Interest Rate Roundup

Friday, October 24, 2008

Reports: Insurers, emerging markets next in line for bailout money?

The credit virus just keeps spreading, and with each new outbreak of disease, various government agencies are forced to respond. The government is now talking about allowing insurance companies to get their hands on billions in bailout money. Here's an excerpt from the Washington Post:

"The Treasury Department is working on ways to broaden its $700 billion bank rescue program to help insurance companies that are a critical backstop to a wide range of deals, bond issues and leasing arrangements, sources familiar with the matter said.

"Treasury is worried that insurance companies, many of which report earnings next week, could face similar fates as American International Group as the credit crisis worsens, triggering a new wave of problems for the financial markets. AIG nearly collapsed last month when it was overwhelmed by losses from real estate investments and derivatives, requiring massive government loans of more than $123 billion. It has already burned three-quarters of that money.

"Treasury officials said today that insurance companies organized as thrift holding companies are eligible to receive money from the government because they are regulated by the Office of Thrift Supervision. Treasury has formed a team to specifically examine mounting trouble within the insurance industry.

"But industry sources said that Treasury is also looking at ways to aid insurance companies that have no federal regulator. Many of these companies are subject to oversight by state authorities."

And it doesn't stop there, according to the New York Times. The IMF is looking into potential bailouts of emerging market countries hit hard by the credit crisis. An excerpt:

"With the financial crisis engulfing developing countries from Latin America to Central Europe, raising the specter of market panic and even social unrest, Western officials are weighing coordinated action to try to stabilize these economies.

"The International Monetary Fund, which is in negotiations with several countries to provide emergency loans, is also working to arrange a huge credit line that would allow other countries desperate for foreign capital to borrow dollars, according to several officials.

"The list of countries under threat is growing by the day, and now includes such emerging-market stalwarts as Brazil, South Africa and Turkey. They have become collateral damage in a crisis that began in the American subprime housing market.

"The fast-growing economies of the developing world depend on money from Western banks to build factories, buy machinery and export goods to the United States and Europe. When those banks stop lending and the money dries up, as it has in recent weeks, investor confidence vanishes and the countries suddenly find themselves in crisis.

"Details of the arrangement are still being worked out, but it could be supported by Japan and several oil-producing countries, a fund official said. The fund has not yet approached the Federal Reserve, according to officials, although the Treasury Department has expressed interest.

"Two weeks ago, the Fed set up unlimited swap agreements with the European Central Bank, the Bank of England and other central banks to ease the severe credit turmoil in Western Europe.

"This time, the focus would be on emerging markets, with good economic records, which are having trouble borrowing dollars."


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