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£250bn bill to save US banks
Hugo Duncan16.01.09
The US government today launched a $373 billion (£250billion) bail-out package to save just two stricken banks.
A vast $235billion (£158billion) of taxpayers' money is being risked to save Citigroup while Bank of America, which owns major City employer Merrill Lynch, is getting a $138billion (£92.5billion) handout.
Between them, the pair employ more than 16,000 bankers in London. Despite the huge sums, some analysts still think the two companies will have to be nationalised.
The latest bail-outs add further pressure on incoming president Barack Obama days before he is sworn in as president.
Bank of America took over Merrill Lynch in the frenzied Wall Street week when Lehman Brothers collapsed under a mountain of debt. The deal was done under pressure from the White House.
Today for the first time it admitted that losses of some $15.3billion (£10.3 billion) were lurking in Merrill Lynch, including "toxic" loans and investments that have collapsed in value.
Washington today agreed to pump $20 billion (£13.4 billion) of cash into the group to cover those losses, but also said it would use $118 billion (£79.5 billion) of taxpayers' money to underwrite other "toxic assets".
Meanwhile, Citigroup entered an agreement with the government whereby the taxpayer will share its devastating losses on its duff loans and investments. The bank will shoulder the first $39.5 billion (£26.5billion) with the government shouldering up to $235billion (£158billion).
The news came as the Bank of England today warned that Britain faced its deepest downturn in decades.
Deputy governor Sir John Gieve admitted there was little that could be done to limit the slump in the first half of this year.
He said the main challenge was to prevent a prolonged recession and a sustained period of falling prices, or deflation.
His comments raised hopes the monetary policy committee will cut interest rates again next month having reduced them from five per cent to a 315-year record low of 1.5 per cent since October.
In a speech in Manchester, Sir John said: "2009 is certain to be a difficult year for the UK and the global economy more generally. In the UK, we expect the sharpest fall in output for decades while retail prices are likely to fall for the first time in almost half a century.
"A decade or more of remarkable macro economic stability has come to a shuddering halt." Fourth-quarter GDP figures next week are expected to confirm Britain is officially in recession, as defined by two successive quarters of economic decline. The National Institute for Economic and Social Research, an independent think tank, reckons the economy shrank by 1.5 per cent in the fourth quarter, the worst figure since 1980.
Reader views (17)
let the banks rot ...........
- Matt, hillingdon uk
the gov needs to stop bailing banks and firms out..the market needs to be left alone so it can correct itself..these bailouts are short term fixes but in the end will not fix the problem..its a waste of tax payers money
- Nolegirl, USA
I heard a representative of the Banks pointing out that the crisis was all down to the public's liking of credit and it was our fault. It follows that the Bank's growth of salaries nd bonuses was als based on cheap credit and I would expect that Bonuses should now be abolished as they encouraged unintelligent lending and Bank salaries should be decreased to the levels they were before the days of easy credit. I am also naiive enough to believe that incompetent and criminal Bankers should be punished for what they have done. I'm sure at one point this was Tory Party Policy, but after the initial soundbite we have not heard any more calls for action from Camoron or Boy George.
- L Bayliss, Farnham England
If BoA and Citi are to be nationalized by the US government we can say goodbye to the USA as a leading economy for a whole generation. It's as simple as that. I can see why the govt are keen to keep them afloat, it's one thing if retailers perish during these hard times but if our banking sytem goes down the toilet then we can expect a deep, long and drawn out recession. 2009 the second great depression?
- Mark Ralph, London, UK
Examine the pyramid of employess from the top. Take every single name from the top down in every bank introuble.
Assess them all for competence, relevant experience to do teh job and vision in the industry. If they don't meet the criteria, sack them all. My guess, perhaps 98% would go, Start with the governor of the BofE.
Along with them, all government ministers involved.
Then, the system could start fresh with decent, honest people in charge and of courdse with all new appointees, a job description which includes, sorry, starts with ACCOUNTABILITY.
Some hopes, not in my life time.
RJ
Expat in USA
- Ray Jarvis, Marlborough USA
Another �250 billion bailout! That's nearly a thousand pounds for every man, woman and child in the USA!
Trying to borrow your way out of a borrowing crisis is like ordering a new credit card when your old credit card is maxed out. It's called living beyond your means, and eventually someone has to call a stop.
- Lawrence, Spain
All the focus is on what is happening now, with politicians saying its a 'global crisis',meaning Gordon and Darling saying its not their fault. But it happened when they were in charge. We have to go back 7 or 8 years, but I remember when a 15 ft by 15 ft garage, went for £200,000 in the old brompton road and banks lent 125% on over valued houses. Surely that was enought alarm bells, without all the other froth that was around. Its easy to flush tax payers money down the toilet, specially when you compounded the problem to start with. This hypocracy by politicians is shameful. They will use every excuse to shift the blame from themselves but I think history will be the ultimate judge. Not one voice against the excesses of the last 7 years.
- Bondy, london
At PMQ's this week, David Cameron asked Gordon B whether he still believed and supported that the predictions made by the Chancellor in November that the economy would begurn to improve in the middle of 2009. As he is prone to do, Gordon waffled something about "it depends on how the others in the workd economy responded". Does he really think we'll see "the green shoots of recovery" by mid-2009 (some in his party claim they can already see them!!!) or is he for once in his life going to tell us the truth!!!
- Malcolm, London
People with cash who find taht they evntually will receive zero interest rather than eat into their capital will simply stop spending on anything other than necessaries. This will be the final item to propel the UK into havoc. I predict by the autumn of 2009 things will be getting toward unrecognisable even from how things are currently. It is so obvious - but nothing seems to be written about this specific aspect/effect of the downturn. Interest rates need to rise or remain as they are to prevent it from happening.
- Raymond, london
They lost £10 billion in just 3 months!!! what kind of idiots are running these places?
- S.Howard, london
Indeed the only answer is to re establish what the term value means.The banks are at the ned of their natural life we have all lived above our means for at least a generation,who will pay for it,we all must.
We will have to re establish what value means,a long and painful process,politics will not be able to lead us we must find an alternative
- Bernard Michaelis, kulmbach germany
This cannot be true! Only a few weeks ago Our Revered Leader Mr Gordon Brown assured me personally that the UK was uniquely and best placed to see out this minor economic downturn, and since then he has single-handedly saved the entire universe.
Who is this 'deputy governor' to dare to query the triumph of Our Revered Leader?
- Peter Grimes, Londonistan
Conversely, it is only the prudent and thrifty members of the community who will be able to shepherd our faillng economy through the desperate impasse over-borrowing has produced. However, those who have seriously nurtured their wealth are unlikely to do so until sensible interest rates open the door to further growth of their personal funds..
- Robert El-Cid,, Hull, East Yorks.,
Thank you Crash Gordon!
- Tom, St. Albans
"A decade or more of remarkable macroeconomic stability has come to a shuddering halt". This does not make sense. It is a contradiction in terms. It is because governments and banks kept interest rates too low and encouraged excessive borrowing that we saw a massive housing bubble which in turn meant people felt richer than they were. This is not STABILITY, but yes it has come to a shuddering halt ! And as for "raised hopes" for a cut in interest rates from 1.5%, who cares. The UK government is an absolute disgrace. They should cut taxes and reign in public spending, streamline the public sector head count, not wage phoney wars and address immigration for non skilled people. Tough but true. You cannot encourage further spending without ending right back at square one.
- Michael, Switzerland
Shouldn't have said that, should he? Gordon won't like it nor the Baroness Vadeera. Who are we to believe? Does anybody know anything? Doctor! Doctor!
- John Problem, Hackney Wick, London, UK
Another speech from the ministry of the blindingly obvious. Thank god these over paid indivduals are around to tell us what we all know.
- Fly, london
