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They never really went away so don't call it a comeback...but it's been a big week for bailouts. Here are some highlights:
Uncle Ben to the Rescue: The Fed pledged to keep rates at exceptionally low levels (read: zero) until mid-2013 and "discussed the range of policy tools available to promote a stronger economic recovery." In reaction to the FOMC statement, the price of mortgage-backed securities jumped in value and 46% of respondents to the August CNBC Fed Survey expect another round of quantitative easing (a.k.a. QE3), up from 19% in the July survey.
Europe Steps Into the Breach: In addition to pledging to buy Italian and Spanish debt, the European Central Bank late last week revived its six-month lending facility operation, which banks eagerly tapped earlier this week.
Blame the Speculators: Short selling of select financial stocks was banned in France, Spain, Italy and Belgium.
TARP 2.0: Fannie Mae paid $500 million to buy the servicing rights to 400,000 of Bank of America's worst-performing loans with an unpaid principal balance of $73 billion. While not technically a bailout, the transaction was not done for altruistic reasons.
"The rights being picked up by Fannie Mae were originally worth more than the purchase price," The WSJ reports, citing a person familiar with the deal. "The bank decided to sell the portfolio at a loss because its value is expected to deteriorate further."
The transaction with Fannie comes in a week when we now know BofA CEO Brian Moynihan met with Treasury Secretary Tim Geithner.
Geithner, you may recall, pledged to give Fannie and Freddie unlimited government support through 2012 in the waning days of 2009. Geithner's blank check gives Treasury the means to help struggling banks without needing Congressional support. But rest assured, taxpayers are still on the hook.
If it looks like a backdoor bailout and quacks like a backdoor bailout…
In the accompanying video, Henry and I discuss the latest bailout bonanza with Barry Ritholtz, CEO of Fusion IQ and author of Bailout Nation.
"This is nothing more than a wealth-transfer," Ritholtz says. "It's Robin Hood in reverse: It's rob the poor, give it to the wealthy banks."
As with most things, Ritholtz has plenty to say about the latest round of bank bailouts, calling Bank of America and Citigroup "the news GSEs." He also suggests some alternatives to the continued practice of throwing good money after bad.
Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com
