Changes

The Treasury TARP program proved erratic and had to be radically modified several times. The Treasury dropped the original plan to buy toxic securities and instead has used $250 billion to prop up major banks. In October Paulson and Bernanke used their new powers to take an ownership stake in the nine largest U.S. banks, of $7 to $25 billion each. These banks are now partly owned and controlled by the government. However those banks are keeping the money and not lending it out.  The Bush administration has refused to allow the money to be used to help the [[automobile]] industry.  The price of bank stocks has fallen sharply since the bailout passed. The world's largest bank, Citigroup, was on the verge of collapse in late November and received a second bailout of $20 billion (in addition to $25 billion in October), and a federal guarantee to cover most of its toxic investments.

The Treasury TARP program proved erratic and had to be radically modified several times. The Treasury dropped the original plan to buy toxic securities and instead has used $250 billion to prop up major banks. In October Paulson and Bernanke used their new powers to take an ownership stake in the nine largest U.S. banks, of $7 to $25 billion each. These banks are now partly owned and controlled by the government. However those banks are keeping the money and not lending it out.  The Bush administration has refused to allow the money to be used to help the [[automobile]] industry.  The price of bank stocks has fallen sharply since the bailout passed. The world's largest bank, Citigroup, was on the verge of collapse in late November and received a second bailout of $20 billion (in addition to $25 billion in October), and a federal guarantee to cover most of its toxic investments.

By mid-November the market had lost confidence in Treasury Secretary Paulson, who indicated he was baffled and would let the incoming Obama administration handle the unspent $450 billion.  The stock market jumped 6% on the news that Obama had picked New York banker Timothy Geithner to replace Paulson.<ref>Theo Francis, "Obama to Nominate New York Fed Chief Timothy Geithner as Treasury Secretary," [http://www.businessweek.com/election/2008/blog/archives/2008/11/obama_to_nomina.html?chan=top+news_top+news+index+-+temp_top+story ''Business Week'' Nov. 21, 2008]</ref>  In late November the Federal Reserve announced it will buy up to $600 billion in mortgage-related assets from Fannie Mae and Freddie Mac, hoping to restart the housing and credit markets.

By mid-November the market had lost confidence in Treasury Secretary Paulson, who indicated he was baffled and would let the incoming Obama administration handle the unspent $450 billion.  The stock market jumped 6% on the news that Obama had picked New York banker Timothy Geithner to replace Paulson.<ref>Theo Francis, "Obama to Nominate New York Fed Chief Timothy Geithner as Treasury Secretary," [http://www.businessweek.com/election/2008/blog/archives/2008/11/obama_to_nomina.html?chan=top+news_top+news+index+-+temp_top+story ''Business Week'' Nov. 21, 2008]</ref>  In late November the Federal Reserve announced it will buy up to $600 billion in mortgage-related assets from Fannie Mae and Freddie Mac, hoping to restart the housing and credit markets.  Under the new "Term Asset-Backed Securities Loan Facility", or '''TALF''', the Federal Reserve will loan up to $200 billion to financial companies that hold securities backed by consumer and small-business loans.  

Hedge funds are private investment companies with $1.7 trillion in assets. They have lost $180 billion since July and some are near collapse. Investors are demanding their money back, and Wall Street in late October is bracing for a shake-out in the industry.<ref> Louise Story, "Citadel Chief denies rumors of trouble"  [http://www.nytimes.com/2008/10/25/business/25hedge.html?ref=business ''New York Times,'' Oct 24, 2008]</ref>

Hedge funds are private investment companies with $1.7 trillion in assets. They have lost $180 billion since July and some are near collapse. Investors are demanding their money back, and Wall Street in late October is bracing for a shake-out in the industry.<ref> Louise Story, "Citadel Chief denies rumors of trouble"  [http://www.nytimes.com/2008/10/25/business/25hedge.html?ref=business ''New York Times,'' Oct 24, 2008]</ref>

<ref> Gretchen Morgenson, "Countrywide to Set Aside $8.4 Billion in Loan Aid," [http://www.nytimes.com/2008/10/06/business/06countrywide.html?ref=business ''New York Times'' Oct. 6, 2008]</ref>   

<ref> Gretchen Morgenson, "Countrywide to Set Aside $8.4 Billion in Loan Aid," [http://www.nytimes.com/2008/10/06/business/06countrywide.html?ref=business ''New York Times'' Oct. 6, 2008]</ref>   

===Largest bank rescued===

===Largest bank rescued===

Citigroup, the world's largest bank was tottering in late November despite its receipt of $25 billion in TARP bailout money. Its value on the stock market plunged to $21 billion, down from $244 billion two years ago.  Round after round of layoffs have ended 75,000 jobs in 2008 out of 375,000 employees a year ago.  Very heavy exposure to toxic mortgages is the main culprit.  The government stepped in with the largest bailout yet, including $20 billion in new cash, and guarantees of toxic assets by the Treasury, FDIC and federal Reserve.

Citigroup, the world's largest bank was tottering in late November despite its receipt of $25 billion in TARP bailout money. Its value on the stock market plunged to $21 billion, down from $244 billion two years ago.  Round after round of layoffs have ended 75,000 jobs in 2008 out of 375,000 employees a year ago.  Very heavy exposure to toxic mortgages is the main culprit.  The government stepped in with the largest bailout yet, including $20 billion in new cash, and guarantees of toxic assets by the Treasury, FDIC and Federal Reserve.

At all times Citigroup used elaborate mathematical risk models that looked at mortgages in particular geographical areas, but never included the possibility of a national housing downturn, or the prospect that millions of mortgage holders would default on their mortgages. The prevailing approach at Citigroup and the other big banks was to make money as fast as possible (generating annual bonuses of $10 to $30 million for senior executives), which assigning zero to the risk of a system-wide downturn. Such a downturn came with disastrous consequences for Citigroup and its rivals on Wall Street.  Even after Bear Stearns ran into serious trouble in summer 2007, Citigroup decided the possibility of trouble with its CDO’s was so tiny (less than 1/100 of 1%) that they excluded them from their risk analysis.   

At all times Citigroup used elaborate mathematical risk models that looked at mortgages in particular geographical areas, but never included the possibility of a national housing downturn, or the prospect that millions of mortgage holders would default on their mortgages. The prevailing approach at Citigroup and the other big banks was to make money as fast as possible (generating annual bonuses of $10 to $30 million for senior executives), which assigning zero to the risk of a system-wide downturn. Such a downturn came with disastrous consequences for Citigroup and its rivals on Wall Street.  Even after Bear Stearns ran into serious trouble in summer 2007, Citigroup decided the possibility of trouble with its CDO’s was so tiny (less than 1/100 of 1%) that they excluded them from their risk analysis.