Failed Financial Institutions

Here’s a roll up of the current set of Wall Street failures and the aftermath. Thought I’d be amusing to put them in one place.

  • WAMU – bankrupt, filed for FDIC protection, accounts bought by JPM
  • Bear Stearns – sold to JPM with the backing of the Fed
  • A.I.G. – propped up by the Fed under a special loan program
  • Freddie Mac & Fannie Mae – under Federal conservatorship
  • Lehman Brothers – filed for bankruptcy, most assets bought by Barclays
  • Countrywide Financial – picked up by Bank of America right before it fell apart
  • Merrill Lynch – picked up by Bank of America in anticipation of Merrill’s collapse
  • Fortis – nationalized by Belgium, Luxembourg, and the Netherlands
  • Wachovia – first bought with an FDIC guarantee by Citi, but it looks like Wells Fargo is going to get it

I’m sure there are a few I’m missing in here, but ouch, that’s a lot of death and destruction.

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Federal Ownership

In the NYT piece today, David Leonhardt covers a bunch of Q&A on the latest round of government bail outs. This one seemed particularly interesting.

Fannie and Freddie are in a conservatorship; the government clearly controls them. A small part of the assets of Bear Stearns are owned outright by the Fed; it controls them.

The A.I.G. situation is a bit more complicated. It’s still a private company, not one technically controlled by the federal government. But the Fed does have the ability, clearly, to veto dividends, among other things.

And I think it’s safe to assume that the Fed also has a significant degree of power that hasn’t been fully spelled out. After all, the chief executive of A.I.G., Robert B. Willumstad, stepped down at the request of the Treasury secretary, Henry M. Paulson Jr. That may have been a request that Mr. Willumstad couldn’t refuse.


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Economic Stimulus

While the country is pondering a stimulus package for the economy, here’s an article from Time dated Dec 2, 1929 which details the plans of various Captains of Industry to bootstrap the then moribund economy. I also love how classicly written the article is, in a language we woudn’t hear any more these days.

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Sovereign Wealth Funds

There’s a lot in the news the last couple of weeks about the investments Sovereign Wealth Funds have been making in to American companies. They’re a incredibly fascinating component to the new global flow of money, especially now as they are taking large stakes in America’s capital starved banks. Let’s break down who has done what in the last few months (from NYT):

  • Merrill Lynch: $4.4 billion from Temasek Holdings (Singapore, owner of Singapore Airlines, SingTel, half of Virgin Airlines, etc)
  • Merrill Lynch: $6.6 billion from Korean Investment Corp and Kuwait Investment Authority (the second cash infusion in two months, done as convertible stock)
  • Morgan Stanley: $5.5 billion from China Investment Corporation (formed to manage a fraction of China’s $1+ trillion American dollars)
  • Citigroup: $7.5 billion for 4.9% from Abu Dhabi Investment Authority (wasn’t really in the news until this last year, but has over $1 trillion in management)
  • Citigroup: $12.5 billion from a group including Government of Singapore Investment Corporation (the other major SWF in Singapore, larger in capital than Temasek)

Foreign governments and banks have been the ones basically running the American economy for the last four or five years by buying American debt; it’s only natural they’d want a bigger piece of the pie. Most of the investments have come as non-voting shares, in what would seem largly to avoid the fate of Cnooc attempted buyout of Unocal or Dubai Ports World attempted purchace of P&O. It’ll make an interesting twist if they don’t see returns on their investments and if exercise their influence in American banking.

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