In a move suggesting how the credit crisis could disrupt American higher education, Wachovia Bank has limited the access of nearly 1,000 colleges to $9.3 billion the bank has held for them in a short-term investment fund, raising worries on some campuses about meeting payrolls and other obligations.
Wachovia, the North Carolina bank that agreed this week to sell its banking operations to Citigroup, has held the money in its role as trustee for a fund used by colleges and universities and managed by a Connecticut nonprofit, Commonfund.
http://www.nytimes.com/2008/10/02/education/02college.html?_r=3&oref=slogin&ref=us&pagewanted=print
That brings us to this question: Why would a smart guy like Hank Paulson -- the former boss of Goldman Sachs -- advance such a dumb, shady plan? Let us count the reasons:
No. 1: It delays our national reckoning until after the presidential election.
Paulson first floated a bailout Sept. 18, at the very hour when shares of Goldman Sachs Group Inc. and Morgan Stanley looked like they might go into a death spiral. It's not so much a bailout, as it is a timeout. He had to follow up with something, anything, to stop the freefall from resuming. It didn't have to make sense.
So it doesn't. The plan is about creating the illusion of stronger financial institutions, not strengthening them.
# High-risk, high-yield loans posted their worst monthly performance on record as prices tumbled to new lows after Lehman filed for bankruptcy: The Standard & Poor's/LSTA Leveraged Loan Index returned a negative 6.15 percent in September, almost double the previous record loss of 3.35 percent set in July 2007. Leveraged loan prices tumbled 8.57 cents in Sept ember to a record low of 79.8 cents on the dollar as financial companies failed and hedge fund managers sold assets anticipating client withdrawals. (CreditSights via Bloomberg)BIS: Defaults on leveraged-buyout loans may rise to 4% this year as firms struggle to refinance about $500 billion of debt used to fund the takeovers--> ``The risk of a significant increase in LBO firm defaults in the next few years may have risen substantially.'' http://www.rgemonitor.com/
