Personal Financial Management Philosophies: Perpetual Income Generation

A student who earned a few thousand dollars over the summer working remarked to me yesterday, "I don't know how I'm going to spend the money if I don't use it to travel over the holidays." At first, this statement seemed quite innocuous, in line with what I have come to expect in our work-and-spend, consumer-oriented society. People earn money working and then, quite predictably, spend the bulk of their earnings soon thereafter, buying all types of consumer goods and services with whatever remains after paying for life's essentials. Three Personal Financial Management Philosophies Upon further consideration, I became struck with just how one-sided the student's attitude on what to do with his money is. On the spectrum of personal money management philosophies, he is at the consumerist end of the two extremes:

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General Motors to Report $2.5 Billion Third Quarter Loss

General Motors Corp. (GM) has reported a $2.5 billion loss in the third quarter and warned that it could run out of cash in 2009 if the United States economic slump continues and it does not get government aid.

Recently, GM has suspended its ambition to acquire Chrysler. According to GM, the acquisition of Chrysler was considered as a strategic acquisition. GM believes that the acquisition could potentially provide significant advantages.

GM reported that its cash burn for the quarter accelerate to $6.9 billion and the bailout from the government would be highly important because of the slow economy and credit crisis. If the company is running out of cash, generally, it can sell assets, cut costs or file for bankruptcy protection to keep creditors at bay while they develop a financial reorganization plan. However, according to Rick Wagoner, a GM Chairman and CEO, the company will take every action that needed to avoid bankruptcy.

GM has also reported that it will indefinitely lay off about 3,600 employees beginning early next year as it slows production at 10 of its assembly plants. The news came hours after Ford Motor Co. reported that it has lost $129 million for its third quarter and will cut about 2,260 more employees in North America as the industry tries to weather the worst economic downturn in decades.

GM, the US’s largest domestic automaker, has reported a net loss of $4.45 per share during the quarter, compared with a record-setting loss of $39 billion, or $68.85 per share, a year ago. The adjusted loss of the company was $4.2 billion, or $7.35 per share, with an adjusted loss of $2.8 billion for its automotive operations. Moreover, the revenue fell to $37.9 billion from $43.7 billion, due to the deterioration of U.S. and global economies. The loss has exceeded Wall Street’s estimation. Analysts surveyed by Thomson Reuters predicted a loss of $3.70 per share on sales of $39.4 billion.

GM has announced that it would improve liquidity by $5 billion by the end of next year by reducing sales promotions, cutting capital spending, and further cutting production in the first quarter. Moreover, the company has also suspended its matching contribution for employee 401K plans, and suspended tuition reimbursement. It means that the salaried employees will not get incentive pay next year for their work in 2008.

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US Financial Crisis Can Cause the Fallout in Developing Countries

Many ways have been taken to tackle the unfolding economic crisis; the condition has made world finance ministers to worry the fallout in developing countries and poor nations.

President Bush and global financial leaders sought to show unity Saturday as a way to calm investors whose panic has spread despite stepped up government action. The crisis has dominated discussions at the meeting of the Group of Seven industrialized nations and the annual sessions of the World Bank and International Monetary Fund. Many participants spoke in unusually somber tones of the need for action.

The discussions shifted Sunday to the World Bank and its policy-setting committee, led by Mexican Finance Minister Agustin Carstens and the bank's president, Robert Zoellick, a former U.S. diplomat and trade negotiator.

According to Bush, his administration was doing every possibility to halt the biggest market disruption since the Great Depression. Accompanied by Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson, he participated for about 25 minutes in a discussion late Saturday with the Group of 20 nations, which includes wealthy countries as well as major developing countries such as China, India and Brazil.

In a joint statement, the G-20 finance officials promised to work together "to overcome the financial turmoil, and to deepen cooperation to improve the regulation, supervision and the overall functioning of the world's financial markets."

Other speakers at a policy meeting of the IMF echoed Bush in stressing the important of countries to work together to solve the crisis, avoiding the go-it-alone projectionist trade strategies that worsened conditions during the Great Depression of the 1930s.

Meanwhile, European leaders were meeting Sunday in Paris in search of a common response to the financial crisis. The result could be a hard exercise for the 15 heads of state or government of the euro-zone, where the euro currency is used, because of the varied financial landscapes in each country.

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EBay Will Get Rid of Hundreds of Its Workers

EBay Inc., which is the biggest online auction site, is still making lots of money. However, the company has been struggling to attract new users. Moreover, EBay will also cut about 1,000 jobs in an effort to reshape its business. The cuts amount to 10% of eBay's work force.

EBay has planned to get rid of hundreds of impermanent workers, and reduce open positions. EBay will make a "creating efficiency" campaign in areas that require it. EBay expects restructuring charges of about $70 million to $80 million because of the cuts, mostly in the fourth quarter. EBay said the actions would lead to $150 million in annual cost savings.

Meanwhile, the latest round of cuts follows eBay's announcement earlier this year that it was cutting 125 jobs in North America and Europe, including 70 posts at its headquarters in San Jose, Calif.

It seems that the economic crisis and the effects of the strengthening dollar are affecting EBay's businesses. Nonetheless, eBay said its third-quarter earnings would be higher than it predicted in July, though profit will be at the low end of its expectation. The company is scheduled to report third-quarter results on Oct. 15. In addition, EBay shares were down $1.19, 6.3%, at $17.75 in morning trading.

Recently, EBay also planned to acquire Bill Me Later for $820 million in cash and $125 million in outstanding options. Moreover, the company also will acquire Danish classifieds site dba.dk and vehicles site bilbasen.dk for $390 million in cash.

Bill Me Later is an online payments business company, which allows online retailers to offer shoppers credit. According to EBay, Bill Me Later has "sophisticated underwriting techniques" and tells shoppers within seconds if they are approved for credit, without detailed application forms. Bill Me Later will become part of PayPal, the online payment service EBay acquired in 2002.

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Wall Street Often Hitting the Ground Several Times

On Monday, Wall Street often hitting the ground several times as fears grew that the financial crisis will cascade through economies globally despite rescue efforts by the U.S. and other governments. The credit market remained under pressure, and investors put their money into government bonds. The Dow Jones industrials skidded more than 200 points.

It seems that the Bush administration's $700 billion bailout will not work quickly to unfreeze the credit markets, and that many banks are still struggling to gain access to cash. Over the weekend, governments across Europe rushed to prop up failing banks. The France's BNP Paribas agreed to acquire a 75 percent stake in Fortis's Belgium bank after a government rescue failed, while the German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG.

The governments of Ireland, Germany and Greece also said they would guarantee bank deposits. Moreover, the Fed also took fresh steps to help ease seized-up credit markets. The central bank said Monday it will begin paying interest on commercial banks' reserves and will expand its loan program to squeezed banks.

In the first hour of trading, the Dow Jones industrial average dropped 231.13, or 2.24%, to 10,094.25. In addition, broader indexes also tumbled. The Russell 2000 index of smaller companies fell 15.63, or 2.52%, to 603.77. The Standard & Poor's 500 index shed 28.21, or 2.57%, to 1,071.02; and the Nasdaq composite index fell 49.39, or 2.54%, to 1,898.00.

The nervous was again obvious in the credit markets. The yield on the three-month Treasury bill slipped to 0.37% from 0.50% late Friday. Demand for bills remains high because of their safety; investors are willing to sacrifice in the low return investments just to make sure that their money in a secure portfolio. Moreover, the Investors also moved into longer-term Treasury bonds. The yield on the 10-year note dropped to 3.52% from 3.60% late Friday.

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Get Yourself Connected with Great Investing Community

We all know that the recession here in the US has affected the world economy. I have experienced the situation when all of my investments were going down and loosing my whole money seconds by seconds. I was so frustrated. Honestly, the willing to take a risk by investing our money is somewhat frightening to me because of this economic crisis condition. Recently, my mom asked me if it is still good to invest. In my humble opinion, even we are facing uncertain condition; there is still hope that we will able to survive from this unpleasant situation.

Wherever I go these days, as soon as people find out I work in financial institution, they always want to know what my opinion regarding to the market. Well, I only can answer that it is difficult to judge where the market will ahead for the remainder of 2008. Talking about investment, I just came across from a site called Inner 8. Here, you can find out lots of sophisticated tools powered by proprietary analytics, and the focused wisdom of a connected investing community. Well, there are many resources to learn about investment. All of the resources that have been offered are a good start for us to learn how to become a successful investor.

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Wachovia Agreed To Be Acquired By Wells Fargo, Citigroup Objects

Charlotte, N.C.-based Wachovia says it agreed to be acquired by San Francisco-based Wells Fargo & Co. in a $15.1 billion all-stock deal. However, New York-based Citigroup now demands that Wachovia abide by the terms of its earlier deal to acquire Wachovia's banking operations.

According to the Citigroup, its agreement with Wachovia provides that Wachovia will not enter into any transaction with any party other than Citigroup or making agreement with anyone else.

The Citigroup deal would have been done with the help of the Federal Deposit Insurance Corp., but the Wells deal would be done without it. According to the head of the FDIC, the agency is standing behind the agreement it made with Citigroup. Well, the clash sets up a battle over who will win Wachovia.

Related post: Citigroup’s Financial Bet on Wachovia Banking Operations

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Mitsubishi UFJ Merges Its Securities Unit with Morgan Stanley's Brokerage Operation in Japan

Recently, according to Japanese public broadcaster NHK, U.S. investment bank Morgan Stanley and Mitsubishi UFJ Financial Group Inc. are considering a merger of their brokerage units in Japan.

NHK reported plans for the merger but did not provide details or cite sources. Meanwhile, Kyodo News agency, quoting sources familiar with the matter, also mentioned Mitsubishi UFJ, Japan's largest bank, was considering merging its securities unit with Morgan Stanley's brokerage operation in Japan.

Nevertheless, Mitsubishi UFJ said in a statement Friday that nothing had been decided. The Japanese bank declined to comment further. Mika Watanabe, a representative of Morgan Stanley in Japan, said, "Nothing concrete has been decided."

The reported move follows a deal launched last month under which Mitsubishi UFJ will acquire a 21% stake in Morgan Stanley for $9 billion, making Mitsubishi UFJ the American investment bank's top shareholder.

Meanwhile, on Thursday, Mitsubishi UFJ Trust and Banking Corp., which is a unit of Mitsubishi UFJ Financial Group, have mentioned that it would acquire up to a 19.9% stake in British investment company Aberdeen Asset Management PLC. for around 40 billion yen ($380 million).

Morgan Stanley, along with Goldman Sachs Group Inc., was one of the two remaining independent Wall Street investment banks until the two recently applied to become commercial banks that take deposits. In addition, Wall Street is in a state of confusion after soured investments in mortgage-backed securities led the U.S. government to propose a $700 billion bailout for the nation's banks.

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30-Year Mortgage Rates Edged Up To 6.10%

Recently, rates on 30-year mortgages have been climbing to the highest level in a month for a second straight week.

Freddie Mac, the mortgage company, reported that 30-year, fixed-rate mortgages averaged 6.10% this week, up slightly from 6.09% last week. It was the highest level since 30-year mortgages averaged 6.35% for the week ending Sept. 4.

Financial markets have been changing direction suddenly in recent weeks as demand for safe-haven Treasury securities has pushed those yields down significantly while rates on other types of corporate bonds have been pushed higher by growing worries about whether the bonds will be repaid.

Those crosscurrents have been reflected in mortgage rates that also have been on a rollercoaster, hitting a high for the year of 6.63% in late July and then falling down below 6% in mid-September.

The recent great anxiety in credit markets has forced those rates up from a seven-month low of 5.78% on Sept. 18, to above 6% for the past two weeks. According to the Freddie Mac survey, other rates were mixed this week. Meanwhile, rates on 15-year fixed-rate mortgages that are popular with people who are refinancing, climbed up to 5.78%, compared to 5.77% last week. Moreover, rates on five-year adjustable-rate mortgages dipped slightly to 6 % from 6.02% last week. However, rates on one-year adjustable-rate mortgages were unchanged at 5.16%.

According to Frank Nothaft, chief economist at Freddie Mac, the rise in mortgage rates from lows hit two weeks ago had dampened a spurt in refinancing. The Mortgage Bankers Association reported that loan applications dropped 23% last week.

The mortgage rates exclude add-on fees known as points. The nationwide fee for 30-year, 15-year and five-year mortgages averaged 0.6 point. The average fee for one-year adjustable-rate mortgages was 0.5 point. In addition, a year ago, the nationwide average rate on 30-year mortgages stood at 6.37%, 15-year mortgage rates averaged 6.03%, five-year adjustable-rate mortgages were at 6.11%, and one-year adjustable-rate mortgages stood at 5.58%.

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Erroneous Transactions in Google Shares

Nasdaq's surveillance arm stated in a statement that there were potentially erroneous transactions in Google shares.

According to a report, the Nasdaq Stock Market will cancel some of the late trades in Google Inc (GOOG.O), whose shares appeared to plunge as low as 1 cent at the close of North American markets on Tuesday.

Earlier, Nasdaq's surveillance arm stated in a statement it was investigating "potentially erroneous transactions" in Google shares. However, a Google spokesperson stated that the company refused to comment on the trading spike.

A spokesperson for exchange parent Nasdaq OMX Group (NDAQ.O) told that the "erroneous orders" that caused the abrupt plunge "were triggered by orders routed from another exchange." She did not mention which exchange routed the trade orders. However, she said that the decision to cancel trades could not be appealed.

According to Nasdaq, transactions at or above $425.29 and at or below $400.52, that were executed between 3:57 p.m. and 4:02 p.m. EST, would be removed. The exchange set Google's closing price at $400.52, up 5.12%. In addition, canceling trades is embarrassing and rare for exchanges, which some say are more susceptible to problems as they become electronic. Nasdaq is an all-electronic venue.

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House Slapped Aside a $700B Rescue Plan

The House, in a vote that shook the government, Wall Street and markets all over the world, has defeated a $700 billion emergency bailout for the nation's financial system. Shocked and disappointed investors sent the Dow Jones industrials plunging 777 points, the most ever for a single day.

In the face of thousands or even for millions of e-mails and phone calls fiercely bucking the measure, many lawmakers were not willing to take the political risk of voting for it just five weeks before the elections. The bill went down, 228-205. The House website was overwhelmed as millions of people sought information about the measure through the day.

According to the White House, senate leaders showed no tendency to try to bring the measure to a vote before they could determine its fate in the House. Meanwhile, President Bush was scheduled to bring a statement on the bailout plan Tuesday morning. Moreover, all sides agreed the attempt to bolster beleaguered financial markets, potentially the biggest government intervention since the Great Depression, could not be abandoned.

Nevertheless, in a surprising display on Monday, a majority of House members slapped aside the best scenario of the government had been able to come up with, opposing presidential speeches, pleading visits from Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke and urgent warnings that the economy could suddenly drop without the legislation.

The legislation the administration promoted would have permitted the government to acquire bad mortgages and other toxic assets held by troubled banks and other failed financial institutions. Getting those debts off their books should bolster those firms' balance sheets, making them more reluctant to lend and ease one of the largest choke points in a national credit collapse. If the bailout plan worked, the thinking went; it would help lift a major weight off the national economy, which is already endangered.

Hoping to pick up enough Grand Old Party (the Republican political party in the United States) votes for the next try, Republicans floated several suggestions. One would double the $100,000 ceiling on federal deposit insurance. Another would end rules that depend on companies to devalue assets on their books to show objectively the price they could get in the market.

As a digital screen in the House chamber recorded a cascade of "no" votes against the rescue plan, Democratic Rep. Joe Crowley of New York shouted news of the falling Dow Jones industrials. "Six hundred points!" he yelled, jabbing his thumb downward. In addition, the final stock carnage far surpassed the 684-point drop on the first trading day after the Sept. 11, 2001, terror attacks.

In the House, "no" votes came from both the Republican and Democratic sides of the aisle. More than two-thirds of Republicans and 40% of Democrats rejected the bill. Several Democrats in close election fights waited until the last moment, then went against the bill as it became clear the vast majority of Republicans were rejecting it.

Related post: White House and Congress Reached Financial Rescue Deal

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Citigroup’s Financial Bet on Wachovia Banking Operations

Recently, Citigroup Inc. has just prepared an extra bet of its financial portfolios to acquire the banking operations of Wachovia Corp. in deal facilitated by the Federal Deposit Insurance Corp.

The extra bet comes after a fevered weekend courtship in which Wells Fargo & Co. and Citigroup both were reportedly examining the Wachovia’s financial reports. Wachovia was suffering from mounting mortgage losses linked to its ill-timed 2006 acquisition of mortgage lender Golden West Financial Corp.

The acquisition of the Wachovia assets comes just days after the government's seizure of Seattle-based Washington Mutual Inc., the biggest bank failure in U.S. history. As details of its takeover unfolded, Wachovia shares plunged 91% in Monday pre-market trading to 91 cents. The stock had closed Friday at $10, down 74 percent for the year.

According to the government agency, in the latest byproduct of the widening global financial crisis, Citigroup will absorb up to $42 billion of losses in the deal, with the FDIC covering any remaining losses. Citigroup also will give the FDIC $12 billion in warrants and preferred stock. Undoubtedly, the risky deal greatly expands Citigroup's retail outlets and leaves it among the U.S. banking industry's Big Three along with Bank of America Corp. and J.P. Morgan Chase & Co.

The FDIC has stated clearly that Wachovia did not bankrupt and that all depositors are protected and there will be no cost to the Deposit Insurance Fund. In addition, Federal Reserve Chairperson Ben Bernanke supports the "timely actions" taken by the FDIC, which show the U.S. government's commitment to financial and economic stability.

Henry Paulson, the Treasury Secretary, also pleased the acquisition of Wachovia to Citigroup, saying it would "mitigate potential market disruptions." Moreover, he also agreed with the Fed and the FDIC that a "failure of Wachovia would have posed a systemic risk" to the nation's financial system.

North Carolina-based Wachovia, the fourth largest banking chain in the U.S. based on total assets, has been among the banks hardest hit by the ongoing crisis in the mortgage market. It paid approximately $25 billion for Golden West at the height of the nation's housing boom. With that purchase, Wachovia inherited a huge deteriorating $122 billion portfolio of Pick-A-Payment loans, Golden West's specialty that let borrowers skip some payments.

Other related posts:

• JP Morgan Chase Becomes 2nd Largest Bank in US


• White House and Congress Reached Financial Rescue Deal


• Is There Any Chance to Fix Nation’s Financial Mess?


• The Bush Team to Push Congress to Act Quickly on $700 Billion Massive Rescue

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White House and Congress Reached Financial Rescue Deal

Finally, the Bush administration and Congressional leaders have reached a tentative deal on a rescue of imperiled financial markets that could cost taxpayers hundreds of billions of dollars.

The House could vote on it Sunday and the Senate on Monday. Nancy Pelosi, the House Speaker, informed the accord just after midnight Saturday and said it still has to be put on paper. Moreover, Henry Paulson, the Treasury Secretary, talked of finalizing the deal but added: "I think we're there."

The rescue plan would spend up to $700 billion, most of it on buying extremely devalued mortgages from the housing market's collapse and other bad loans held by tottering banks and other investors. The goal is to prevent credit from drying up and causing a meltdown of the U.S. economy.

Read also other related posts:

• New Claims for Jobless Benefits Jumped to 7-Year High


• Significant Progress on a Multibillion-Dollar Rescue Plan


• Is There Any Chance to Fix Nation's Financial Mess?


• The Bush Team to Push Congress to Act Quickly on $700 Billion Massive Rescue


• $700 Billion Rescue Plan May Not Enough to Save Some Banks


• $700 Billion Bailout Plan


• U.S. Financial Crisis Leads to Global Financial Collapse

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New Claims for Jobless Benefits Jumped to 7-Year High

Recently, the Labor Department had reported that new claims for jobless benefits increased last week to their highest level in seven years due to the effect of a slowing economy and Hurricanes Ike and Gustav.

According to the Labor department, new requests for jobless benefits for the week ending Sept. 20 raised by 32,000 to a seasonally-adjusted 493,000, much higher than analysts' expectations of 445,000. The department said, the two hurricanes added about 50,000 new claims in Texas and Louisiana. The four-week moving average rose to 462,500. In addition, the level of new claims was reached the highest shortly after the 9/11 attacks, it reached 517,000.

The number of people continuing to draw jobless benefits last week was 3.54 million, up 63,000 from the previous week and nearly a five-year high. The four-week average of continuing claims was 3.49 million.

David Resler, chief economist of Nomura Securities, said that the result reflects a marked deterioration in the job market, and that deterioration may well accelerate as the distress in the financial markets deepens and the effect of credit impairment spreads to other sectors.

Hurricane Gustav first had an impact on jobless claims for the week ending Sept. 13. The department said Thursday that Louisiana reported an increase in claims of 18,409 during that week, mostly due to Gustav.

The financial crisis, falling home prices and slowing consumer spending continue to apply the brakes to the U.S. economy. The jobless rate raised unexpectedly to 6.1% in August, the highest level in five years.

Even excluding the effects of the hurricanes, jobless claims remain at elevated levels. Weekly claims have now reached 400,000 for ten straight weeks; a level economist considers a sign of recession, or more even worst, the collapse. A year ago, claims stood at 309,000.

Recently, drug maker Schering-Plough Corp. said it plans to cut 1,000 sales jobs to reduce costs, part of a 10% reduction in staff announced in April. In addition, the nation's largest chicken producer, Pilgrim's Pride Corp., announced it would reduce 100 jobs besides the 600 job losses it previously announced.

On the other hand, Wall Street was more focused on Washington, though, where lawmakers and the administration appeared to be moving closer to a $700 billion rescue package for the financial system. Stocks rose, with the Dow up more than 200 points in early trading.

The Commerce Department said that orders for big-ticket manufactured goods fell by 4.5% in August, far more than the 1.6% decline economists expected. In addition, new home sales fell by 11.5% in August, the Commerce Department said in a separate report, to a seasonally adjusted annual rate of 460,000, the lowest level in more than 17 years.

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JP Morgan Chase Becomes 2nd Largest Bank in US

As the pro and contra over a $700 billion bank rescue rages on in Washington, one of the nation's largest banks, Seattle-based Washington Mutual Inc. (WaMu), has collapsed under the weight of its extremely large bad bets on the mortgage market.

WaMu, which was founded in 1889, is the largest bank to fail by far in the country's history. Its $307 billion in assets eclipse the $40 billion of Continental Illinois National Bank, which failed in 1984, and the $32 billion of IndyMac, which the government seized in July.

WaMu ran into serious trouble after it was caught up in the once-booming subprime mortgage business. Troubles then spread to other parts of WaMu's home loan portfolio, namely its "option" adjustable-rate mortgage loans. Option ARM loans offer very low introductory payments and let borrowers defer some interest payments until later years. The bank stopped originating those loans in June.

Actually, problems in WaMu's home loan business began to appear in 2006, when the bank reported that the division lost $48 million, compared with net income of about $1 billion in 2005.

At the start of 2007, following the release of the company's annual financial report, then-CEO Kerry Killinger said the bank had prepared for a slowdown in its housing business by sharply reducing its subprime mortgage lending and servicing of loans. Alan H. Fishman, the former president and chief operating officer of Sovereign Bank and president and CEO of Independence Community Bank, replaced Killinger earlier this month.

As more borrowers became having failed on their mortgages, WaMu worked to assist troubled debtors refinance their loans as a way to avoid default and foreclosure, committing $2 billion to the effort last April. However, it was all too late. At the same time, fears of growing credit problems kept investors from purchasing debt backed by those loans, drying up a source of cash flow for banks that made subprime loans.

In December, WaMu said it would shutter its subprime lending business and reduce expenses with layoffs and a dividend cut. Then, WaMu in July has reported a $3 billion second-quarter loss, the biggest in its history, as it boosted its reserves to more than $8 billion to cover losses on bad loans. Over the last three quarters, it added $10.9 billion to its loan-loss provisions.

Actually, the downfall of WaMu has been widely anticipated for some time because of the company's heavy mortgage-related losses. As investors panic about the bank's health, its stock price plunged 95% from a 52-week high of $36.47 to its close of $1.69 Thursday. On Wednesday, it suffered a ratings downgrade by Standard & Poor's that put it in danger of collapse.

The Federal Deposit Insurance Corp. seized WaMu on Thursday, and then sold the thrift's banking assets to JPMorgan Chase & Co. for $1.9 billion. One positive is that the sale of WaMu's assets to JPMorgan Chase prevents the thrift's collapse from depleting the FDIC's insurance fund. However, it seems that the detail is likely to give only marginal solace to Americans facing tighter lending and watching their stock portfolios plunge in the wake of the nation's most momentous financial collapse since the Great Depression.

WaMu is JPMorgan Chase's second acquisition this year of a major financial institution hobbled by losing bets on mortgages. In March, JPMorgan bought the investment bank Bear Stearns Cos. for about $1.4 billion, plus another $900 million in stock ahead of the deal to secure it.

JPMorgan Chase is now the second-largest bank in the U.S. after Bank of America Corp., which recently bought Merrill Lynch in a flurry of events that included Lehman Brothers Holdings Inc. going bankrupt and American International Group Inc., the world's largest insurer, which has controlled over by the government. JPMorgan also said that it plans to sell $8 billion in common stock to raise capital.

Because of WaMu's souring mortgages and other bad debt, JPMorgan plans to write down WaMu's loan portfolio by about $31 billion, a figure that could change if the government goes through with its rescue plan and JPMorgan decides to take advantage of it.

Besides JPMorgan Chase, Wells Fargo & Co., Citigroup Inc., HSBC, Spain's Banco Santander and Toronto-Dominion Bank of Canada were also reportedly possible suitors. WaMu was believed to be talking to private equity firms as well.

The seizure by the government means shareholders' equity in WaMu was wiped out. The deal leaves private equity investors including the firm TPG Capital, which led a $7 billion cash infusion in the bank this spring, on the sidelines empty handed.

JPMorgan Chase said it was not acquiring any senior unsecured debt, subordinated debt, and preferred stock of WaMu's banks, or any assets or liabilities of the holding company, Washington Mutual Inc. JPMorgan said it would not take on the lawsuits facing the holding company. Moreover, the acquisition will give it 5,400 branches in 23 states, and that it plans to close less than 10% of the two companies' branches.

The WaMu acquisition would add 50 cents per share to JPMorgan's earnings in 2009, the bank said, adding that it expects to have pretax merger costs of approximately $1.5 billion while achieving pretax savings of approximately $1.5 billion by 2010.

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Is There Any Chance to Fix Nation’s Financial Mess?

Again and again, the Bush team urgently pressed Congress in public and private Tuesday to disburse quickly on a $700 billion rescue plan of the financial industry as Republican and Democratic lawmakers expressed their anger over a crisis that pushed the nation's economy to the collapse.

Stocks rose in the opening hour as Treasury Secretary Henry Paulson went before the Senate Banking Committee to inform that quick passage of the administration's plan is the single most effective thing the government can do to help homeowners, the American people and stimulate the nation’s economy. However, even before Paulson could speak, lawmakers have already expressed their unhappiness.

There truly fact is the government has no credible assurances that this plan will work. The Congress could very well send $700 billion, or a trillion, and not resolve the crisis. Most experts view it as an unwarranted government intrusion into the financial markets. Rep. Joe Barton, R-Texas said, "Just because God created the world in seven days doesn't mean we have to pass this bill in seven days."

The administration's plan is designed to allow the government acquires bad mortgage-related assets and other toxic assets held by endangered financial institutions and banks. Getting those debts off their books should bolster their balance sheets, making them more inclined to lend and easing one of the largest choke points in the credit crisis. If the arrangement works, it should help raise a major weight off the sputtering economy.

President Bush was in New York, his speech before the United National General assembly crafted to offer assurances to world leaders that the U.S. government has its financial problem under control. However, he is confident that Congress will pass the necessary legislation to deal with the problem. Moreover, he has assured other leaders that the financial package is "a robust plan to deal with serious problems."

The U.S. has taken unexpected measures in recent weeks to stop a financial damage that would have destruction implications for the broader economy. It has, among other things, taken control of mortgage giant companies Fannie Mae and Freddie Mac, provided an $85 billion sudden serious loan to insurance extremely important American International Group Inc. and temporarily banned short selling of hundreds of financial stocks.

In promoting the massive bailout, the piecemeal approach the government has taken so far was necessary but inadequate. The root cause goes back to the rotten debts held by financial institutions that are choking off the flow of lending, an important ingredient to the economy's health.

Wall Street has been dramatically reshaped amid all the fallout. The Fed agreed to allow Morgan Stanley and Goldman Sachs, the country's last two investment banks, become bank holding companies so that they can take deposits, like a commercial bank, in an effort to survive. Lehman Brothers sought bankruptcy protection, Merrill Lynch accepted to be bought by Bank of America, and Bear Stearns was taken over by JPMorgan Chase.

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The Bush Team to Push Congress to Act Quickly on $700 Billion Massive Rescue

The U.S. President Bush says the White House is ready to work with Congress as soon as possible to enact legislation to allow the government to buy hundreds of billions of dollars worth of toxic assets and rescue a damaged financial system that is on the brink of sinking and taking the U.S. economy seriously collapse.

Congressional aides and administration officials were working through the weekend to fill in the details of the proposal. Henry Paulson, Treasury Secretary, was scheduled to appear on the Sunday talk shows to begin selling the $700 billion bail out, the largest since the Great Depression, to lawmakers and the American people.

The Bush team rescue plan that would dole out huge sums of money to Wall Street companies and bankers is a mere three pages in length and fails to specify which institutions would qualify.

Democrats, who say they will work with the administration to pass a plan, are demanding it include relief for homeowners struggling with mounting debt, not only for Wall Street.

The rescue plan would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion to make room for the gigantic bail out.

Other Related Posts:

• $700 Billion Rescue Plan May Not Enough to Save Some Banks


• $700 Billion Bailout Plan

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$700 Billion Rescue Plan May Not Enough to Save Some Banks

The rescue plan to buy up to $700 billion in toxic assets may not be enough to save some banks, which experts say may be forced to absorb gigantic losses if they sell their bad mortgage-related assets.

The rescue plan for the government to soak up the mortgage-backed securities would be the biggest bailout plan since the Great Depression. However, experts say a critical issue will be how much it actually pays for the bad mortgage-related assets.

How the government might acquire banks' toxic debt is still being ironed out. However, one approach advised by Treasury Secretary Henry Paulson involves a process under which financial institutions would propose a price for their mortgage-backed securities and the government would pick up the lowest bids.

Ironically, if banks sell at the proposed price, say 50 cents on the dollar, then accounting rules would require companies to take the losses on their balance sheets before getting the troubled assets off their books. According to industry experts, for weaker banks buffeted by the deepening credit collapse, the losses may hinder their ability to go out raise capital, make loans and ultimately stay afloat.

According to Vincent R. Reinhart, former director of the Federal Reserve's monetary affairs division, there is a risk that there will be bank failures to come. While the reverse auctions could help banks set a clearing price for damaged assets, he said that the price does not mean that every financial company will be solvent after those toxic assets are sold.

Reinhart added that another risk is that if the bids set too low a price for mortgage-related assets, other institutions with bad debt may be forced to take the distressed valuation onto their books under mark-to-market accounting rules. Mark-to-market rules involve adjusting the price of an asset to reflect its current market value. The worst impact is if the auctions do not go well, it will drag down everybody's balance sheet that marks to market.

The financial system has been battered by $500 billion in losses from the financial crisis, and the International Monetary Fund (IMF) has measured the price tag could ultimately top $1 trillion.

According to the Federal Deposit Insurance Corp., the collapse has forced 11 federally insured banks and thrifts into failure this year. Another 117 banks and thrifts were considered to be in trouble in the second quarter, the highest level since 2003, with the total assets of unhealthy banks tripling to $78 billion. The agency does not disclose which institutions are on its list, but on average, 13% of banks that make the list fail.

According to senior vice president and managing director of Institutional Risk Analytics, Christopher Whalen, about 110 banks with assets worth $850 billion are in danger of failing by next summer. He said the Treasury Department's proposal has not given him reason to be more optimistic. Moreover, he said the government might decide that the only choice to save some banks is to pay full price for the assets in exchange for equity that could be sold later.

Nevertheless, that could be risky because if the government pays too high a price, it will be difficult if not impossible to go out and sell the assets for a profit in the future, meaning any losses incurred would be absorbed by taxpayers. However, paying too little also is problematic because banks will be forced to take steeper losses that they may not be able to recover from. According to Marvin Goodfriend, professor of economics at Carnegie Mellon University, the government should be able to arrange to pick a price that helps the banks but also that allow the government to turn around and make a profit down the line.

Other related post: $700 Billion Bailout Plan

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$700 Billion Bailout Plan

On Saturday, the Bush rescue plan team asked Congress for the funds to purchase $700 billion in bad mortgage-related assets clogging the financial system and harming the economy as negotiations began on the largest bailout since the Great Depression.

The rescue plan would give Washington broad authority to buy up to toxic assets from U.S. financial institutions for the next two years. However, it does not mention which institutions qualify or what, if anything, the government would get in return for the unprecedented infusion.

Bush worried that this financial damages “could ripple throughout” the economy and affect average citizens. He believes that the risk of doing nothing far outweighs the risk of the package. He optimists that in further time, U.S. will get a lot of the money back. He admitted that people have doubted the U.S. financial system, more and more people were losing trust.

Recently, Democrats are pressing to require that the rescue plan help more strapped borrowers stay in their homes and to condition the bailout on new limits on executive compensation.

Congressional aides and administration officials are working through the weekend to fill in the details of the three-pages-long proposal that gives sweeping powers to the government to dispense extremely large sums of taxpayer dollars in a program that would be sheltered from court review. The White House hoped to get a bill done as soon as possible with Congress by the time markets opened Monday.

According to Senate Majority Leader Harry Reid, D-Nev., citizens cannot allow themselves to be in denial about the threat now facing the world economy. From all indications, that threat is real, and the consequences of inaction could be catastrophic. He added that every single American has a stake in preventing a global financial collapse.

According to House Speaker Nancy Pelosi, D-Calif., said in San Francisco, the government must rescue the financial system or it will have immeasurable effect on American consumers, taxpayers, homeowners and the rest.

The rescue plan would lift up the statutory limit on the national debt from $10.6 trillion to $11.3 trillion to make room for the massive rescue.

Sen. Chris Dodd, D-Conn., the Banking Committee chairperson said, "We understand the importance of the anticipation in the markets, but we also know that what we're doing is going to have consequences for decades to come. There's not a second act to this, we've got to get this right."

On the other hand, lawmakers digesting the astonishing cost and searching for specifics voiced concerns that the proposal offers no help for struggling homeowners or safeguards for taxpayers' money.

Meanwhile, the House's top Republican, Ohio Rep. John A. Boehner, said in a statement that he and all American people are furious to trapped in such damage situation, the government needs to give all efforts possible to protect the taxpayers from the consequences of a broken Washington. Moreover, he added that the efforts to exploit this crisis for political advantage or partisan quid pro quo would only delay the economic stability that families, seniors, and small businesses deserve.

Neither presidential candidate took a position on the proposal. GOP nominee John McCain said he was awaiting specifics and any changes by Congress. On the other hand, Democratic rival Barack Obama used the party's weekly radio address to call for aid for Main Street as well as Wall Street.

Their language reflected a tricky balance that politicians in both parties are trying to strike, just six weeks before Election Day: Back a plan that doles out hundreds of billions to companies that made bad bets and still identify with the plight of middle-class voters.

Besides mortgage aid and executive compensation limits, Democrats are considering attaching middle-class assistance to the legislation despite a request from Bush to avoid adding items that could delay action. An expansion of jobless benefits was one possibility. Bush believes that most leaders can understand that the government needs to fix these damages as soon as possible.

The proposal does not require that the government accept anything from banks in return for unloading their bad mortgage-related assets. Nevertheless, it would permit the Treasury Department to designate financial institutions as "agents of the government," and mandate that they perform any "reasonable duties" that might entail. In addition, the government could contract with private firms to manage the assets it purchased under the rescue plan.

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Wall Street Companies and Banks Ramped Up Borrowing from the Fed

Wall Street companies and Banks ramped up borrowing from the Federal Reserve's (the Fed) emergency loan facility over the past week, a fresh sign of the credit stresses plaguing the country.

According to the Fed’s report that released Thursday said commercial banks averaged $21.6 billion in daily borrowing over the past week. That compared with a daily average of $19.8 billion in the previous week.

For the week ending Sept. 17, Wall Street companies drew such loans averaging $20.3 billion. That step-up comes after six straight weeks where they did not draw any loans. Their borrowing averaged as high as $38.1 billion a day over the course of a week in early April.

The report comes as the New York Fed Chairperson Ben Bernanke battles the worst financial collapse in decades. In the last few days, the American financial system has been badly shaken as bad bets on dodgy mortgage-backed securities claimed more Wall Street monsters.

Scrambling to break the grip of a worsening global credit collapse, the Fed and foreign central banks stepped up action Thursday pumping as much as $180 billion in money markets overseas. At home, the Fed acted to ease a spike in overnight loan rates by injecting $55 billion into the U.S. banking system.

President Bush had canceled an out-of-town trip Thursday to stay in Washington and meet with his top economic advisers. Then, Bush held a 40-minute meeting with Bernanke, Treasury Secretary Henry Paulson and Securities and Exchange Commission chief Christopher Cox along with White House and Treasury Department aides.

Investment houses in March were given similar, emergency-lending privileges as commercial banks after a run on Bear Stearns pushed what was the nation's 5th-largest investment bank to the brink of bankruptcy. The situation raised fears that other Wall Street firms might be in jeopardy.

Bear Stearns was eventually acquired by JPMorgan Chase & Co. in a deal that involved the Fed's financial backing. In addition, the identities of commercial banks and investment houses that borrow are not released. Commercial banks and investment companies now pay 2.25% in interest for the loans.

The Fed's expanded loan programs, its involvement in the Bear Stearns rescue and the government's bailout of Fannie and Freddie have spurred concerns that these actions could put taxpayers on the hook for billion of dollars and encourage "moral hazard," where companies take on extra risks because they trust the government will come to their aid.

Separately, as part of efforts to aid credit strains, the Fed auctioned nearly $25 billion in super-safe Treasury securities to investment firms Thursday. Bids were placed for $49.6 billion worth of the securities. In exchange for the 28-day loans of Treasury securities, bidding firms can put up as collateral more risky investments. These include certain bonds and mortgage-backed securities secured by federally guaranteed student loans.

The auction program, which began March 27, is intended to make investment firms more inclined to lend to each other. A second goal is providing relief to the distressed market for mortgage-linked securities and for student loans.

The Fed actions come during an especially tumultuous week. The stock market has nosedived and investors have fled to super-safe investments like gold and Treasury securities. Briefly, on Wednesday, investors were willing to pay more for certain Treasury securities than they expected to get back when the investments matured, a rare event.

At the start of the week Lehman Brothers, the country's 4th-largest investment bank, filed for bankruptcy protection. A weakened Merrill Lynch, deciding it could not go it alone anymore, it would go to bankruptcy, found help in the arms of Bank of America. Insurance giant company, American International Group (AIG) was given an $85 billion emergency loan from the Fed in a deal of allowing the government to take control of the company.

Therefore, far this year, 11 federally insured banks and thrifts have failed, compared with three last year. The country's largest thrift, Washington Mutual Inc., is faltering.

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