---------------------

Today, the Feds and the Treasury announced another major bailout program focused on Main Street. Also issued today was the FDIC's quarterly banking profile. It is interesting to look at this bailout program in light of the recent banking report card and ask, will this additional $800 billion bailout work?

I. First the bailout,

The Fed will purchase up to $100 billion in debt of Fannie/Freddie and Federal Home Loan Banks, along with $500 billion of mortgage-backed securities issued by Fannie, Freddie and Ginnie Mae. In addition, the Fed will lend up to $200 billion in asset- backed securities backed by "newly and recently originated" loans for education loans, car loan and credit card loans.

This brings the total bill for the bailouts to over $3 Trillion, compared to a contracting GDP of about $14 Trillion. Per, William Poole, the former St. Louis Fed president, "Clearly, the Fed and the Treasury are beginning to take a large amount of credit risk."

II. Secondly, the FDIC Quarterly Banking report available here.

Here are the Highlights:

1) Bank Loans Surged, but reserves held.

2) Goldman Sachs (GS) took advantage of the recent FDIC program that allows GS to issue debt guaranteed by the FDIC.

3) One in four of all banks reported a net loss for the quarter (the highest percentage of quarterly losses since they started keeping track 24 yrs ago.

4) Actual loan losses increased 156% over last year. Charge-offs consisted of loans secured by real estate, first and second lien mortgage loans, real estate construction and development (up 744 percent), home equity lines of credit, commercial and industrial (C&I) borrowers and credit card loans (this is the highest quarterly net charge-off rate for the industry since 1991.)

5) Loan loss provisions totaled $50 billion (a 300% increase over last year.) This is to cover expected future losses.

6) The growth in past due loans (90 days or more) increased 122%

7) The number of problem banks increased from 117 to 171 this quarter.

So, if we circle back to the bailout, we see that the government is providing a stimulus package to encourage more mortgages, student loans, car loans and credit card loans.

It appears they want the consumer to spend their way out of this slowdown, using debt backed by the government (ahem the taxpayer).

On the same day the Fed's announced this "new" bailout, the FDIC issued their quarterly report, which clearly indicates consumers are defaulting on mortgage debt, student loans, and credit card loans and the percentage of loans past due is climbing. So, what will happen to this new debt? Will a good percentage of these new loans default as well? If not, why not? What do you think, will this new bailout work? Check out the attached link above to the FDIC website for yourself.