The Fed taking over IndyMac in the U.S. made me wonder about whether this kind of thing can happen in Canada. Of course the simple answer is no, it is not likely to happen, however, it is still amazing that this kind of financial failure can happen in this day and age.
Evidently this lending institution has been in trouble for a while, and the FDIC stepping in was inevitable, but seeing the panic’ed clients standing outside of the Bank Offices was scary (to me). Evidently there are over 10,000 people who have more than $100,000 in the bank (from CNN), deposits are only insured up to $100,000. The other question is, how much is this going to cost the U.S. government? Numbers bandied about on the weekend were $7-8 Billion, which isn’t cheap!
CNN was abuzz the entire weekend about this, and analysts were on all asking, “How could this happen?”. The simple answer is greed, and incompetence, someone tried to make money the wrong way, and no one stopped them, as simple as that.
The U.S. Government took the extraordinary step to assure folks that Freddie Mac and FannieMae will both remain solvent. This whole thing sounds like it is going to get a lot more interesting before it all resolves.
For immediate release
The Board of Governors of the Federal Reserve System announced Sunday that it has granted the Federal Reserve Bank of New York the authority to lend to Fannie Mae and Freddie Mac should such lending prove necessary. Any lending would be at the primary credit rate and collateralized by U.S. government and federal agency securities. This authorization is intended to supplement the Treasury’s existing lending authority and to help ensure the ability of Fannie Mae and Freddie Mac to promote the availability of home mortgage credit during a period of stress in financial markets.
Makes you feel all warm and cozy doesn’t it?
Why do I see that scene from “It’s a Wonderful Life” being replayed when folks were trying to get their money out of the Bailey Savings and Loan? Monday should be an interesting day.
Anyone else care to add their comments or opinions, I am eager to hear what my readers think of this.
TSX Forward to the Past
Thanks to the latest bit of market jitters, the TSX composite index closed Friday at where it started 2008 (on January 2nd). This means if you had an index fund for the TSX composite, you are breaking even this year. Guess it could be worse, but it has been a topsy turvy kind of year on the markets.
Banks are certainly taking a beating, and I await the moment to get into them more (my opinion, not a recommendation). I note Nortel is below $7 but BCE is managing to hold it’s price above $39.00 for now as well, so that is a good thing too. Bombardier should be interesting to watch as well, maybe Larry MacDonald will have something to say about that :-).
Tomorrow: A review of the book Smoke and Mirrors 2008 by David Trahair
