Bush Vows to Safeguard Financial Systems

CBS

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yeah secretary thank you very much for uh inviting me in for a cup of coffee secretary and I share the concerns of our our citizens concerns about jobs concerns about their savance accounts this is a tough situation for America but we'll recover from it and the first step to recovery is to safeguard our financial system last night on Air Force One coming back from Peru I I talked at length to the secretary about his recommendation uh on the decisions made to uh to safeguard city city courp and we have made these kind of decisions in the past made one last night and if need be we're going to make these kind of decisions to safeguard our financial system in the future I talked to president-elect Obama about uh the decision we made I told the American people and I told the president-elect when I first met him that anytime we were to make a a a big decision during this transition he will be informed as will his team secretary Paulson's working closely uh with uh president elect's transition team it's important for the American people to know that there is close cooperation it's important for the American people to know that we will safeguard the financial system as the first step necessary for financial uh for economic recovery and I saw Mr CR thanks for your hard work appreciate it thank you

Citigroup 'Too Big To Fail'

CBS

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The federal government plans to pump billions and billions of dollars into Croup as a way to shore up the ailing financial giant. Early Show National correspondent Jeff Gore is at the New York Stock Exchange with more on that. Good morning, Jeff. Hey, Harry. Good morning to you. There's a few superlatives we can use to describe this plan. It is a massive sum of money we're talking about here. It's also a new phase in the government rollout. A massive sum when you're talking about just one institution. It's a very complicated plan. But here are the basics as they worked out late into the night. The government will backs stop $36 billion in potential losses at City Bank. They'll inject $20 billion right off the bat in fresh capital into City Bank. They're going to be getting a stake in this bank for doing all this. And keep in mind, they've already given City Bank$ 25 billion. Cityroup used to be the country's biggest and strongest financial company. And though its stock price has been ravaged this year, down 87%, it's still considered too interconnected to let it fail. City Croup is too big to fail. It's a large global financial institution. Uh if it were to fail, it would take the rest of the financial system, what's left of it, with it. City was another company that made in retrospect awful mortgage related investments. More help for them will deepen the government's involvement in the economic crisis. A crisis that has spooked everyone no matter what numbers you look at. Even after a rally on Friday, the Dow is still down 39% this year. The S&P 45%, the Nasdaq 48. Economist Mark Xandandy says he's never seen anything like it. One thing that makes this time particularly difficult is the financial system is broken. It's now increasingly difficult to get credit, whether you're someone with a very good credit score or business that has a pristine balance sheet. And that's going to make this uh particular recession particularly severe. There is at least some hope down here on the floor that this week might be slightly less crazy than we've gotten used to because of the short week because of the holiday. Harry, slightly less crazy. Jeff Cler, thank you so much. [Music]

Team Obama Sets Economy Plan

CBS

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president-elect Barack Obama is expected to announce his economic team later today CBS News correspondent Dean Reynolds is in Chicago with more on that good morning Dean good morning Harry well the incoming Administration is making it abundantly clear that it plans an active multi-billion dollar approach to kickstarting the economy as one top economic adviser to Barack Obama put it the era of dithering is over with the stock market wobbling with more than a million job losses this year alone and with the actions taken so far to stem the tide proving to be totally ineffective the incoming Administration is setting the table for a long struggle to make things right this is as big of an economic crisis as we fa in 75 years we've lost 1.3 million jobs already this year the uh the unemployment claims last month were the highest in 16 years and it looks like it could get worse before it gets better leading the effort to get things headed in a New Direction will be Timothy gner current president of the Federal Reserve Bank of New York 47 years old gner will be announced today as the new treasury secretary and working with him will be a former treasury secretary Lawrence Summers held the job under Bill Clinton and today will be introduced as the chairman of the National Economic Council I I would hope that next year uh we will start to see uh a turn but first Congress will be presented an ambitious plan C ing hundreds of billions of dollars to create over the next 2 years more than 2 million new jobs including public works employment similar to the New Deal of Franklin Roosevelt bridge and road building School repairs and Alternative Energy projects as the president-elect explained over the weekend but it will be a two-year Nationwide effort to jumpstart job creation in America and lay the foundation for a strong and growing economy the hope is that the Congress will take up this plan shortly after taking office in January and there's a consensus forming that the new president will have no time to waste Harry Dean Reynolds live in Chicago this morning thanks so much Maggie thanks a lot Harry joining us right now is Paul Krugman a professor of Economics at Princeton University a columnist for the New York Times and author of The Return of depression economics and the crisis of 2008 good morning to you Paul good morning that's a pretty dire headline well you know it's not depression but it's depression economics we're we're having the kinds of problems that we had during the 1930s and that's why we're talking about a new WPA we're talking about having to take some of the solutions that that we thought we didn't ever have to use again but here we are pretty pretty dire stuff like bailing out City group one of the largest and one strongest financial institutions in this country do you think that this bailout is well structured are the taxpayers getting a fair deal here first read on it no it's uh most of the people who've looked at it you know in the small hours of this morning have said this is a lot of taxpayer risk in return for not much it looks like a very sweet deal for City group management very sweet deal for City Group shareholders the extent they have anything left uh not very good for the taxpayer this was not good okay so other bailouts have done nothing to boost consumer confidence this one you say is not well structured why do it well you know things could be worse uh you know they that's been the maral of this crisis things can always be worse and they've been getting worse but if City group had not been bailed out then the whole financial system could collapse if we hadn't had these other bailouts things could be much worse even than they are so it's it's what hasn't happened not what has that's the justification so we had to do this but we should have done it better we have a man who's been working closely with Hank Paulson on these bailouts coming in as the new treasury secretary Tim gner we also have Lawrence Summers to head The Economic Council we heard their resumés individually and they're very good do you think they'll make a good team though that's going to be interesting uh they're both terrific terrifically smart terrifically forceful guys uh you wonder a little bit about how it's going to work with two terrifically smart terrifically forceful guys gner was uh a summmer protege now they're going to be sort of holding equal status it's going to be interesting to see how that how the Dynamics that works out but look it's great to have the best people on board that's the one thing that's really encouraging right now what about the $500 billion economic stimulus plan that President elect Obama is planning do you think it's realistic to to get that done in two years uh I hope it can get done faster my the back of my envelope says we need 600 billion next year alone so I'm actually worried that this plan may be too small I mean this is an enormous crisis you got to hit it with an enormous uh stimulus to Buck the economy up um I I'm still worrying that they're going to be a little bit short because you just have to put all your Notions of what is prudent aside being cautious is actually a very foolish thing right now all right Paul Krugman thank you so much for your Insight thanks so much a [Music]

Why Bailout Citibank?

CBS

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why did the federal government decide to bail out citigroup well the federal government decided to bail out citibank because it had to be done they're too big to fail and the feeling was the market was losing confidence in them and as they've been doing they had to do something very quickly over the weekend so they've come up with a plan to add 20 billion dollars to the 25 they've already given out of the tarp fund plus to guarantee 306 billion of the so-called toxic assets and it seems to have worked the stock market recovered citibank shares are up and everybody's happy today so tell me though you say too big to fail why too big to fail well citibank is basically the second largest bank in the country and if they went under it would just cause an absolute cataclysm in the financial sector both president bush and secretary paulson and president-elect obama say you have to save the financial system and citibank had to be saved it just could not let let it go down because it's so big and you know we can talk citigroup since we're talking the big mammoth company citigroup give me a sense of what would happen if there was no bailout of citigroup if there was no bailout of citibank and citigroup you would just have a complete freeze up of the credit markets which are already extremely tight you'd have interest rates soaring a total lack of confidence in the entire banking system not only domestically but worldwide it could not happen they had to do something to stop it and the reach about it because it's too big to fail is it because it's got you know branches and customers all across the world citigroup has about 200 million customers about three trillion dollars on assets and uh you just could not let something that big fall you just had to do something and that's why they've come up with this plan so sort of the average person waking up today or and learning about the citigroup bailout isn't it just people starting to say another day another bailout well it is we've had several bailouts we've had bear stearns we did not bail out lehman brothers which turned out to be a disaster as far as i'm concerned now we're bailing out uh city corp in various ways we've had the tarp program which has put hundreds of billions of dollars into other banks if we had not done this i think we would have had a total collapse of the financial system so yes it's bad we've had to put money in but what's the alternative to let them completely go under and have a seize up of the financial system that is not politically palatable will it work will it calm jittery investors restore confidence put an end to some fear in the market i think it will work in the short term as far as giving people confidence that citibank and city corp is not going to go under the feeling is that they're going to have to do this with other banks as well so in the short term it is restoring some confidence but it is not getting at the underlying problem of the toxic assets and the real estate market going down in the credit crunch i mean it's not solving the problem it's kind of getting it from from getting worse at the moment is it just window dressing well it's not exactly window dressing we are actually putting money in the bank is going to continue to land it's going to continue to operate so it's more than just show i mean they are actually getting real money and the major thing that they did was they split citicorp into the good bank and the bad bank now this was done during the savings loan crisis where there were some good assets and there were some bad assets they kind of created these bad banks and that's with the 306 billion dollars is getting the toxic assets the commercial and residential mortgages and collateralized debt obligations all the stuff that's bad as a separate pool and keeping the good bank going the government guaranteeing that bad pool is going to prevent further damage from to the overall bank by getting it out of their you know kind of a total pool of assets is it enough though is it is it doing enough to you know restore confidence in a very shaky market it is helping in the short term but it doesn't get at the underlying problem i think people are still very very nervous i mean look what's happening in the treasury market treasury bill yields are down to 0.005 basically zero percent because people just want the return of their money now to return on their money ten-year treasuries are yielding about one percent thirty-year treasuries yielding about three percent just money pouring into treasuries as a safe haven on the other hand risky assets junk bonds for example are now yielding about 20 so there's spread between the safe risk-free treasuries and anything with risk has widened dramatically and that's giving you an indication of how nervous people are right now yeah give me a sense if this is a is let me ask you this way is this a good deal for taxpayers i think it is a good deal for taxpayers because the alternative would be much worse uh letting the financial system completely come to a halt and having a entity as huge as citicorp go out of business would clearly cost taxpayers a lot more than the 20 billion dollars we just put in plus guaranteeing the 306 billion dollars in assets so yes 20 billion is a lot of money but it's a lot less than they would have to spend if the whole system went under uh you know paul krugman the con winning award-winning columnist you know um was just saying though today it had to be done but he's in his sense it was not a well-structured deal that there's much more risk for the taxpayer than return the taxpayers getting what's your response to that well there is risk to the taxpayer but the bigger risk is letting the entire financial system go under so we get 20 billion from the tarp now remember they're giving preferred stock which is also getting an eight percent yield so in fact they're getting a decent return for shareholders if they pay it which hopefully they will uh but i think not to do anything which i guess some people say is the best thing would would be far worse

Citigroup secures lifeline

CNN

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The government is making a major commitment to Citigroup, and I just spoke to the chief financial officer of the company moments ago over the phone. He said this is a very positive development, very important that the government is standing by the company and essentially supporting it with a huge amount of capital. Those are his words, huge amount of capital. We're talking here not only about a $20 billion additional injection of money from the bailout funds. And remember, Citigroup originally had gotten $25 billion, so that makes it $45 billion. And then the U.S. government is investing in preferred stock in Citigroup. It's going to be a total, he said, of $65 billion. That's big money, and the feeling is that should be enough to help Citigroup. Right out this storm. The storm last week was simply astounding. The pounding that this company's stock took lost two-thirds of its value when the government decided that it wasn't going to be buying troubled mortgage securities. Remember, Citigroup has a tremendous amount of those securities, of real estate loans, totaling over $300 billion. And the government today also saying that it will backstop. The loss is that Citigroup has in those securities. Among customers, well, they're saying this morning the government had to do it. I think the bailout is positive. That's what the government should do. It's inevitable. And as a customer, I'm feeling that my savings and my deposits will be fine. They have $2 trillion in assets, so they're too big to go down. If they go down, Bank of America, everyone else, I think they're too big. Too big a domino. Yeah, absolutely. I think that this would be... Bigger than Lehman Brothers. And remember, after Lehman Brothers, that is when the world financial markets really began tumbling. So the government saying Citigroup is simply too big to fail. Angelique? How much power does the government have to make sure that Citigroup upholds its end of this bargain? Because, of course, that was one of the primary concerns when the government came to Wall Street's aid. It's a very good question. The government says it has gotten a commitment from Citigroup to ease terms for mortgages, for mortgage holders who are having trouble making their payments. It also says it has gotten a commitment that there will be limitations on executive compensation. And certainly with regard to that, it has plenty of enforcement power. The question is, and this is really a question not only for Citigroup, but for all of the major banks that are getting bailout money from the government, will they use that money to make new loans? A lot of the banks here in the U.S. have been using the bailout money just to stabilize themselves. They're still being very tough in making new loans. They're calling in some existing loans. And that remains to be seen whether the government is really going to hold the stick over these banks and insist that they... start lending more because that is a key driver that's essential for the economy here in the U.S. to jump once again.

World Markets End the Week Mixed

VOA News

Transcript

another volatile week on wall street after two days of steep losses the dow jones industrial average rebounded friday up nearly 500 points after a two-day 900 point drop despite the gain businessweek magazine's robin farzad says investor confidence is taking a beating there's this siege mentality right now that i'd frankly rather stuff it under my mattress you know inflation be damned at least i'm not going to lose all this money european markets closed two to three percent lower on friday on fears that the global recession may be deeper than many feared but major asian indexes rebounded after opening sharply lower in early trading howard gorges is an investment director in hong kong at one point it was down nearly six percent and then around mid morning the japanese market had turned round from an early two or three percent lost to two or three percent gain and wall street futures which are traded in asia also moved up to show around a 3.3 percent gain and that seemed to change the mood in hong kong and in other asian markets and the rally began to develop from there on the downside oil prices fell to a three-year low despite the continuing drop in gasoline prices energy trader ray carbone says demand for oil has been weak unfortunately even at these lower gasoline price levels we're not seeing that demand come back and frankly probably a lot of that demand is gone for good further hurting investor confidence is the inability of u.s lawmakers to assemble an aid package for automakers as well as new doubts about the effectiveness of the government's 700 billion financial rescue plan u.s stock markets have plunged more than 30 percent since the rescue plan was approved by congress last month mill arsega voa news

CitiGroup's Close Call

CBS

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the markets posted triple digigit gains after the government rescued City group from the brink the reason for the bailout according to many analysts the bank is just too big to fail until recently it's been the largest bank in the US in terms of assets with businesses ranging from credit cards to home mortgages to Investments operating in more than 100 countries with 200 million customer accounts worldwide City group is one of the largest financial institutions in the world and if it was to go under it would bring the entire Financial system down with it this is the second time the feds have come to the aid of the struggling Financial Giant in weeks after first pumping 25 billion into the bank last month the government is injecting an additional $20 billion with strings attached the money will come in exchange for shares that will pay 8% back to the taxpayer City Group also agrees to place limits on Executive pay and help homeowners facing foreclosure but some analysts say the bailout doesn't go far enough and that the company will need much more from Uncle Sam the $20 billion is about 10% of what City Corp needs to get back to Financial Health they need about 200 billion they got 20 they need 200 City Corp stock shut up nearly 60% today to just under $6 but the stock market rally might be shortlived shares of other major US Banks like Bank of America and JP Morgan Chase have lost more than 50% this year President Bush signaled more bailouts may be needed and if need be we're going to make these kind of decisions to safeguard our financial system in the future why rescue City group and not the big three automakers the treasury secretary says the $700 billion bailout bill is for the financial sector only help for anyone else requires Congress to change the law Kelly Wallace CBS News New York

Eye To Eye: Citigroup Bailout

CBS

Transcript

earlier today I spoke about the financial crisis and the government bailouts with former Securities and Exchange Commission chairman Arthur levit I asked him if City groups need for a second bailout means the crisis is even worse than we thought I think it probably is worse than we thought but I think the government is doing what they should do uh they have to help restore public confidence a lot of people at home are sitting sitting watching this and they're saying these folks and Wall Street have been preaching economic Darwinism for decades why not let them fail they they made this mess why not let them fail the implications of failure now are Global they cut across the economy at every level we're talking about three basic pillars of the economy Finance automobile and housing if all three of those tank we have an economy absolutely in the depths of despair can't happen Barack Obama puts his economic team in place today there two months until he takes office is this audacious or is this good Management on his part this is smart I mean we have uh an Administration that is virtually powerless certainly a president whom nobody listens to what we've seen now with a new Administration is we have a shadow Administration in power in place acting in a constructive and in a Cooperative way with the Secretary of the Treasury Hank Paulson we cannot afford uh a lost two-month period where public confidence would disappear we cannot afford that Arthur leit thank you so much for your time this evening you're quite welcome