A private equity firm has gotten into the act of shoring up a firm hit by the housing crisis. Texas Pacific Group, TPG will inject $5 billion into Washington Mutual (WM):
Washington Mutual, the country’s largest savings and loan, is poised to receive a $5 billion investment from TPG, a big buyout firm, and several other investors, people briefed on the situation said Monday.
Details of the transaction are still being sorted out, but a deal could be announced as early as Tuesday.
The injection of capital will help Washington Mutual shore up its balance sheet, which has been hurt badly by a drumbeat of losses amid the current housing crisis. Federal banking regulators have stepped up scrutiny of the big mortgage lender, concerned that its financial health was deteriorating.
But some Wall Street analysts said Monday that it remained unclear whether the new investment, more than half of its $9 billion market value on Friday, would be enough to ensure the 119-year old institution remains independent.
Private equity groups don’t invest unless they expect big paydays. Their investment puts them in a position to take the company private to later take it public or reap big profits from a WaMu buyout.
In getting out of this burst bubble firms and capital will be reallocated. Like Bear Sterns companies will dies and others will be transformed. The changes will be painful, but their needed to get the economy back on a more sound foundation.
“$5 Billion Said to Be Near for WaMu”
[Cross-posted on The American Mind.]
In light of the recent turmoil in the housing and financial markets Treasury Secretary Henry Paulson will release a proposal for revamping the regulatory agencies monitoring the U.S. financial system:
Mr. Paulson’s plan will include merging some agencies, such as the Securities and Exchange Commission with the Commodity Futures Trading Commission, while broadening the authority of others, such as the Federal Reserve, which appears to be a winner under the proposal. Mr. Paulson is expected to recommend that the central bank play a greater role as a “market stability regulator,” with broader authority over all financial market participants.
Mr. Paulson is also expected to call for the Office of Thrift Supervision, which regulates federal thrifts, to be phased out within two years and merged with the Office of the Comptroller of the Currency, which regulates national banks. One reason is that there is very little difference these days between federal thrifts and national banks.
The Treasury plan has been in the works since last year but has taken on greater prominence since the onset of the housing crisis and ensuing credit crunch. Critics have blamed lax regulation at both the state and federal level for exacerbating the crisis.
This proposal is merely a step towards changes. The Democratic Congress has ideas of their own.
“Sweeping Changes in Paulson Plan“
Economy 27 Apr 2007 11:38 am
The faltering housing market placed its stamp on the overall economy with the news that GDP slowed to 1.3% growth in the first quarter of 2007. The negative effects of the housing slump are understandable. What should concern is the possibility of stagflation, inflation plus a stagnant economy:
An inflation gauge tied to the GDP report and closely watched by the Fed showed that core prices — excluding food and energy — rose at a rate of 2.2 percent in the first quarter, up from a 1.8 percent pace in the fourth quarter. Another measure tracking all prices jumped by 3.4 percent in the first quarter, compared to a 1.0 percent decline, on an annualized basis in the fourth quarter.
With President Bush’s troubled the last thing he wants is a slumping economy
Economy 20 Feb 2007 06:41 pm
To take an example, therefore,*19 from a very trifling manufacture; but one in which the division of labour has been very often taken notice of, the trade of the pin-maker; a workman not educated to this business (which the division of labour has rendered a distinct trade),*20 nor acquainted with the use of the machinery employed in it (to the invention of which the same division of labour has probably given occasion), could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them.*21 I have seen a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middling size. Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day; that is, certainly, not the two hundred and fortieth, perhaps not the four thousand eight hundredth part of what they are at present capable of performing, in consequence of a proper division and combination of their different operations.
Without the division of labor or knowing the importance of the division of labor our modern world wouldn’t exist. We’d still be in huts trying to find enough hours of daylight to put food on the table. Smith’s image on money is a tremendous and appropriate honor.
[Image via newscast.]
Economy 16 Feb 2007 07:36 am
Fed Chairman Ben Bernanke is starting to get the same love as Alan Greenspan. When he talks like he did before the House of Representatives that inflation wasn’t a threat to the economy stocks soared to an all-time high.
Congress is also giving the Fed Chairman some of that love which may play into his goal of pushing the central bank toward inflation targeting:
Several common themes have emerged from the hearings. First, Mr Bernanke’s decision to halt rate rises in the summer of 2006 has earned him political capital as a Fed chairman who considers seriously the dual mandate to put equal weight on employment and inflation, and not inflict harm lightly on the real economy.
Mr Bunning, who opposed Mr Bernanke’s confirmation, said: “The Federal Open Market Committee did the right thing by stopping the increases in the Fed funds rates after the June 2006 Fed meeting. By holding rates constant, you have done the right thing ever since.”
Second, his modest, plain-speaking manner, which stands in sharp contrast to that of Alan Greenspan, the previous chairman, is going down well with Congress.
Melvin Watt, a Democratic congressman, said: “I happened to like your predecessor. Problem was I didn’t understand a damned thing he ever said – so you are a breath of fresh air.”
Third, Mr Bernanke is showing a surprising degree of political savvy, positioning himself shrewdly in the debates of the moment, which hinge on inequality and middle-class economic anxiety, and moving to meet a desire for greater public accountability at the Fed.
All this could help Mr Bernanke change the way the Fed operates, above all the adoption of a flexible inflation target with a specified inflation goal but one that would not be achieved over a fixed timeframe. Conventional wisdom has it that the Democratic victory last November and the broader mood of economic populism in the air make this an uphill struggle.
Oil continued to fall as Saudi Arabia refused to go along with more production cuts. They want to see how the scheduled Feb. 1 cuts pan out. Oil is at its lowest price in 19 months, and has dropped 16% this already this year. We can thank a mild winter that lowered demand for heating oil. The lower price has removed some of the impetus for Congressional Democrats’ energy bill which would tax U.S. oil production to fund investment in alternative energy. Another effect with the lower prices is reduced demand for hybrid automobiles. We might even end up fatter.
Economy 07 Jan 2007 11:37 pm
California ended up with a way to make money off Google that didn’t involve Ad Sense ads. As Google’s stock (GOOG) rises California state government jumps with joy. Millions of dollars come in so government programs don’t have to be cut and taxes don’t have to be raised. Government spokesman H.D. Palmer said, “On behalf of a grateful state, I’ll be happy to wash their [Google founders Sergey Brin's and Larry Page's] windows or mow their lawn.” With the two pouring in nearly $190 million Palmer better use more than Windex on the windows and hand trim the lawns.
Economy 02 Jan 2007 07:43 am
Happy New Year. Let’s start 2007 with a couple quick links from very late 2006:
- Blogging Stocks’ Zac Bissonnette wants you to keep an eye on excessive executive pay. The money going into a CEO’s pocket might be better kept in the company or in your pocket.
- James Hamilton looked at recent housing numbers and thinks we’ve “seen the worst for home sales.”
Economy 14 Dec 2006 02:11 pm
The Treasury Department appealed a judge’s decision to redesign the currency so it’s more useful to the blind. They argue making changes would be too costly to the government and vending machine operators. Christopher Gray, president of the American Council of the Blind, is willing to wait for the next counterfeit-preventing redesign. “We would be happy to wait until the next change in the bills and build accessibility in at that time,” Gray said. “Surely, if you did it that way, the costs can’t be anything like what is being claimed by Treasury.” Marc Maurer, president of the National Federation of the Blind, opposes the ruling writing in USA Today [via twoorthree.net], “The cost to society in changing machines that accept currency, such as vending machines and ATMs, will be much greater than the small convenience afforded to the blind by being able to identify money by touch.”
Economy 14 Dec 2006 08:00 am
Put away any thoughts of turning that big booze bottle full of coins into valuable industrial commodities. Because it’s getting so expensive to make coins the U.S. Mint is outlawing the melting of pennies and nickels. You can’t take more than $5 of the coins with you when you leave the country and can only ship $100 abroad. A little ingenuity can solve that. Just find your nearest international drug dealer and make a deal. The mules he uses to smuggle in the smack can be the same ones to transport your coinage. That’s of course if the condom’s don’t break on the way into the U.S.
If you’re really in the mood for some metal mayhem you could try cornering the silver market, but you’d probably wind up worse off than the Hunt brothers.