Morning News - Cash Carry Edition

Oct 6, 2008

After a tumultuous week on Wall Street and Capitol Hill folks are waking up this morning trying to sort it all out. The financial contagion that caused the financial crash in the United States is spreading like wildfire through Europe as EU countries seek to stem massive bank failures across the continent. On Saturday, officials from the Big 4 European countries couldn’t agree on a coordinated game plan to avert financial crisis, so each country is doing its own thing. Britain, for example, is pouring billions of pounds into its banking system to prevent a liquidity crisis. In Berlin, the German government held crisis talks after the collapse of a $48 billion bailout of Hypo Real Estate AG, the country's second biggest property lender. A deal was eventually reached to rescue it. Iceland’s government took over the nation’s largest bank last week. All the Big 4 EU countries agreed to create a strategy to tighten regulation. Most of Europe’s major stock indices are down 3%-6% this morning.

Secretary Paulson has decided who will wield the power he won in the legislation -- the head of the massive asset purchasing program will be 35-year old Neel Kashkari [pronounced CASH-carry?], a Treasury assistant secretary for international affairs and a former Goldman Sachs banker. The position requires Senate confirmation.

Financial institutions are still trying to work out the details of some mergers and acquisitions. Citigroup’s bid for most of Wachovia was overtaken by a larger bid for the entire firm from Wells Fargo. Wachovia appeared to renege on its agreement with Citigroup and a judge has placed an injunction on its deal with Wells Fargo.

AIG reportedly plans to hold onto its property and casualty insurance businesses, while selling off the rest of the company to pay its massive debt to the federal government. AIG also would retain a majority stake in its foreign life insurance operations. Everything else is on the table, said CEO Edward Liddy. First up for sale will likely be AIG’s aircraft leasing unit, then its asset management division, retirement services, and U.S. life insurance operations.

Bank of America – which bought Countrywide, a firm at the center of the mortgage meltdown – agreed to an $8.4 billion deal to settle claims brought by state attorneys general regarding certain risky loans originated by Countrywide. Under the deal, BofA would seek to modify about 390,000 subprime loans so delinquent buyers could stay in their homes.

One small bright spot on the economic landscape: Oil prices have fallen to an 8-month low below $90 a barrel on what’s expected to be weak demand. Oil prices have slid nearly 40% since peaking in July.

Meanwhile, the Supreme Court begins a new term today, as observers contemplate the fact that the next president may get as many as three appointments in his first term.

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