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Monday, October 13, 2008
Bank Execs Assemble in Washington to Discuss Rescue Plan
FOXBusiness
Financial executives met with the Bush Administration on Monday afternoon to discuss details of the $700 billion economic-rescue plan, details of which are likely to be announced Tuesday.
The Treasury Department is set to roll out a new comprehensive approach to credit crisis. Treasury will make about $250 billion in equity investments in banks, and the Federal Deposit Insurance Corp. will insure all noninterest-bearing bank deposits, as well as insure new preferred debt issued by banks and thrifts.
A person familiar with the situation told FOX Business that Treasury would buy preferred stock in nine top U.S. banks.
Other moves could include temporary loan guarantees aimed at helping banks borrow the money they need to do business, The Wall Street Journal said, noting that officials are still working through how such a plan would work.
Industry heavyweights such as Lloyd Blankfein of Goldman Sachs (GS), Jamie Dimon of JPMorgan Chase (JPM), John Thain of Merrill Lynch (MER), John Mack of Morgan Stanley (MS), Vikram Pandit of Citigroup (C), Kenneth Lewis of Bank of America (BAC) and Robert Kelly of Bank of New York – Mellon (BK) participated in the meeting, which took place Monday afternoon.
Federal officials such as Treasury Secretary Henry Paulson and FDIC Chairman Sheila Bair and Federal Reserve chief Ben Bernanke also attended the meeting.
The Financial Services Roundtable, which represents 100 of the largest U.S. financial services companies, had issued a statement on Friday saying that it was hoping for such things as looser mark-to-market rules, tighter rules on market manipulation and new public and private capital.
Over the weekend, the U.S. had hosted meetings with a number of international groups, including the International Monetary Fund and the World Bank, to discuss the state of the global economy.
“America will continue to work closely with other nations to coordinate response to this global crisis,” said President George W. Bush at a joint meeting with Italian Prime Minister Silvio Berlusconi.
Though the initial intention of the economic-rescue plan was to buy bad assets from banks to help shore up their balance sheets, the U.S. appears likely to follow in the footsteps of its European counterparts by focusing on taking equity stakes in the banks.
FOX Translator
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No, it's not a dance craze. Contago is a condition of supply and demand, essentially a fancy word to say that prices for items, typically commodities, are cheaper now than they would be at some point down the line.
Anything that¿s sold in the futures market can be in a case of contango. Futures are exactly that: a contract to buy an item or asset at a price in the future. This is the case with oil, with traders buying and selling contracts to acquire a barrel of oil in months down the line. When a market is in contango, spot prices, or the price of a commodity if you were to buy it right now, are lower than forward prices.
Why is that important? Well, it usually tells you the supply of a given commodity is plentiful (since, according to Economics 101, a large supply usually leads to cheap prices).
Incidentally, if you think contango is a mouthful, its opposite condition is known by the equally tongue-tying term backwardation.
