Lest we had any doubt, there were many reminders Monday, Sept.8, that money, indeed, speeds and slows the world, and even in our own neighborhood, as it goes around.
The feds rescue Fannie Mae and Freddie Mac
Both foreign and U.S. financial markets rallied Monday at news that the Fannie/Freddie executives and boards had been replaced and that Fannie and Freddie had been placed in government conservatorship. This was the worst possible alternative — except for all the others. Potential cost to taxpayers: $200 billion.
This will stabilize, at least for now, the mortgage industry and help stem the downward spiral of home prices which has taken place in most markets, although not here in metropolitan Seattle. Taxpayers and investors will take a hit. The final solution to the Fannie/Freddie problem will not unfold until 2009, when a new president and Congress pick things up from here. Sen. Barack Obama and Democrats generally have supported Fannie/Freddie and incremental steps to keep them viable. Sen. John McCain and Republicans have favored the long-term elimination of the agencies and the public obligations which accompany them. This is one place where November elections can make a real difference.
Killinger bites the dust
The long anticipated resignation of Washington Mutual CEO Kerry Killinger was demanded by the WaMu board last week. He was replaced immediately by Alan Fishman, a former CEO of Independence Community Bank in New York.
TPG came to WaMu's rescue with $7 billion in fresh capital this past April. But it was not enough to cover WaMu's ongoing obligations. Losses this year may approach $20 billion. WaMu common stock closed below $4 per share Monday.
Killinger got canned, just as Citigroup, Merrill Lynch, Wachovia, and Bear Stearns CEOs earlier exited. Fishman reportedly got a $10 million signing bonus to come aboard. The feds are not likely to ride to WaMu's rescue, having made such earlier major commitments. Fishman will earn his bonus if he brings WaMu out of 2009 alive.
A McCain-associated bank goes down
Less noticed locally, the Silver State Bank in Nevada was shut down by federal and state regulators last Friday, Sept. 5.
Andy McCain, John McCain's son, who is chief financial officer of Hensley & Co., the Phoenix beer distributorship headed by Cindy Hensley McCain, had resigned from the Silver State board in late July. He refused to respond to media queries about his Silver State knowledge or involvement. The Federal Deposit Insurance Corporation will take a $450 million to $550 million hit, it estimates. Some $20 million in deposits, involving 500 customer accounts, were uninsured by the FDIC. McCain was a member of the bank board's three-person audit committee.
Georgia on Russia's mind
A little noted dispatch from the Financial Times reported that the Russian central bank had intervened heavily to support the ruble at the end of last week. Some $21 billion in foreign capital, the FT estimated, had been pulled out of Russia after that country's intervention in Georgia.
The ruble had fallen to its weakest level since it had adopted a euro/dollar basket in February 2007. Russia's stock market had fallen about 4 percent on both last Wednesday and Thursday, Sept. 6 and 7. Russia has lots of capital with which to defend its currency. It has the third-largest foreign currency reserves in the world, about $580 billion. But the foreign withdrawals served notice on the Russian government that the West, after all, is not powerless to resist aggressive Russian policies toward neighboring countries.
Transportation funding still at center stage
The Seattle Times Monday ran a front-page article outlining the components and costs of Republican gubernatorial nominee Dino Rossi's proposals to expand and improve both regional and statewide surface transportation. His $15 billion proposal would shift state money from Sound Transit and the general fund. Overall, he says, new taxes would not need to be raised. Gov. Chris Gregoire will be challenged in her upcoming TV debate with Rossi to offer her own plan.
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