This Week In Finance

By Broadside News Editor Noah Martin.

Compiled from The Los Angeles Times, The New York Times, CNN.com, The Washington Post, and other sources.

The Credit Crunch and Student Loans

Frozen credit markets may restrict the availability of student loans, say financial experts. After a tumultuous week on Wall Street more lenders are pulling out of the student loan business, which may make it more difficult for students to qualify for loans in the future. Students may have to offer up more collateral, provide more detailed information, and accept higher interests rates in order to obtain loans.

Congress has passed legislation that protects student loans through 2010 and increases government funds available for government subsidized loans.

Emergency Economic Stabilization Act

The final version of the $700 billion bailout passed Friday, Oct. 3, with a 263 to 171 vote, looks drastically different than the original three-page proposal put forth by the Bush Administration over a week ago. The final version passed by the House of Representatives, the Emergency Economic Stabilization Act, is 451 pages and contains numerous additions and qualifications to the initial bill.

The final version will still give unprecedented powers to the Treasury secretary, Henry Paulson, to buy $700 billion in troubled assets from large firms and provide credit to stimulate markets frozen by a halt in intra-bank lending but it added two oversight committees to monitor the allocation of funds: a Financial Stability Board, comprised of the Federal Reserve chairman, the Federal Home Finance Agency director, the Securities and Exchange Commission chairman, the Housing and Urban Development secretary and the Treasury secretary, and a bipartisan congressional oversight committee with five members appointed from both the House of Representatives and the Senate. Paulson has 45 days to design a plan for purchasing the troubled mortgage backed assets that will then be reviewed by the oversight committees.

In the new version, limits were placed on executive pay for firms selling assets to the government, it raised the Federal Deposit Insurance Corp. limit from $100,000 to $250,000, it allows the government to take ownership stakes in firms taking advantage of the bailout, and inserted provisions for homeowners to avoid foreclosure.

$150 billion dollars of expenditures were added to the bill in the second and final version: tax breaks for teachers that spend their own money on school supplies; tax relief for disaster victims; tax credits for hybrid car owners, tax credits for the skyrocketing costs of research and development.

The House also approved a separate measure to extend unemployment benefits to send a message of relief to citizens concerned about their economic future.

The party breakdown of Friday’s vote was 172 to 63 from Democrats and 91 to 108 from Republicans.

Greater financial regulations on Wall Street will not be considered until after Congress reconvenes following the fall campaign.

Citigroup’s negotiations with Wachovia

Only a week after the buyout of Washington Mutual, Citigroup announced that it would purchase Wachovia’s banking operations for $2.16 billion in stock in a deal coordinated by the two financial institutions and the Federal Deposit Insurance Corp. The news furthered public fears about the current state of the United States economy.

On Friday, however, Wells Fargo issued a statement claiming that it would purchase the entirety of Wachovia’s assets for $15.6 billion in stock.

Now, a New York judge has halted the merger between Wells Fargo and Wachovia and is requesting that representatives from Citigroup and Wachovia appear in front of his bench this coming Friday over claims that Citigroup had entered into an exclusivity agreement with Wachovia.

If purchased by Citigroup, losses on Wachovia’s banking assets beyond $42 billion would be covered by the FDIC. Wells Fargo would ask for no assistance from the FDIC and cover its own losses, relieving the liability burden placed on the tax payer.