Car sales lowest since 91

My bet, is car sales are about to get even worse with the loss of credit in the market and the lack of truly gas efficient affordable cars.

Oh, yeah. This is going to be a bumpy ride.

The Libor! It goes down! Champagne for everyone!

OK- it’s not that huge of a thing to celebrate. But as news of the bailout starts to trickle into Wall Street, the credit markets are responding by making it cheaper for banks to loan money. The Libor (London interbank offered rate) – the rate that banks lend to each other – has been dropping. Now nearly as good as it was 6 months or a year ago – but after almost kissing 5%, it’s now closer to 3.42%.

Usually, it’s at 1%. So for it to be even at 3% is pretty dang high. We’re not out of the woods yet, but at least we’re reaching the end of the beginning.

Credit crisis could hurt transit agencies

Metro and other transit companies had a deal – they’d pay back loans to banks, and those payments were insured by AIG. (Remember them? Got bailed out by the government?) Turns out if there isn’t enough money in AIG to honor that insurance – and the deal was if the payments weren’t insured, the transit companies like Metro could pay back the entire loans.

At once.

Already, some banks have asked for their money back in full (like $43 million in full) by the end of next week.

Transit companies shut down – which leads to goods not being shipped, which leads to less sales, less money to pay people – it just gets better and better.

Bailout to be extended to insurance companies too

How bad is the financial crisis when insurance companies are now on the list of things that need to be bailed out with the $700 billion from the government.

Here’s how the problem goes:

1. Banks invested in credit security swaps – bundles of mortgages in this case, which included those toxic sub-prime loans.
2. When the sub-primes started dragging down the credit swaps, banks started to lose money. But it’s OK – because those credit swaps were insured!
3. Turns out – there is more bad security swaps than there is money in insurance companies. Insurance companies have the potential to go bankrupt bailing out the banks, which would lead to job losses, problems with people who have other kinds of insurance (car, fire, etc) suddenly left without any.

So, now the federal government may be looking to bail out insurance companies, who are bailing out banks, who are – giving billions in bonuses to their executives and golden parachutes to their CEO’s. Right – I get how it works now.

Treasury going to back mortgages now?

This is an interesting idea – much the same way that the FDIC insures people’s checking/savings accounts, the federal government may back mortgages as well.

I’m looking through the details, and here’s the punch line:

Under the program proposed by Bair, a lender would get a government guarantee that troubled loans would be repaid. In exchange, the lender would be required to significantly drop the interest rate, reduce the principal or extend the life of the affected loans.

Banks would apply to the FDIC to participate. A loan would be eligible for new terms if the borrower’s income is high enough to meet the revised schedule of payments.

Personally, I’d like to see it run like the FDIC as well – include a fee. If this is an insurance program, then in return for the banks getting this guarantee, they have to do more than just lower the mortgage rate – they could have done that on their own. I’d recommend the banks have to give up some cash, say 1% of the balance of the mortgage in company stocks to the federal government. If the mortgage is payed off (or later sold off), the bank gets that stock back from the government. If the mortgage goes south, the US government gets to keep and sell that stock whenever they want in exchange for covering the amount of the mortgage.

This way, the taxpayers don’t bail out more mortgages without getting at least something in return.