Hundreds of Billions More

Howard Glackman at the Tax Policy Center is saying his sources in the Federal Reserve and the financial industry that hundreds of billions more are needed to recapitalize financial institutions in trouble. That is the current bailout is just not going to work. Also fits well with the decline in the stock market we’ve been watching lately.

My sources at the Federal Reserve and in the financial markets increasingly expect that Washington is going to have to put up hundreds of billions of dollars more to directly recapitalize troubled banks.

Such a step would be in addition to the $700 billion authorized by Congress last week and could require new congressional appropriations. It would put even greater pressure on the short-term budget deficit and add to uncertainty over the total cost of cleaning up the financial system mess. It could also require new federal legislation, setting up yet another bruising battle on Capitol Hill.

The timing of such a direct cash infusion, which would come through the Fed, is unknown. Fed officials had hoped it would not be necessary at all, or at least not until after a new President is sworn in next January. However, the market’s negative reaction to last week’s bailout could accelerate the next step. Normally, the Fed could manage such a cash infusion through its own reserves. And today it announced modest efforts to get funds to financial institutions by paying interest on bank reserves. However, the magnitude of the crisis may require far more capital than the Fed has and require additional federal borrowing.

This whole notion of staving off this crisis is becoming a real joke.

FILED UNDER: Economics and Business, Government,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Web Smith says:

    This is becoming more bizarre by the moment.

    What is a company’s value based on, imagination and fear? $750 billion disappears and now Bernanke is getting ready to create another $900 billion? Congress borrows, spends, and gives away $11 trillion dollars and begins blaming a guy from Lehman who got $500 million for causing all of the problems? Millions of Americans call in and email to tell their public servants not to pass a bill and they pass it anyway? While all of this is going on, people continue to lose their homes and there’s no relief in site?

    It’s like an economic horror film that someone dreamed up.

    If you want to try to stop this madness, join us.

    http://ewebsmith.com/self/StandUp.html

  2. Steve Verdon says:

    To paraphrase Mencken, democracy ensures the voters get what they deserve good and hard.

    I hereby officially start the blame game where various posters start pointing fingers and assigning blame and dredging up useless trivia.

    Me…I’m going to finish my scotch.

  3. Any suggestions on an investment strategy once unemployment passes 12%?