Home / Markets / Economy
Wednesday, November 26, 2008
Treasury Adds Two Programs to Financial Rescue Plans
Donna Fuscaldo
FOXBusiness
It’s been 60 days since Congress gave the Treasury Department authority to launch a massive rescue of the financial markets -- and in those 60 days, the plan has changed three times.
When the $700 billion Troubled Asset Relief Program, or TARP, was first authorized, the idea was to use the lion’s share of the funds to buy toxic assets on financial companies’ balance sheets. That quickly morphed into the Treasury instead opting to buy equity stakes in financial companies and backing off buying the bad assets. Now the Treasury has done an about face and over the past weekend announced it will indeed by toxic assets at least from Citigroup (C).
But wait -- there’s more.
On Tuesday, the Treasury Department posted on its Web site details of another new program to save the financial institutions called the Systemically Significant Failing Institutions Program and a third unnamed program to provide the financial institutions with government cash.
A Treasury spokesperson told Fox Business Network’s Peter Barnes the $20 billion in capital infusion to Citigroup on top of the $25 billion it got when the government bought stakes in the banks, did not come from the Systemically Significant Failing Institutions Program, but the third, unnamed program. The spokesperson said details of the new unnamed program will be forthcoming.
“It’s a separate program -- neither the capital purchase program or the program AIG was under,” said Treasury spokesperson Brookly McLaughlin in an email to Fox Business Network. American International Group’s (AIG) $40 billion investment by the Treasury Department fell under the Systemically Significant Failing Institutions Program. When asked for detail on the third program, McLaughin said: “the law required reporting on all that after the transaction closes.” Based on the timing for when the Treasury posted details on the program used to help AIG, details on the third program could come in about two weeks.
The Systemically Significant Failing Institutions Program, according to the Treasury, is to provide stability and prevent disruption to financial markets. Which financial institutions will be eligible for the program is decided on a case by case basis, according to the Treasury. In determining which banks are systemically significant and are at substantial risk of failure the Treasury could consider the following:
--The extent to which the failure would threaten the viability of its creditors and companies with direct exposure to the institution
--The number and size of financial institutions that could be impacted by the financial institution failing
--Whether the institution is sufficiently important to the nation’s financial and economic system
--The extent and chances of the institution getting access to alterative sources of capital and liquidity.
FOX Translator
No data currently available.
No data currently available.
Some mutual funds want you to pay for the privilege of them (or your investment adviser) taking your money to invest. It's called a load, and it works like a cover charge to get into a nightclub. Luckily, there are such things as no-load funds. As the name implies, shares of these funds are sold without a fee paid to a broker or investment advisor.
The entire amount you invest in no-load funds goes to work for your returns. On the other hand, with load funds, right off the bat you're charged commission (not to mention other fees incurred over the life of the investment). Let's say, for example, you invest $25,000 into a load fund that charges a 5% commission. This costs you $1,250 off the top, bringing your actual investment down to only $23,750.
The often-cited horse race analogy argues against investing in load funds. Here's the logic behind it: Would you place a bet on a horse that had to start a race 200 yards behind the others? Well, maybe you would if you got a tip from a sketchy, trench coat-clad man in a dark alley. However, under most circumstances, it's not smart to put your money on that handicapped horse.
But some argue that at times that man in the trench coat (aka your broker) knows more about the horses than you do, and has a better shot at picking a winner. Also, sometimes these fees are unavoidable because some funds are available only through investment advisers.
Cost-benefit analysis can help determine when a load fund is worth it (in other words, when it will score you a load) and when it is better to "do it yourself" and avoid the fees. Load-fund fees range depending on share class and can cover a variety of costs, such as paper work and fund management.
