Oxymoron defined: We’re borrowing and spending our way out of debt…
Last week, Goldman Sachs estimated that losses worldwide could mount to $2 trillion, about double what has been realized so far.
British Prime Minister Gordon Brown told the Financial Times on Saturday that banks need to reveal the true size of their losses as a step toward moving past the crisis.
Meanwhile, across the pond, the U.S. government early Friday morning agreed to invest $20 billion in Bank of America, and to protect the bank against up to $118 billion in potential losses from bank assets related to risky mortgage loans.
Early Friday morning, Bank of America reported a $2.39 billion fourth-quarter loss and slashed its quarterly dividend to a penny. Meanwhile, Merrill Lynch posted a $15.31 billion loss for the period. The company reported a profit of $4 billion for the year.
Pardon me if I worry….
John E. Carey
Peace and Freedom
Taxpayers are poised to take on the “toxic” debts of High Street lenders in a new bank rescue deal that could cost the Treasury billions of pounds.
By Katherine Griffiths, Mark Kleinman and Patrick Hennessy
The Telegraph (UK)
Under the “pay as you go” plan, details of which were still being hammered out on Saturday, the Government will create a new insurance scheme that would see liabilities of up to £200 billion potentially kept on the public books for years.
Taxpayers would not face an immediate upfront cost but could be hit with payments in future if banks’ assets fell below a certain level.
The insurance scheme has won favour at the expense of alternative plans to create a “bad” bank under which the Government would have simply bought banks’ existing toxic debts.
The latest rescue plan comes amid growing concern that lenders are about to unveil losses for 2008 that will shock the market.
Royal Bank of Scotland (RBS) could reveal about £20 billion of losses which would be the biggest corporate loss ever in Britain. HBOS’s bad debts, meanwhile, are thought to be so serious that the Government will press for the Lloyds Banking Group to come under state control.
In a closely linked plan, the Government is preparing to “swap” certain types of shares in RBS, increasing its stake in the troubled lender from almost 60 per cent to 70 per cent. Ministers believe it is increasingly likely that they will now have to fully nationalise the Edinburgh-based bank.
Under the same share-swap scheme the Government could increase its holding in the enlarged Lloyds bank from 43 per cent to over 50 per cent, giving it a controlling stake. Lloyds is expected to fiercely resist the move.
Details of Labour’s latest bail-out plans, which could be announced as soon as Monday, came as Gordon Brown, the Prime Minister, stepped up his rhetoric over irresponsible lending.
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