UPDATE 5: NEWSFLASH: RTC/RFC proposal, also new FDIC for MMFs

This just in, Treasury Secretary Paulson now confirming that the government is pursuing a plan similar to what happened to the savings and loan.

While the exact details haven't been released. I will be updating this as more news comes out. For those who aren't aware of what a Resolution Trust Corporation or RTC is, basically it's an outfit that buys the bad loans from failing banks to supply capital. Well, it's a lot more complicated than that. I will be posting a primer on this tonight. Anyways, below is an excerpt from CNBC's site.

Treasury Secretary Henry Paulson is working on a plan that would set up a government facility to take on bad debts from financial institutions, preventing a worsening of the global credit crisis, Wall Street sources have told CNBC.

The facility would be similar to the Resolution Trust Corporation, which was set up in the late 1980s to take on all the failed thrift assets during the savings and loan crisis, these sources said.

Paulson is said to be shopping the proposal to lawmakers in Congress, a congressional aide told Reuters.

- excerpt from "US Weighing Plan to Set Up Facility to Hold Bad Debts", CNBC, 2008.

It should be noted that Representative Barney Frank had been calling on the government to come in and just this months ago. Back then, financial companies like Lehman were trading near $100 giving off reassurances, and Barney Frank was laughed at. Guess who was correct?

Cross posted on
The Economic Populist
A Community Site for Economics Freaks and Geeks

Below is a link of CNBC's video announcing this. Sorry, not sure how to post the actual video on here. Anways, take a look.

Charlie Gasparino reporting on Paulson's RTC plan.

Update 2:

Senator Schumer's proposes establishing a different organization than the Resolution Trust Corporation. Along the same lines of the Depression age Reconstruction Finance Corp. Under Schumer's plan, the RFC would infuse new capital into the ailing instution, BUT would hold preferred stock becoming part owner of the bank or financial company, along assuming the debt. Secondly, mortgages would be renegotiated to give more breathing room to homeowners.

``The series of ad-hoc interventions in the market over the past 10 days were important to avoid a systemic disaster,'' Schumer said. ``But we cannot continue to act in such an uncoordinated and ad-hoc fashion.''

Under Schumer's RFC plan, ``the government would come first,'' he said. ``The government would get repaid before the others in the financial chain.''

- excerpt from Bloomberg's talk with Senator Schumer.

Update 3:

There are now two competing plans. One, by Senator Charles Schumer, establishing a Reconstruction Finance Corp. And the yet-announced/still formulating Treasury Secretary Paulson's Resolution Trust Corp type plan.

Update 4: Wall Street Journal is reporting that the Treasury is now not looking at duplicating the old Resolution Trust Corporation. As I am typing this, officials are meeting at the White House. Details to come forth shortly!

Update 5:

Paulson claims any new plan must be approved by Congress. The new details coming out are that we will see a hybrid of the Resolution Trust Corp and the Reconstruction Finance Corporation. That this new RTC/RFC will be there to provide capital for banks who are not at death's door but would soon be. For those who are almost dead, they would not only buy the bad debt, but take stock into the financial company in question. Several questions remain. Will this new RTC/RFC agency also take stock into financials that it will inject capital into? At what price will this new hybrid purchase this bad debt?

Also, this new government plan, would introduce a new FDIC program for Money Market Funds. This comes in the light of the closures of one major retail MMF this week and today's Institutional Money Market Fund.



what a rollercoaster

So glad you posted this, I was out, expecting yet another 200 down and come back to irrational exuberance. The only thing I can think of who is making a hell of a lot of money are those insiders who predict the unpredictable.

On CNBC videos, they don't themselves allow embedding or allow you to (easily) capture them. Bad CNBC.

VIX was 37 last night

I wrote a friend last night that the odds were, this would be a good time to buy for a short term profit. There was too much fear/panic in the market. Paulson's embrace of some kind of RTC gave the ammo necessary.

None of the markets are trading on "fundamentals" right now. It's all about emotion. If you have cash, a cool head, and access to a trading terminal, the suckers are probably easy pickings ....

I agree

no one has any time to figure out what any of this really means, especially on the federal deficit/taxpayer at this point. I feel we're in some massive car chase and the ones running the show are trying to shake us off of their tail.

Anybody want to write about "level 3 assets" and how nobody seems to know what exactly they are? I just saw on CNBC that balance sheets are now BS versus the real health of a company. Lovely.

Day traders must be having a field day, unless you accidentally buy something that collapses if you wait and buy close enough you're almost guaranteed to hit a limit due to the volatility.

LOL. Cramer just said "let's just give every homeowner in the United States 50k and skip this $1T buy out it would be cheaper that way".

There is some massive meeting this evening on the hill on all of this.

How many trillions is this going to cost?

I'm just curious if the taxpayer's pockets are bottomless?

I have a bigger question

Can the US default on it's debt? Over in the Instapopulist I have a Reuters current cost tally and others had $800B. I would imagine this would put the federal deficit in a spike @ 40% of GDP and that is not the worst the United States have ever had as a ratio, but at the same time these corporations have offshore outsourced the jobs or insourced and displaced US workers, turned stable careers into disposable workers and have turned buying a home playing roulette and just looking at it in terms of short term housing costs. So, that's different from past absurd ratios of debt to GDP. We also now have phantom GDP where they subscribe growth here when they are counting offshore outsourced jobs in the equation.

So, is this possible that our lovely Government literally puts the United States itself into bankruptcy? Or we will just all need to learn Chinese and merge with China?

This could turn out to be the biggest

scam ever pulled on China!

watching CNBC

and I'm seeing other people (God, I was having a wonder if I was alone) shaking heads saying the real problem is these companies are leveraged 30:1, 40:1, 50:1 and no one is addressing these credit default swaps or derivatives.

Another guy is shaking his head saying that press meeting was the most frightening thing he had ever seen because now they are throwing the kitchen sink at Wall Street bailing it out.

blame the geeks now

Risk Models article from the New York Times.

Basically they imply no one understood the new "exotic mortgage and investment vehicles" so the software which models risk didn't update the risk appropriately.



For those reading this and aren't up on their 3 letter mneumonics, RTC and RFC

Gives a little history on where these things originate from.

Systemic Risk

Ok, now the buzz words are systemic risk. But do we really know this is true as it's getting dumped onto the US taxpayer in masse?

And while they make their deals behind closed doors there is a huge, huge difference between the New Deal, which was Keynesian and built from the bottom up, gave the money to the people, created jobs for it's citizens and rebuilt the nation...

in this case is it all simply to keep these bastards in the money and in power? I mean they did it. They were warned about the ticking time bomb of derivatives, they leveraged themselves 40:1, 50:1 even 70:1, they (and who is completely sure how they even work) created default credit swaps...

So, are they rebuilding the manufacturing base of this country? Are they going to put US citizens to work? Are they going to fund public works to rebuild infrastructure, fund college education for US citizens, R&D for Americans to work in?

I mean what the shit is going on here? We have a huge drop in the stock market and that means the world is coming to an end and they have to do the mother of all bail outs?

Seriously, let's go digging.

1/2 a Trillion in additional dollars!

Bad Debt Plan May Cost Up to Half a Trillion Dollars CNBC is reporting now.

Good f**king God, we're now at $1.4 trillion in a matter of a few weeks.

good audio of what happened and why

Peter Schiff does an excellent job of explaining what is going on. Listen to Sep 17th file.


It's all bad news, but people need to understand the truth because TV isn't showing it.

Oops, sorry if I double post.

Update #6: even with a new

Update #6: even with a new administration, not even a term in office will be enough catapult our country to economic prominence.