Happy Thanksgiving!

Happy Thanksgiving to everyone!

We are having Thanksgiving with the Chiangs then heading down South to the Kinney's to spend time with both families for the holiday.

We wish all our friends and families a safe and joyful holiday season!

We will be out of town every weekend until the New Year so most likely the next post will be in the New Year.

LOL robbing Peter to pay Paul....

This should serve as a good warning to the US government to think before bailing out the auto makers. When you provide a bridge loan to a company you want to make sure that once they cross that bridge they will know where to go......

A.I.G. Borrows Another $20.9 Billion From the Fed

October 30, 2008, 5:22 pm

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American International Group has found another place to borrow billions of dollars from the government: the Federal Reserve’s commercial paper program.

The distressed insurance company disclosed Thursday afternoon that it was borrowing up to $20.9 billion from the Fed’s program, under which the central bank is buying companies’ short-term debt in an effort to unfreeze the market for commercial paper.

A.I.G. already has access to two government credit lines totaling $122.8 billion in order to avoid collapse, and the company’s borrowing from the commercial paper program enabled it to reduce its debt under those lines.

In a filing with the Securities and Exchange Commission, A.I.G. said four of its affiliates had exchanged commercial paper for cash from the Federal Reserve Bank of New York. It said in the filing that it would use the proceeds to refinance its outstanding commercial paper, as well as pay down its initial credit line of $85 billion.

The Fed said A.I.G. reduced its debt under the two existing credit lines to $83.5 billion, from $90.3 billion a week ago, by using cash from the commercial paper program, Bloomberg News reports.

With the latest loans of up to $20.9 billion from the Fed, the insurer’s borrowing now totals as much as $104.4 billion.

An A.I.G. spokesman, Nicholas Ashooh, told Bloomberg that the terms of the commercial paper program were better than those for the original $85 billion credit line, which has a higher interest rate.

“They’re paying off a Fed loan with another kind of government subsidy — it’s like using one credit card to pay off another credit card,” Robert Haines, an analyst at the research firm CreditSights, told Bloomberg. “If they make progress paying off debts over time, I don’t think it’ll be viewed as necessarily a bad thing.”

A.I.G. is rapidly running through the $122.8 billion made available by the Fed. Last week, A.I.G.’s chief executive, Edward M. Liddy, said the company might need to borrow even more money.

This enormous need for cash has raised questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analysts say that at least part of the shortfall must have been there all along, hidden by irregular accounting.

How quickly we forget!

http://query.nytimes.com/gst/fullpage.html?res=9c0de7db153ef933a0575ac0a96f958260&sec=&spon=&pagewanted=print

Amazing that they could understand the consequences even before the tech bubble blew up...

September 30, 1999

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.