earned money with honest and productive work is milked to the Nth degree and driven into bankruptcy.

Scrutiny of AIG’s dealings with its trading partners comes after revelations over the weekend that the insurer planned to pay out tens of millions in executive bonuses. President Barack Obama on Monday accused AIG of “recklessness and greed.” He pledged to try to block the bonuses, which AIG insisted it’s contractually obligated to pay.

Mr. Obama, how about we pursue a policy of change? How about we no longer announce that we will react when the damage is already done. How about we proactively prevent disasters from happening? How about we listen to the people who advised us not to put the taxpayer on the hook for $170 billion for an organization whose market value is $2 billion? How about we realize that there is a reason why these organizations are not performing, why they are on the brink of bankruptcy? It is because they pursue the profession of wasting money. When we subsidize this behavior, we will get more of it. How much longer do we want to subsidize this bahavior?

Later, White House spokesman Robert Gibbs said the administration would modify the terms of a pending $30 billion bailout installment for AIG to at least recoup the $165 million the bonuses represent. That wouldn’t rescind the bonuses, just require AIG to account for them differently.

How retarded is this government? We hear from our President how outraged he is and at the same time his press secretary calmly announces that $165 million need to be accounted for in a slightly different manner, and then we’ll give them another $30 billion. Disgusting.

Asked if he’d favor trying to see if those AIG contracts could be broken so the government could recover some of those payouts, Rep. Barney Frank, chairman of the House Financial Services Committee, stopped short of endorsing the idea. But he said “that’s something that has to be examined.”

“I would want to know the consequences of not paying those debts,” Frank, D-Mass., told The Associated Press.

There is definitely something that needs to be examined. And that is Rep. Barney Frank’s head. This guy has been wrong on every single thing he said. He has been the strongest supporter of all bailouts and spending boondoggles that were brought before Congress. His dishonesty and hippocrisy are astounding.

Federal Reserve Chairman Ben Bernanke, defending the $30 billion lifeline the government provided to AIG, said earlier this month that the government may eventually be able to “recover most or all” of the taxpayers’ investments.

*Yawn* *Sigh* No, Mr. Bernanke. The government will not be able to recover any of the taxpayers’ investments. You know that or you are the biggest idiot to ever head the Federal Reserve. Your statement is wrong, just as all your previous statements have been. Please, do us all a favor and shut the hell up.

Some words of wisdom in closing:

But Mark Williams, a former Fed examiner and finance professor at Boston University, said the AIG wind-down inevitably will cost taxpayers money. And he thinks it will take much more money — perhaps an additional $200 billion — to finish winding down AIG’s financial dealings so its core businesses can be sold off.

“No longer can we call it an investment,” he said. “We just have to call it what it is — and that’s sinking money in a hole.”

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Bailout Fatigue is Setting In

After about $8.4 trillion pledged so far for numerous Auction Term Facilities, Troubled Asset Relief Programs, bridge loans,  to failing banks and businesses, one has to wonder how many more failures the government wants us to support.

House Democrats Barney Frank and Nancy Pelosi have clearly lost their minds and their last shred of common sense over the past months. They can’t do any more than repeat the same utter falsehoods, lies, and scams. “Bankruptcy is not an option” (…because I say so). “Letting them fail would lead to an epic disaster” (…so please, come on, give us more of your money!!).

After each taxpayer has now committed about $56,000 one has to sit back for a moment and ask “Has this been working so far? How much more money should we take from the people? How many more useless projects should we support with it? How much longer should we prolong the agony?”

Among reasonable people in congress one can sense the bailout fatigue. The car bailout of the big 3 in Detroit exemplifies this brilliantly: First it was going to cost $25 billion. Then it went up to $34 billion. Then one guy testified that over $100 billion might be needed. After it became obvious that House Republicans wouldn’t play ball the last desperate moves were made to tap into an existing funding package of $15 billion which was supposed to support clean energy cars. Then $1 billion was set aside for environmental programs. Now the scammers were hoping to at least take the remaining $14 billion.

One hour ago even this bill was voted down. Thanks, Senate Republicans for getting it right this time. That wasn’t that hard, now was it? You could have done this much earlier. It could have saved us roughly $8 trillion.

I don’t doubt for a second that Nancy Pelosi, Hank Paulson, Harry Reid, and George Bush are already convening in order to figure out a way how to force the scam down the taxpayer‘s throat this time.

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Xmas gifts for Wachovia execs

As the Chronicle’s James Temple reported earlier this month, it’s sayonara for most of Wachovia’s top executives when Wells Fargo’s takeover is complete, around Christmas time. He also noted that golden parachutes will be billowing all over Charlotte, N.C., where Wachovia is based.

Now we have hard numbers. According to an SEC filing, the failing bank’s top 10 executives will be eligible for a total of $98.1 million in severance pay. At last report, two of those executives are moving over to Wells, so the actual tab will be a little smaller. CEO Bob Steel and chairman Lanty Smith aren’t eligible for severance, but not to worry. They get to reap $2.5 million in stock based rewards as a going away present…

Wells Fargo already received $25 billion from the taxpayers under the Federal Reserve’s TARP program, part of the $700 billion bailout, approved by our heroic representatives in Congress. They, along with other banks, will have enough money available for many more of these games.

In fact, since they are “too big to fail”, they will most likely receive much more. And rightfully so. Now is really the time for the tax paying workers in this country to cut back and give those ailing executives a well deserved break for a job well done…

…Wachovia lost $33 billion in the last two quarters.

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