The Bush Economy, Monday, 29SEP08 PM


Fasten your seatbelts and return your seats and tray tables to their
fully upright position. The *** is hitting the fan...

DOW down 777.68 6.98%
Nasdaq down 199.61 9.14%
S+P down 106.62 8.79%
FTSE down 269.70 4.30%
DAX down 256.42 4.23%
CAC 40 down 209.90 5.04%
Hang Sengdown 801.41 4.29%
Straits down 50.12 2.08%
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Wachovia Bites the Dust, Citigroup Cements 'Too Big to Fail' Status Posted
Sep 29, 2008 01:37pm EDT by Aaron Task in Investing, Venture Capital, M
and A, IPOs, Recession, Banking Related: C, WB, JPM, BAC, MS, GS, XLF

Facing insolvency, Wachovia became the credit crunch's latest victim
Monday, selling its banking operations to Citigroup for $2.2 billion, or
$1 per share. Citi will assume Wachovia's debt, meaning bondholders will
not be wiped out, as they have in some recent transactions.

After the deal, Citigroup have one of nation's largest retail bank
franchises and cements its place among a handful of other firms that
appear truly "too big to fail," lest the entire U.S. banking system
crumble: Bank of America, JPMorgan Chase, Wells Fargo, Morgan Stanley and
Goldman Sachs.

The deal is far from a coup for Citigroup, which expects to take a loss of
up to $42 billion to write down Wachovia's $312 billion loan portfolio.
Citi slashed its dividend and said it will seek to raise $10 billion in
equity to offset the loss. The transaction was brokered by the FDIC, which
received $12 billion of warrants in Citi in exchange for insuring the
bank's losses won't exceed $42 billion.

Speaking of the FDIC: Unlike Washington Mutual, Wachovia had not been
taken over by regulators prior to the deal. But just like JPMorgan's
acquisition of Washington Mutual last week, the deal was brokered by the
FDIC, which wanted no part of having to insure Wachovia's depositors.

"All depositors are fully protected and there is expected to be no cost to
the Deposit Insurance Fund," the FDIC said in a statement. "Wachovia did
not fail; rather, it is to be acquired by Citigroup Inc. on an open-bank
basis with assistance from the FDIC."
http://finance.yahoo.com/tech-ticker/article/78053/Wachovia-Bites-the-Dust-Citigroup-Cements-'Too-Big-to-Fail'-Status?tickers=C,WB,JPM,BAC,MS,GS,XLF
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AP
Fannie, Freddie disclose subpoenas, investigations Monday September 29,
3:04 pm ET
By Alan Zibel, AP Business Writer
Federal investigations target accounting, disclosure and governance at
Fannie and Freddie

WASHINGTON (AP) -- Adding to their woes, mortgage finance giants Fannie
Mac and Freddie Mac are facing a federal grand jury investigation into
their accounting practices.

The mortgage finance companies said Monday that a federal grand jury in
New York is investigating accounting, disclosure and corporate governance
issues at Washington-based Fannie and McLean, Va.-based Freddie.
http://biz.yahoo.com/ap/080929/mortgage_giants_investigations.html
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AP
Sovereign shares plummet amid concerns in banking Monday September 29,
4:44 pm ET
By Candice Choi, AP Business Writer
Concerns in banking sector send Sovereign Bancorp shares plummeting,
despite analyst's upgrade

NEW YORK (AP) -- Fresh fears about instability in the banking sector sent
shares of Sovereign Bancorp Inc. plummeting more than 70 percent to a
record low Monday.

Shares dropped $6.04, or 72 percent, to close at $2.33 in the regular
session after bottoming at $2.20, its lowest price in almost 22 years.
http://biz.yahoo.com/ap/080929/sovereign_bancorp_mover.html
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AP
Latin America stocks plunge as US bailout rejected Monday September 29,
5:59 pm ET
By Alan Clendenning, AP Business Writer Latin American stocks plunge on US
bailout, fears global crisis will worsen

SAO PAULO, Brazil (AP) -- Latin American stocks plunged Monday as U.S.
lawmakers rejected a US$700 billion bailout package meant to reboot the
global economy and shares of key Brazilian companies plummeted more than
on any day in nearly 10 years.

ADVERTISEMENT
Sao Paulo's Ibovespa stock index led losses, tanking 13.8 percent before
regaining some ground, even as Brazil's president insisted contagion from
the world financial crisis would be small.

Trading was automatically halted for 30 minutes after the Ibovespa crossed
the 10 percent loss threshold. Losses worsened after selling resumed, but
the index regained ground late to close down 9.4 percent at 46,028. It was
the index's worst one-day slump since falling 10 percent on Jan. 14, 1999,
the last time trading was halted.

Losses were seen across all sectors, although Brazilian steelmakers and
Companhia Vale do Rio Doce SA, the world's biggest producer of iron ore,
steel's raw ingredient, were hit particularly hard on concern that slowing
growth will cut demand for steel.

Brazil's currency, the real, closed down 6.4 percent against the U.S.
dollar, reaching its lowest level since Sept. 5, 2007.

President Luiz Inacio Lula da Silva lashed out against excesses by U.S.
and European bankers that he said could scuttle economic advances made by
developing nations in recent years.

"We can't be turned into victims of the casino erected by the American
economy," Silva told reporters after earlier insisting that Brazil faced
few risks from a U.S. economic crisis. "It's not fair that Latin American
countries and African countries have to pay for the irresponsibility of
the American financial system."

Buenos Aires' Merval index meanwhile dropped 8.7 percent to close at
1,545, while Mexico's main index slipped 6.4 percent to close at 23,956.
Chile's Ipsa index closed down 5.5 percent to 2,631 and Colombia's IGBC
index dipped 2.4 percent to 9,140.

Mexican billionaire Carlos Slim Helu described the current financial
crisis as "the worst I have known in all of my life, and the most complex
since 1929," when stock markets plunged, triggering the Great Depression.

"It's obviously bigger, because we are talking about an economy that is a
lot bigger," said Slim, who has been ranked one of the world's richest
men.

Risk-averse investors have pulled cash from emerging markets in recent
weeks, dumping company shares amid fears that the current financial crisis
will tighten access to credit and slow growth around the world.

The carnage hit a low-point in Latin America Monday after the U.S. House
of Representatives rejected a bailout plan, ignoring urgent pleas from
President Bush and bipartisan congressional leaders to quickly bail out
the staggering financial industry.

Many analysts had considered the plan key to restoring confidence in the
global economy.

A flurry of bank bailouts also swept Europe, including the British
government's nationalization of mortgage lender Bradford & Bingley and the
partial takeover of struggling bank Fortis NV by Belgium, the Netherlands
and Luxembourg. The European Central Bank meanwhile joined the U.S.
Federal Reserve in doubling the credit swap line that makes dollars
available to cash-hungry banks in a bid to temper tightening credit.

So far, no Latin American banks have neared insolvency -- although some
are owned by U.S. and European institutions, raising fears that private
credit sources could soon dry up.

"Brazil is taking the biggest hit because it has the largest amount of
foreign investors and the biggest and most liquid market," said Enrique
Alvarez, head of research for Latin American financial markets at
IDEAglobal in New York.

But he also warned that Mexico and Colombia could be seriously affected,
given their close political, economic and trade ties to the U.S.

In Argentina, the crisis is likely to cause capital flight, interest rate
hikes, currency reserve losses, and reductions in consumption and bank
lending, said Jose Luis Espert, an economist at the Espert y Asociados
consultancy in Buenos Aires.

"We're going to continue seeing high volatility," added Juan Ignacio Di
Santo, an analyst at the Buenos Aires-based brokerage Puente Hermanos.
"The contagion is across the board."

Despite Monday's losses, Silva insisted that Brazil's lower debt burden
and diversified export markets have well-positioned the country to
withstand a global downturn.

"We know this crisis is serious, we know that it's going to reduce global
credit, but we're sure that our exports will continue going well and our
industry will continue growing," he said.

Brazil, Latin America's largest economy, has enjoyed an extended consumer
spending boom, fueled by rising demand for its iron ore, farm and
manufactured exports. The country paid off all its foreign debt in
February and now has currency reserves of more than US$200 billion.

Similar conditions have helped many Latin American economies outperform
developed nations this year, even as the U.S. mortgage crisis deepened.
But that good run was clearly in jeopardy on Monday.

"You have a very large increase in risk aversion" as markets correct to
match the growing decline in global economic activity, IDEAglobal's
Alvarez said. "Market participants are scared of the potential of U.S.-led
global recession starting to take shape."
http://biz.yahoo.com/ap/080929/lt_latam_markets.html
======

AP
Fed makes billions available to battle crisis Monday September 29, 4:20 pm
ET
By Jeannine Aversa, AP Economics Writer Fed makes billions available to
battle credit crisis; pledges to act as needed

WASHINGTON (AP) -- The Federal Reserve and foreign central banks moved
Monday to pump billions of dollars to cash-strapped banks at home and
abroad in a dramatic bid to break through a credit clog and spur lending.

The Fed said the action is intended to "expand significantly" the cash
available to financial institutions, its latest effort to relieve the
worst credit crisis since the Great Depression.



-----
AP
Stocks tumble as bailout plan fails in House Monday September 29, 5:49 pm
ET
By Tim Paradis, AP Business Writer
Stocks plunge as financial bailout plan fails in House vote; Dow fall 777,
biggest drop ever

NEW YORK (AP) -- Wall Street's worst fears came to pass Monday, when the
government's financial rescue plan failed in Congress and stocks plunged
precipitously -- hurtling the Dow Jones industrials down nearly 7 percent.
The almost 780-point decline was the largest one-day point drop ever for
the index.

The percentage declines for the Standard & Poor's 500 and Nasdaq composite
indexes were even larger. And credit markets, whose turmoil helped feed
the stock market's angst, froze up further amid the growing belief that
the country is headed into a spreading credit and economic crisis.

Stunned traders on the floor of the New York Stock Exchange, their faces
tense and mouths agape, watched on TV screens as the House voted down in
midafternoon the administration's $700 billion plan to buy up distressed
mortgage securities. Activity on the floor became frenetic as the "sell"
orders blew in.

The Dow told the story of the market's despair. The blue chip index,
dropped by hundreds of points in a matter of moments, and by the end of
the day had passed by far its previous record for a one-day drop, 684.81,
set in the first trading day after the Sept. 11, 2001, terror attacks.

The selling was so intense that just 162 stocks rose on the NYSE -- and
3,073 dropped.

It takes an incredible amount of fear to set off such an intense reaction
on Wall Street, and the worry now is that with the rescue plan's fate
uncertain, no one knows how the financial sector hobbled by hundreds of
billions of dollars in bad mortgage bets will recover.

While investors didn't believe that the plan was a panacea, and understood
that it would take months for its effects to be felt, most market watchers
believed it was a start toward setting the economy right after a credit
crisis that began more than a year ago and that has spread overseas.

"Clearly something needs to be done, and the market dropping 400 points in
10 minutes is telling you that," said Chris Johnson president of Johnson
Research Group. "This isn't a market for the timid."

The plan's defeat came amid more reminders of how troubled the nation's
financial system is -- before trading began came word that Wachovia Corp.,
one of the biggest banks to struggle due to rising mortgage losses, was
being rescued in a buyout by Citigroup Inc. It followed the recent forced
sale of Merrill Lynch & Co. and the failure of three other huge banking
companies -- Bear Stearns Cos., Washington Mutual Inc. and Lehman Brothers
Holdings Inc.; all of them were felled by bad mortgage investments.

And it raised the question: Which banks are next, and how many? The
Federal Deposit Insurance Corp. has a list of over 110 banks that were in
trouble in the second quarter, and that number surely has grown in the
third.

Traders on the floor were stunned by the House vote.

"How could this have happened? Is there such a disconnect on Capitol Hill?
This becomes a problem because Wall Street is very uncomfortable with
uncertainty," said Gordon Charlop, managing director with Rosenblatt
Securities. "The bailout not going through sends a signal that Congress
isn't willing to do their part."

Wall Street is contending with all these issues against the backdrop of a
credit market -- where bonds and loans are bought and sold -- that is
barely functioning because of fears that anyone lending money will never
be paid back.

The evidence of the credit markets' ills could again be found Monday in
the Treasury's 3-month bill; investors were stashing money there, willing
to take the tiniest of returns simply to be sure that their principal
would survive in what's considered the safest investment. The yield on the
3-month bill was 0.15, down from 0.87, and approaching zero, a level
reached last week when fear was also running high.

Analysts said the government needs to find a way to help restore
confidence in the markets.

"It's probably fair to say that we are not going to see any significant
stability in the credit markets or the stock market until we see some sort
of rescue package passed," said Fred Dickson, director of retail research
for D.A. Davidson & Co.

Treasury Secretary Henry Paulson indicated that the government would try
again.

"We need to put something back together that works," Paulson said. "We
need it as soon as possible."

On Wall Street, the Dow fell 777.68, or 6.98 percent, to 10,365.45. The
decline also surpasses the 721.56-point intraday decline record also set
during the first trading day after the terror attacks. Still, it was the
17th biggest percentage decline for the Dow and remained well below the
more than 20 percent drops seen on Black Monday of October 1987 and the
Depression.

Broader stock indicators also tumbled. The Standard & Poor's 500 index
declined 106.85, or 8.81 percent, to 1,106.42. It was the S&P's
largest-ever point drop and its biggest percentage loss since the Oct. 19,
1987, crash.

The Nasdaq composite index fell 199.61, or 9.14 percent, to 1,983.73, the
third worst percentage decline for the index.

The Russell 2000 index of smaller companies fell 47.07, or 6.68 percent,
to 657.72.

A huge drop in oil prices was another sign of the economic chaos that
investors fear. Light, sweet crude fell $10.52 to settle at $96.36 on the
New York Mercantile Exchange as investors feared that energy demand would
continue to slide amid further economic weakness.

And gold, where investors flock when they need a relatively secure
investment, rose $23.20 to $911.70 on the Nymex.

Marc Pado, U.S. market strategist at Cantor Fitzgerald, said investors are
worried about the spread of troubles beyond banks in the U.S. to Europe
and other markets.

"Things are dying and breaking apart," he said.

The federal Office of Thrift Supervision, one of the government's banking
regulators, indicated that the market was overreacting to the House vote
and that its fears about the financial system are misplaced.

"There is an irrational financial panic taking place today, and we support
and applaud the continuing efforts of Secretary Paulson and congressional
leadership to restore liquidity and public confidence," John Reich,
Director of the federal Office of Thrift Supervision, said in a statement.
"We will continue to work diligently with our institutions to ensure they
operate safely and soundly, and to restore stability to the marketplace."

Spokesmen for the Treasury Department's Office of the Comptroller of the
Currency and the Securities and Exchange Commission had no immediate
comment after the House voted against the bailout package.

Lawmakers voted down a plan that was different than what the Bush
administration had originally proposed. There were restrictions allowing
Congress to limit how much of the money goes out the door at once. It also
included caps on pay packages of top executives as well as assurances that
the government also would ultimately be reimbursed by the companies for
any losses. The Treasury would have been permitted to spend $250 billion
to buy banks' risky assets, giving them a much-needed necessary cash
infusion. There also would be another $100 billion for use at president's
discretion and a final $350 billion if Congress signs off on it.

But Wall Street found further reason for worry overseas, as the fallout
from U.S. economic problems kep spreading. Three European governments
agreed to inject Fortis NV with a $16.4 billion bailout. Fortis, with has
headquarters in Brussels, Belgium and Utrecht, Netherlands, is Belgium's
largest retail bank.

The British government, meanwhile, said it is nationalizing mortgage
lender Bradford & Bingley, which has a $91 billion mortgage and loan
portfolio. It was the latest sign that the credit crisis has spread beyond
the U.S.

The economic news in the U.S. only made matters worse. The Commerce
Department said consumer spending fell in August to its lowest level in
six months, while analysts expected it to edge up slightly. With consumers
already uneasy and the uncertainty from the financial markets likely to
spill over to the rest of the country, the outlook for spending remains
bleak -- and consumers are the biggest driver of economic growth.

Business Writers Joe Bel Bruno in New York and Christopher S. Rugaber in
Washington contributed to this report.
http://biz.yahoo.com/ap/080929/wall_street.html
=====

Remember, the neocons have been saying that the economy is "sound" and
"peachy" for months and years.

--
Regards, Curly
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Don't Be Frightened, Bush Lied
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