Chump Change

Posted November 11, 2008

The original US $700 billion bailout package is almost spent and the economy is still rapidly sinking. The US dollar strengthened against all major currencies, but there is now talk about hitting new stock market lows.


You may not consider $30 billion as being chump change, but that is certainly how it is viewed in the US financial markets.  The $30 billion represents what analysts say is uncommitted out of the original $350 billion bailout package.  That means there is $350 billion left to spend.  The technical name of the program, by the way, is “Troubled Assets Relief Program” or TARP if you prefer acronyms. 

The remaining $350 billion of the entire $700 billion is only accessible if the US President asks Congress for it and if Congress authorizes the new amount.  So what do you think the odds are that the US government will only need $350 million more to continue bailing out the failing business giants?  And where is all this money coming from, by the way?

The original $250 billion went to the Capital Purchase Program.  If you remember, this was the program which bought equity shares in banks, savings and loans, and loan companies.

The number of firms which have approached the US Treasury Department for financial assistance has been endless.  The most surprising news on 10/November/2008 was that the giant credit card company American Express was approved to be a bank holding company.  This gives them access to government funding under the TARP program.

In addition, the investment firm Goldman Sachs Group is probably going to announce the first quarterly loss for the company.

It is a good thing American Express asked for money now, because there are 44 other banks to date asking for $47 billion of federal assistance.  Now let’s see….$30 billion minus $47 billion plus auto industry requests for $25 billion and who knows what other companies are getting ready to ask for financial assistance.  All of this equals a lot more than $350 billion which means Congress will soon be considering the strings that will be attached to the next phase of TARP.  Congress will also be deciding how much needs to be approved.

These kinds of problems are what keep investors nervous.  They are not panicky at this point, but they are like timid cats ready to bolt the room if you make the wrong move.  There was talk yesterday among financial analysts that stock markets could seek new lows as the US and global economies continue a massive slide into a recession.

The way the economic numbers are slipping reminds you of a devastating mudslide down a mountain where everything in the way is devoured.  There is no way to stop the slide as people stand by watching helplessly.  Yesterday, the Dow Jones Industrial Average dropped 73.27 points to 8,870.54.  The FTSE managed to close up by 38.96 points at 4,403.92, but the NIKKEI closed down 147.06 points to end at 8,934.37.  Asian stock markets fell almost across the board after continued bad news emerged from major manufacturers.  In fact, 6 Asian stocks fell for every 3 stocks that rose.  The Australian stock market was also a big loser with a 2.8% loss in the ASX 200 Index.

In terms of US dollars, the US dollar strengthened against all major global currencies except the Swiss franc ($.8485) and the Japanese yen ($.0102) as of the close of US markets.  The euro slid to $1.2757; the British pound weakened to $1.5598; the Canadian dollar fell to $.8371; the Australian dollar fell to $.6673; and the New Zealand dollar fell to $.5784.  These foreign exchange rates are almost completely unpredictable right now just like the stock markets, because no one knows what each day is going to bring in terms of economic news.

For example, yesterday the technology retailer giant Circuit City announced it is filing bankruptcy. 

So here’s the next question.  Can $700 billion be called chump change?