Sunday, November 9, 2008

New $586 billion stimulus plan for China

China announced a stimulus program that could exceed half a trillion dollars, its biggest move yet to rebuild rapidly weakening confidence and unleash domestic demand to counter the prospect of global economic recession.

The package of infrastructure investment and other stimulus measures is to be spread over the next two years and appears to include some measures that were already announced. Still, the huge scale of the planned response -- potentially 4 trillion yuan ($586 billion) -- underscores how rapidly the outlook for China's once-booming economy has worsened and how the country remains comparatively well-placed to deal with such a slowdown.

But we have more stimulus here. The TARP plan is now going to cover the automobile companies. And even AIG is getting more money, and at better rates. AIG was borrowing money from the Fed's commercial paper window, and using that to pay off their loan. Now "this criminal enterprise" is getting an additional $40 billion from the TARP, and a rate on their previous government loan of just 3% points over LIBOR, instead of 8%. Now the Government, I mean taxpayer is on the hook for $150 billion from AIG. AIG then buys the troubled CDO's from those who bought the insurance, bailing out the Investment banks and hedge funds who relied on AIG.

They also get bailed out in their RMBS. In one of these deals, AIG puts up $1 billion to offset $40 billion worth of RMBS which will be sold for .50 cents on the dollar. The taxpayer puts up the other $20 billion.

Christmas came early for the Investment banks who bought protection from AIG! But why should we expect anything different? Remember how Bernanke effusively praised the punitive nature of the AIG bailout at Congressional hearings?

I guess Bernanke finally figured out that it doesn't pay to be punitive when you are backstopping the company!

Especially now that the TARP is being continually expanded, with the money going to those who lost the most!

That's Wall Street math!

No comments: