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Fed’s Biggest Foreign-Bank Bailout Kept U.S. Municipal Financing on Track - (www.bloomberg.com) A European bank that received the most Federal Reserve discount window help during the financial crisis received a total of about $300 billion in loans, guarantees and cash infusions from governments and central banks. It also owned subsidiaries implicated in bid-rigging that prosecutors say defrauded U.S. taxpayers. Details of Fed lending released last week show that Dexia SA (DEXB), based in Brussels and Paris, borrowed as much as $37 billion, with an average daily loan amount of $12.3 billion in the 18 months after Lehman Brothers Holdings Inc. collapsed in September 2008. The House subcommittee that oversees the Fed plans hearings on the central bank’s discount window lending to offshore financial institutions next month. By lending to Dexia, the Fed kept money flowing into local government projects throughout the U.S. as well as the money market funds that invested in them. Dexia guaranteed bonds issued by entities as varied as the Texas State Veterans Land Board in Austin and the Los Angeles County Metropolitan Transportation Authority. “If Dexia went bankrupt, it could have been a catastrophe for municipal finance and money funds,” said Matt Fabian, a Concord, Massachusetts-based senior analyst and managing director at Municipal Markets Advisors, an independent research company. “The market has extensive exposure to foreign banks.”
States Fear Local Effects If Shutdown Cuts Off Cash - (www.nytimes.com) Already straining to make ends meet as the longest downturn sincethe Great Depression grinds on, state and local governments are now facing a new, unwelcome question: What would a shutdown of the federal government mean for their struggles to balance their budgets? If a shutdown were to happen, the federal money that helps states pay the administrative costs of their stretched unemployment programs could dry up, forcing states to advance the money to keep the programs running. Federal grants for a variety of programs — including research, higher education and training local law enforcement officers — could be delayed. Furloughing nonessential federal workers and halting payments to federal contractors could have a domino effect as local tax collections plummet in the Washington area and other places with many federal workers. And if national parks were closed, some states could lose tourism business, and the local tax revenues they generate.
U.S. Fiscal Crisis in Spitting Distance: Laurence Kotlikoff - (www.bloomberg.com) To be clear, the real problem isn’t paying for our current spending. The real problem is paying for the 78 million baby boomers as they retire and claim their promised Medicare, Medicaid and Social Security benefits, and as spending on the new health-care exchanges expands far beyond what’s been projected. There is one bright spot. Paul Ryan, chairman of the House Budget Committee, has included a version of the Rivlin-Ryan Medicare plan in the Republican budget proposal. This bipartisan proposal, co-authored with Alice Rivlin, former CBO director and head of the Office of Management and Budget under Bill Clinton, would transform Medicare from its current fee-for-service, defined-benefit structure into a defined contribution system in which the government’s liability is strictly capped. Rivlin-Ryan would be a huge step in the right direction, but what’s really needed is a complete redo that would keep total government health-care spending where it is now, at about 10 percent of GDP.
Portugal Seeks Financial Aid From European Union - (www.cnbc.com) Portugal's prime minister said Wednesday his country has asked for financing assistance from the European Union due to its high debts and difficulty raising money on international markets. "The government decided today to ask the European Commission for financial help," Prime Minister Jose Socrates said. Portugal becomes the third financially troubled eurozone country after Greece and Ireland to request assistance from Europe's bailout fund and the International Monetary Fund. Analysts expect Portugal will need up to €80 billion ($114.4 billion). The precise amount of aid will be determined shortly, according to Economic and Monetary Affairs Commissioner Olli Rehn. Such an announcement had long been expected as Portugal, one of the 17-nation eurozone's smallest and weakest economies, struggled to finance its economy. Following a rejection of additional austerity measures by its parliament last month, Portugal has seen its borrowing costs rise to unsustainably high levels.
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Commerzbank, Intesa Seek $19 Billion as Basel Rules Loom - (www.bloomberg.com)
Beijing's Waning Interest in Rate Hikes - (online.wsj.com)
Obama, congressional leaders make no progress on budget - (www.washingtonpost.com)
Mortgage applications declined last week: MBA - (www.reuters.com)
Bernanke May Have to Overcome Fed Split on Maintaining Stimulus Past June - (www.bloomberg.com)
Fed Minutes Show Inflation Debate - (online.wsj.com)
U.S. Sees Array of New Threats at Japan’s Nuclear Plant - (www.nytimes.com)
Screening the Day’s Catch for Radiation - (www.nytimes.com)
Fishing Halted in Japan’s Ibaraki Prefecture as Nuclear Plant Taints Sea - (www.bloomberg.com)
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