$1 trillion. That’s the gap at the end of fiscal year 2008 between the $2.35 trillion states had set aside to pay for employees’ retirement benefits and the $3.35 trillion price tag of those promises.
Why does it matter? Because every dollar spent to reduce the unfunded retirement liability cannot be used for education, public safety and other needs. Ultimately, taxpayers could face higher
taxes or cuts in essential public services.
Showing posts with label Funding. Show all posts
Showing posts with label Funding. Show all posts
Sunday, August 08, 2010
Tuesday, March 03, 2009
Plan to Move Distressed Assets Could Move Stocks Higher
Put me down as a fan of this plan. It could end up being a stroke of genius. This definitely trumps the Resolution Trust Corporation (RTC) plan that was used to dispose of the assets from failed Savings and Loans.
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The Obama team announced its intention to partner with the private sector to buy $500 billion to $1 trillion of distressed assets as part of its revamping of the $700 billion bank bailout last month.
...private investment managers would run the funds, deciding which assets to buy and what prices to pay. The government would contribute money from the $700 billion bailout, with additional financing likely coming from the Federal Reserve and by selling government-backed debt. Other investors, such as pension funds, could also participate. To encourage participation, the government would try to minimize risk for private investors, possibly by offering non-recourse loans.
'Bad Bank' Funding Plan Starts to Get Fleshed Out
 Bob DeMarco is a citizen journalist, blogger, and Caregiver. In addition to being an experienced writer he taught at the University of Georgia , was an Asociate Director and Limited Partner at Bear Stearns, was CEO of IP Group, and is a mentor. Bob currently resides in Delray Beach, FL where he cares for his mother, Dorothy, who suffers from Alzheimer's disease. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. His content has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, BlogCritics, and a growing list of newspaper websites (15). Bob is actively seeking syndication and writing assignments. |
Tuesday, January 27, 2009
Will the Commercial Paper Market get Tested on Friday?
The Fed launched the Commercial Paper Funding Facility on Oct. 27 to buy short-term debt directly from companies amid the credit market's seizure. Now, the Fed holds about $350 billion of commercial paper in the facility. That is close to 21% of the $1.7 trillion market. About $230 billion of this debt is set to mature by Friday.
By LIZ RAPPAPORT
This week brings one of the first tests of success for a key Federal Reserve program that has calmed the short-term credit markets.
About $230 billion of three-month debt that the Fed owns, in the form of commercial paper, is set to mature by Friday.
The questions are: Will companies like General Electric or GMAC, which issue this short-term debt to pay their bills and meet other near-term obligations, return to the open market rather than roll over their debt with the central bank, which costs a lot more? Can the still-fragile market absorb so much three-month debt in a single week without sending interest rates much higher? And is the Fed winding down this key program?
The Fed launched the Commercial Paper Funding Facility on Oct. 27 to buy short-term debt directly from companies amid the credit market's seizure, following Lehman Brothers' collapse.
At the time, money-market funds, which are the main buyers of this debt, were hoarding cash to meet redemptions and companies couldn't obtain loans for much more than 24 hours, and at rates as high as 7% or more.
GMAC says it is evaluating all of its funding options, while General Electric Chief Executive Jeffrey Immelt said last week the firm was cutting back its reliance on the commercial-paper market.
As of this past Thursday, the Fed held $350 billion of paper in the facility. That is close to 21% of the $1.7 trillion market.
"Unwinding the Fed's programs is meant to be a natural process, and this is an early test of that," said Lou Crandall, chief economist at Wrightson ICAP.
Some analysts predict the Fed may see its CP purchases cut by half as issuers work their way back into the open market.
It is unlikely all the issuers will roll over their debt for three months as some choose to sell at shorter maturities, of one or two months. Others, like banks, may entirely buy back their debt using cash they have obtained by borrowing at lower rates, using debt guaranteed by the Federal Deposit Insurance Corp. Thursday evening the Fed will report its holdings for the prior week.
Certainly, the CPFF program, along with several others, has helped smooth the problems in the short-term credit markets.
Money-market funds have been buying higher-yielding assets rather than just the safest short-term Treasury bills, which yielded them 0% for several weeks. Investors have moved into "prime" money-market funds, which buy higher-yielding assets. Money-fund managers no longer fear the possibility of "breaking the buck," or having the value of each share fall below $1, given the myriad government programs that ensure liquidity to meet any surge in redemptions.
Commercial-paper rates have also fallen to the point where borrowing from the Fed has become less appealing because it costs more than the open market does -- a phenomenon the Fed engineered. In the open market, companies can issue three-month debt at rates around 1% or less, where the Fed's rates are 1.24% for unsecured commercial paper or 3.24% for paper backed by assets' cash flows.
The Commercial Paper Funding Facility isn't scheduled to expire until the end of April, but as Federal Reserve Chairman Ben Bernanke explained in a Jan. 13 speech in London, "unwinding will happen automatically, as improvements in credit markets should reduce the need to use Fed facilities."
The Fed's balance sheet has already shrunk since the start of the year, from $2.26 trillion on Dec. 31 to $2.04 billion as of last Thursday. That said, it's still massively oversized from under $900 billion prior to Lehman's bankruptcy filing last September.
About $60 billion of the shrinkage came from allowing an older, now unnecessary, liquidity facility to expire. About $135 billion is due to a decline in short-term lending facilities, which were heavily used by banks and other financial institutions to get through year-end funding pressures, according to Fed data.
The remainder was due to modest ups and downs in a variety of facilities, and some currency valuation adjustments.
Write to Liz Rappaport at liz.rappaport@wsj.com
The question: Will companies like General Electric or GMAC, which issue this short-term debt to pay their bills and meet other near-term obligations, return to the open market rather than roll over their debt with the central bank.With the market looking on two additional question will be answered:
- Is the open market capable and willing to fund these companies?
- If they return to the open market what will be the cost of funding their obligations?
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Fed Program That Calmed Debt Market Faces a Test
By LIZ RAPPAPORT
This week brings one of the first tests of success for a key Federal Reserve program that has calmed the short-term credit markets.
About $230 billion of three-month debt that the Fed owns, in the form of commercial paper, is set to mature by Friday.
The questions are: Will companies like General Electric or GMAC, which issue this short-term debt to pay their bills and meet other near-term obligations, return to the open market rather than roll over their debt with the central bank, which costs a lot more? Can the still-fragile market absorb so much three-month debt in a single week without sending interest rates much higher? And is the Fed winding down this key program?
The Fed launched the Commercial Paper Funding Facility on Oct. 27 to buy short-term debt directly from companies amid the credit market's seizure, following Lehman Brothers' collapse.
At the time, money-market funds, which are the main buyers of this debt, were hoarding cash to meet redemptions and companies couldn't obtain loans for much more than 24 hours, and at rates as high as 7% or more.
GMAC says it is evaluating all of its funding options, while General Electric Chief Executive Jeffrey Immelt said last week the firm was cutting back its reliance on the commercial-paper market.
As of this past Thursday, the Fed held $350 billion of paper in the facility. That is close to 21% of the $1.7 trillion market.
"Unwinding the Fed's programs is meant to be a natural process, and this is an early test of that," said Lou Crandall, chief economist at Wrightson ICAP.
Some analysts predict the Fed may see its CP purchases cut by half as issuers work their way back into the open market.
It is unlikely all the issuers will roll over their debt for three months as some choose to sell at shorter maturities, of one or two months. Others, like banks, may entirely buy back their debt using cash they have obtained by borrowing at lower rates, using debt guaranteed by the Federal Deposit Insurance Corp. Thursday evening the Fed will report its holdings for the prior week.
Certainly, the CPFF program, along with several others, has helped smooth the problems in the short-term credit markets.
Money-market funds have been buying higher-yielding assets rather than just the safest short-term Treasury bills, which yielded them 0% for several weeks. Investors have moved into "prime" money-market funds, which buy higher-yielding assets. Money-fund managers no longer fear the possibility of "breaking the buck," or having the value of each share fall below $1, given the myriad government programs that ensure liquidity to meet any surge in redemptions.
Commercial-paper rates have also fallen to the point where borrowing from the Fed has become less appealing because it costs more than the open market does -- a phenomenon the Fed engineered. In the open market, companies can issue three-month debt at rates around 1% or less, where the Fed's rates are 1.24% for unsecured commercial paper or 3.24% for paper backed by assets' cash flows.The Commercial Paper Funding Facility isn't scheduled to expire until the end of April, but as Federal Reserve Chairman Ben Bernanke explained in a Jan. 13 speech in London, "unwinding will happen automatically, as improvements in credit markets should reduce the need to use Fed facilities."
The Fed's balance sheet has already shrunk since the start of the year, from $2.26 trillion on Dec. 31 to $2.04 billion as of last Thursday. That said, it's still massively oversized from under $900 billion prior to Lehman's bankruptcy filing last September.
About $60 billion of the shrinkage came from allowing an older, now unnecessary, liquidity facility to expire. About $135 billion is due to a decline in short-term lending facilities, which were heavily used by banks and other financial institutions to get through year-end funding pressures, according to Fed data.
The remainder was due to modest ups and downs in a variety of facilities, and some currency valuation adjustments.
Write to Liz Rappaport at liz.rappaport@wsj.com
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