Fiscal News

December 4 - The Senate Committee on Banking held a hearing today to consider extending $34 billion in federal loans to domestic automakers.  Noting that the Big Three request for public funds already had increased from $25 billion to $34 billion in less than a week's time, Moody's Economy.com economist Mark Zandi tesified today that:

$34 billion and a plan may not be enough to return the automakers to viability.  Policymakers must prepare for this eventuality.  Under the most positive outlook the Big Three will need between $75 billion and $125 billion to avoid bankruptcy over the next two years.

Zandi also testified that he believes that the government will provide assistance to the Big Three in any event.  Without immediate government assistance the Big Three will certainly go into bankruptcy, whereupon the government will be forced to provide financing in bankruptcy proceedings anyway, as no private lender will provide bankruptcy financing. Other testimony came from Gene Dodaro (GAO), Ron Gettelfinger (UAW), Alan Mulally (Ford), Robert Nardelli (Chrysler), G. Richard Wagoner (GM), Keith Wandell (Johnson Controls) and James Fleming (CT Auto. Retailers Assoc.).

November 25 - The Federal Reserve pledged an additional $800 billion today across several different initiatives to help unfreeze credit markets.  $100 billion of funds will go to purchasing debt directly from Fannie and Freddie Mae, while another $500 billion will be used to purchase mortgage-related securities backed by Fannie, Freddie or Ginnie Mae.  The final $200 billion will be lent through the newly-formed Term Asset-Backed Securities Loan Facility (TALF) to support loans for consumers and small businesses.  For a chart of other recent actions by government in response to the financial crisis, see pages six and seven of CRFB's "Guide to Stimulus Proposals"

November 17 - The International Herald Tribune reports that many states are facing the serious prospect of major budgetary shortfalls due to the economic downturn. Because many states are required by law to balance their budgets, some will be forced to either raise taxes or significantly cut spending to make up the difference.  California, providing one of the most dramatic examples, has a $15 billion gap between estimated revenues and expenditures.  In sum, all but approximately twelve states-mostly those with rich oil and mineral resources--will likely have difficulty balancing their budget for 2009. Already, over the past few weeks, several cities and

November 14 - Troubled mortgage firm Freddie Mac disclosed today that it lost $25 billion from July through September, and now has assets exceeding its liabilities.  Freddie Mac has asked for the government to provide $14 billion of the $100 billion which was authorized for the federal conservatorship of Freddie Mac and Fannie Mae.  On Monday, Fannie Mae announced that it had lost $29 billion in the third quarter, and may also have to tap part of its $100 billion rescue fund.