(WSJ MarketBeat) The bailouts keep on coming. The Federal Reserve is busy introducing plans to support the asset-backed securities market, as well as buy up to $500 billion in mortgage-backed securities and $100 billion in agency debt. Meanwhile, Citigroup is getting a big capital infusion and an implicit guarantee that the monsters in the closet won’t come to get them. MarketBeat figured it was time for another look at the Bailout Scorecard.


One Bailout to Bind Them
Bailout What it Was Why? Who Was Helped Who Paid? Is it Working?
The Entity A proposed “super-structured investment vehicle,” jointly created by several large banks, to buy debt that nobody wanted In the third quarter of 2007, many banks realized that their off-balance sheet funds held scores of bad debts, and they wanted to find a way to offload it into a toxic waste dump The EntityNobody. The fund never came to fruition when most realized it was folly Nobody paid for it; the banks paid by eventually moving the assets from their structured vehicles on their balance sheets It is working in the sense that it did not come to fruition, for the betterment of everyone.
Bear Stearns After the company’s stock slumped and its credit-default swaps exploded, the Federal Reserve intervened, eventually by having JP Morgan Chase & Co. buy the company for $10 a share Bear Stearns was battered by chatter about no liquidity due to massive exposure of bad mortgages on their balance sheet The bondholders of Bear, and arguably, J.P. Morgan, who snapped up the company for a song J.P. Morgan paid $30 billion, with a $28.8 billion loan from the Fed The next target on everyone’s list was Lehman Brothers, which eventually fell into bankruptcy. Merrill Lynch sold itself, and other investment banks were targeted until the Treasury stepped in yet again. The remaining investment banks elected to convert to commercial banks to save their hides.
The various Fed lending facilities A group of lending facilities, some existing, some new, put together by the Fed that liberalized existing rules as to who could access the Fed’s lending windows Various market spreads widened considerably in December, and then again in March, inhibiting short-term borrowing and the regular functioning of the banking system TradingThe lending markets The Fed is (mostly) lending money that is expected to be repaid Libor rates have come down, but interbank lending, judging by commercial paper rates, repo activity and credit spreads, suggest that credit markets are still effectively shut.
HousingHope Now Alliance An effort by the government, private lenders and others to restructure mortgages Housing prices have slumped and many homeowners have faced the re-setting of mortgage rates to cost-prohibitive levels Homeowners facing foreclosures Lenders, mostly The program has helped some, but others contend that it is being overwhelmed by the sheer volume of foreclosures. A Credit Suisse report predicted that 6.5 million loans will fall into foreclosure over the next five years, or about 8% of all U.S. homes.
Fannie Mae/Freddie Mac A government-led plan to shore up mortgage guarantors Fannie Mae and Freddie Mac The two companies were seen as being on the brink of insolvency, and together they guarantee $5 trillion in mortgage debt The expectation is for this to alleviate concerns in the mortgage markets The Federal Reserve is expected to lend if necessary, but a giant guarantee of Fannie and Freddie’s debt is most likely to end on the taxpayers’ shoulders It's still raining.Mortgage rates did not react to this news, but fell later on when credit markets froze in September. But spreads widened again later in the fall, necessitating the introduction of more Fed lending facilities.
American International Group Loans from the government, up to $85 billion, for the struggling insurer The company needed about $80 billion in capital, as it was facing funding needs as a result of sales of bond default insurance, along with downgrades from the rating agencies AIG policyholders, and hopefully the overall market Taxpayers, ostensibly, are on the hook, but AIG has to pay high levels of interest on the loans over two years, and the government has a stake in the company now Early signs were not encouraging. The original plan was scrapped in favor of a larger one, which reduced the interest rates AIG would have to pay to the government, and the size was increased to $170 billion from $123 billion.
Troubled Asset Relief Program A still-in-progress $700 billion program that, well, does whatever Henry Paulson says at any given moment, if anything. After several quarters and $500 billion in write-downs, the end of the credit crisis is still not in sight. So far, just Mr. Paulson’s detractors Taxpayers. The original plan was to buy up troubled assets. This later morphed into capital investments directly into banks, and then shifted gears again to helping consumers. Now, it’s kind of just sitting around.
Citigroup A $40 billion capital infusion and guarantee of $306 billion of Citigroup’s toxic assets — making it kind of like the Entity, but an Entity for Citigroup. The company’s stock has been devastated, and the government is worried about the integrity of the financial system. Citigroup, surely. CEO Vikram Pandit, who isn’t losing his job, for sure. Citi is responsible for the first $30 billion in losses on the toxic waste it holds, and then the government after that. This means, of course, the taxpayers. Shareholders have watched this stock take a drubbing, although the outlook is better than for Fannie/Freddie and AIG shareholders. Hasn’t been put in place yet.