Potential Bailout Cost is $5 Trillion or $43K Per Household

Potential Cost For Bailout is $5 Trillion or $43K Per Household

Steve Watson
October 15, 2008

The total potential cost of the financial bailout to the U.S. taxpayer is already rapidly approaching $5 trillion, over seven times as much as the meaningless $700 billion bailout bill figure.

Analysts have previously marked out the $5 trillion figure as the actual cost, now those predictions are becoming demonstratively accurate.

Meanwhile, Hank Paulson has defended government intervention, stating “There’s no doubt that the way to get the maximum bang for the taxpayers here was to invest in banks.”

Based on this Reuters summary and the sources linked within the table, here is a breakdown of the bailout’s cost to taxpayers so far.

Bailout Type
Cost To Taxpayers
$300 billion
$25 billion
$150 billion
$700 billion+
$29 billion
$200 billion
$85 billion (+ extra request of $35 billion)
$300 billion
$4 billion
$87 billion
$200 billion+
$50 billion
$144 billion
POSSIBLE TOTAL $2.56 trillion+

In addition, the U.S. government has said it will temporarily guarantee $1.5 trillion (£856 billion) in new senior debt issued by banks, as well as insure $500 billion (£285 billion) in deposits in non-interest accounts, mainly used by businesses.

These figures take the potential cost to $4.559 trillion+ – or $43, 221 per household.

Furthermore, when you account for the fact that the credit default swap market is around $62 trillion, and that derivatives worldwide are worth between between $1 and $2 quadrillion, the numbers start to become meaningless.


Fed To Offer Unlimited Dollars
October 13, 2008

The U.S. Federal Reserve led an unprecedented push by central banks to flood financial markets with dollars, backing up government efforts to restore confidence in the banking system.

The ECB, the Bank of England and the Swiss central bank will offer unlimited dollar funds in auctions with maturities of seven days, 28 days and 84 days at a fixed interest rate, the Washington-based Fed said today. The Bank of Japan may introduce “similar measures.’’ The dollar declined and some money-market rates fell.

Policy makers from the Group of Seven nations pledged at the weekend to take “all necessary steps’’ to stem a market panic after the MSCI World stock index plunged 20 percent last week. Central banks last week cut interest rates in tandem for the first time since 2001, the U.S. plans to buy $700 billion in distressed assets from banks and in Europe, the U.K. is leading a push to keep lenders afloat with taxpayers’ money.

“By providing unlimited dollar funds they are acting on the back of the G-7 plan to ensure the system is fully liquidized,’’ said Lena Komileva, an economist at Tullet Prebon Plc in London. “We’re going to see even more liquidity provided and more aggressive rate cuts are coming.’’

Read Full Article Here

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Bailout Bill Will Help Chinese Banks, Foreign Banks

Bailout Bill Will Help Chinese Banks, Foreign Banks


Congress Approves Bailout Bill

October 3, 2008

With the economy on the brink and elections looming, Congress approved an unprecedented $700 billion government bailout of the battered financial industry on Friday and sent it to President Bush for his certain signature.

The final vote, 263-171 in the House, a comfortable margin that was 58 more votes than it garnered on Monday. The vote capped two weeks of tumult in Congress and on Wall Street, punctuated by daily warnings that the country confronted the gravest economic crisis since the Great Depression if lawmakers failed to act.

Read Full Article Here


Dow plummets when bailout passes

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Bailout: Not $700 Billion, More Like $5 Trillion

Bailout: Not $700 Billion, More Like $5 Trillion

Bei Hu
September 24, 2008

Treasury Secretary Henry Paulson’s $700 billion plan to buy devalued assets from financial companies is “a joke” because it doesn’t go far enough to calm markets, said Kenichi Ohmae, president of Business Breakthrough Inc.

Ohmae, nicknamed “Mr. Strategy” during his 23 years as a McKinsey & Co. partner, called for a $5 trillion “international facility” to be made available to financial institutions. The system could be modeled on one used by Sweden during its banking crisis in the early 1990s, he said.

“This is a liquidity crisis,” Ohmae said at an investor forum hosted by CLSA Asia-Pacific Markets, the regional broking arm of Credit Agricole SA, in Hong Kong yesterday. “The liquidity has to be so big that people won’t get panicky.”

Paulson’s proposal to remove hard-to-sell assets clogging the financial system marks the broadest intervention since at least the Great Depression. Asian stocks fell today, following U.S. shares lower as investors questioned whether the effort is enough to prevent a recession.

The plan came after the collapse of 158-year-old Lehman Brothers Holdings Inc. and the government takeover of insurer American International Group Inc. caused financial markets to seize up last week. The calamity was the culmination of a year during which the U.S. housing market slump left banks and securities firms with more than $520 billion of asset writedowns and credit losses.

Read Full Article Here


NO To The Paulson-Bernanke Derivatives Scam Bailout

Webster G. Tarpley
September 24, 2008

WASHINGTON DC – The grand theft bailout now being rammed through Congress by Treasury Secretary Paulson, Federal Reserve Chairman Bernanke, and other officials of the Bush regime with the help of accomplices Pelosi, Majority Leader Harry Reid, and other parliamentarians is a monstrosity for the ages, combining every hideous feature of monetarism, elitism, oligarchism, and sheer feckless incompetence. It is to all intents and purposes a national suicide note of the United States of America, a contract with the devil that absolutely guarantees irrevocable national decline. For any person of goodwill there can be only one impulse at the present moment, and that is to stop this bailout — to block it, to sabotage it, to bottle it up, to load it with killer amendments, and to do everything legally possible to stop this insane design from going through.


In political terms, McCain is now running well to the left of Obama on this issue, with a much stronger populist profile. McCain has attacked the outrageous greed and corruption of Wall Street. Obama does not dare attack Wall Street, since these are his masters. Obama, sounding like Milton Friedman, only attacks Washington. Obama has said that he will support whatever Paulson demands. That is not a surprise, since Paulson represents Goldman Sachs, and Obama is a wholly owned property of Goldman Sachs, which is his single biggest source of campaign contributions. Obama is a creature of Brzezinski, Soros, and Rockefeller, and without them he has no existence; Obama is an abject Wall Street puppet, an agent of finance capital. This week, both senators will have to decide how they vote on the odious derivatives bailout. Obama will surely vote in favor of it, since this is what Wall Street demands. If McCain votes against it, he will most probably propel himself into the White House on the model of Give ‘Em Hell Harry in 1948. Filthy corrupt Democrats like Schumer are already attacking McCain as the new Huey Long. Huey Long, the Louisiana populist of the 1930s, had many positive features, and we could certainly use a good dose of Huey Long in this country to counteract the elitism, oligarchism, condescension, and arrogant snobbery of foundation operatives like Obama. The bailout is already very unpopular 72% of all voters are opposed to it and it will become more and more hated when it becomes clear that it is also a failure. McCain’s course is clear. Will he have the brains and guts to cross Obama’s T on this vital issue?


Paulson is a ruthless and brutal eco-freak usurer who learned his trade at the Goldman Sachs stock-jobbing operation. He is now the leading member of the committee of public safety which rules in Washington, and which includes Gates, Rice, and Mullen. He now demands the astronomical sum of 700 billion dollars for the bailout of mortgage-backed derivatives, collateralized debt obligations, credit default swaps, and other poisonous derivatives. Make no mistake — this is not a bailout of homeowners who are threatened with foreclosure; it is a bailout of the lunatic house of cards which desperate bankers have built on these mortgages using derivatives. The entire crisis is not a crisis of subprime mortgages, it is a crisis of the derivatives bubble which was launched by Wendy Gramm of the Commodities Futures Trading Commission and Greenspan of the Fed with the connivance of Robert Rubin of Goldman Sachs and Citibank, and others in the Clinton administration, some 15 years ago.

These derivatives now amount to a total worldwide notional value that can be estimated between 1 quadrillion and two quadrillion US dollars. This sum is so large that it dwarfs the total value of the entire planet earth and all those who live here. Compared to the cancerous, bloated, and fictitious mass of derivatives which is at the root of this crisis, the $700 billion demanded by politicians, large as this may seem, is nothing but a drop in the bucket. And a drop in the bailout bucket is what it will be. The mass of world derivatives between $1 and $2 quadrillion represents an insatiable black hole which is capable of putting an end, not just to civilization, but the human life itself. The moral choice could not be clearer: humanity will either destroy the derivatives bubble in our time, or the derivatives bubble will surely destroy humanity. Those are the stakes in the current exercise.

Paulson and Bernanke, both lawyers for the Wall Street jackals, lampreys, vultures and hyenas, argue that the public interest demands a bailout of their cronies at Goldman Sachs, Morgan Stanley, J.P. Morgan Chase, Citibank, Bank of America, Wachovia, and the other large money center institutions. Before the American public antes up $700 billion just for openers in the game of genocidal poker which run by the infernal croupiers Paulson and Bernanke, we would be very well advised to examine the veracity of this premise.

Read Full Article Here


They Want Mama To Make it All Better! – Congresswoman Marcy Kaptur


Rep Defazio On The Bailout Package

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Who’s the REAL elitist? The McCains have 10 homes!

Who’s the REAL elitist? The McCains have 10 homes!


U.S. Taxpayers to pay for Wall Street Banking Collapse

U.S. Taxpayers to pay for Wall Street Banking Collapse

July 10, 2008

In speeches delivered Tuesday, Federal Reserve Board Chairman Ben Bernanke and Treasury Secretary Henry Paulson outlined the ruthless class policy being carried out to place the burden for the financial and housing crisis on the backs of working people.

Bernanke indicated that the Fed would extend its policy of offering unlimited loans to major Wall Street investment banks. The provision of Fed funds to non-commercial banks and brokerage firms, a departure from the Fed’s legal mandate without precedent since the Great Depression, is part of a policy of bailing out the banking system to the tune of hundreds of billions of dollars. The Fed announced its loan program for investment banks last March when it dispensed $29 billion to JPMorgan Chase as part of a rescue operation to prevent the collapse of Bear Stearns.

In his speech, Treasury Secretary Paulson acknowledged that home foreclosures in 2007 reached 1.5 million and predicted another 2.5 million homes would be foreclosed in 2008. But he made clear that nothing would be done to save the vast majority of distressed homeowners from being thrown onto the street.

Paulson, the former CEO of Goldman Sachs, said that “many of today’s unusually high number of foreclosures are not preventable.” With a callous indifference reminiscent of Marie Antoinette’s “Let them eat cake,” he went on to say that “some people took out mortgages they can’t possibly afford and they will lose their homes. There is little public policymakers can, or should, do to compensate for untenable financial decisions.”

In other words, low-income home owners who were lured into high-interest mortgages by predatory mortgage companies and banks are getting their just deserts! Of course, the Wall Street CEOs and big investors who made billions of dollars by speculating on these loans, creating a vast edifice of fictitious capital that was bound to collapse, are not to be held accountable for any “untenable financial decisions.” On the contrary, they are to be subsidized with hundreds of billions of dollars of credit, ultimately to be paid for by public funds.

The two speeches, presented at a Federal Deposit Insurance Corporation forum on the housing crisis held in Virginia, underscore the real social interests—those of the financial aristocracy—that are being protected by the policies of the Fed, the Bush administration, and the Democratic Congress.

Bernanke made clear that his call for an extension of loans to big investment banks is part of a more comprehensive proposal to systemize and regularize federal subsidies and bailouts for troubled banking giants. Particularly significant was the following remark: “Because the resolution of a failing securities firm might have fiscal implications, it would be appropriate for the Treasury to take a leading role in any such process, in consultation with the firm’s regulator and other authorities.” The implication is that the US Treasury should be ready to fund bank bail-outs with whatever taxpayer funds are necessary.

In neither speech was there even a hint that the government has any responsibility to protect home owners, or that the people responsible for the “lax credit and underwriting standards” that led to the current crisis might be called to account by regulators, Congress, or the courts.


Fed May Inject $15 Billion Into Failing Mortgage Lenders

Fed May Inject $15 Billion Into Failing Mortgage Lenders

Times Online
July 13, 2008

US TREASURY secretary Hank Paulson is working on plans to inject up to $15 billion (£7.5 billion) of capital into Fannie Mae and Freddie Mac to stem the crisis at America’s biggest mortgage firms.

The two companies lost almost half their market value last week as rumours of a government bail-out swept the stock markets, hammering share prices around the world.

Together, the two stockholder-owned, government-sponsored companies own or guarantee almost half of America’s $12 trillion home-loan market and are vital to the functioning of the housing market.

The capital-injection plan is said to be high on a list of options being considered by regulators as a means of restoring confidence in the lenders. The move would protect the American housing market, but punish shareholders in both companies.

Read Full Article Here


U.S. Weighs Takeover of Two Mortgage Giants

NY Times
July 11, 2008

Alarmed by the growing financial stress at the nation’s two largest mortgage finance companies, senior Bush administration officials are considering a plan to have the government take over one or both of the companies and place them in a conservatorship if their problems worsen, people briefed about the plan said on Thursday.

The companies, Fannie Mae and Freddie Mac, have been hit hard by the mortgage foreclosure crisis. Their shares are plummeting and their borrowing costs are rising as investors worry that the companies will suffer losses far larger than the $11 billion they have already lost in recent months. Now, as housing prices decline further and foreclosures grow, the markets are worried that Fannie and Freddie themselves may default on their debt.

Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee — which could be staggering — would be paid by taxpayers.

The government officials said that the administration had also considered calling for legislation that would offer an explicit government guarantee on the $5 trillion of debt owned or guaranteed by the companies. But that is a far less attractive option, they said, because it would effectively double the size of the public debt.

The officials also said that such a step would be ineffective because the markets already widely accept that the government stands behind the companies.

Read Full Article Here

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Fingerprint Registry in Housing Bill Passed

Fingerprint Registry in Housing Bill Passed

John Berlau
May 24, 2008

Fingerprints are considered to be among the most personal of information, and fingerprint databases created and proposed in the name of national security have generated much debate. Recently, “Server in the Sky” — a proposed international database of the fingerprints of suspected criminals and terrorists to be shared among the U.S., U.K. and Canada — has ignited a firestorm of controversy. As have cavalier comments by Homeland Security Secretary Michael Chertoff that fingerprints aren’t “personal data.”

Yet earlier this week, a measure creating a federal fingerprint registry totally unrelated to national security passed a U.S. Senate committee almost without notice. The legislation would require thousands of individuals working even tangentially in the mortgage and real estate industries — and not suspected of anything — to send their prints to the feds. The database and fingerprint mandates were tucked into housing and foreclosure assistance bills that on Tuesday passed the Senate Banking Committee by a vote of 19-2.

The measure the committee passed states that “an indvidual may not engage in the business of a loan originator without first … obtaining a unique identifier.” To obtain this “identifier,” an individual is requiredto “furnish” to the newly created Nationwide Mortgage Licensing System and Registry “information concerning the applicant’s identity, including fingerprints for submission” to the FBI and other government agencies.

The fingerprint provisions are contained in a “manager’s amendment” that was hammered out by committee Chairman Chris Dodd, D-Conn, and Ranking Member Richard Shelby, R-Ala., on Monday and attached the next day to a broader housing bailout bill that had been scheduled for a comittee vote. That bill, the “Federal Housing Finance Regulatory Reform Act of 2008,” expands the lending authority of the Federal Housing Administration and the government-sponsored enterprises Fannie Mae and Freddie Mac to refinance the mortgages of troubled borrowers and banks.

The amendment adopted the fingerprint provisions in a section called the “S.A.F.E. Mortgage Licensing Act.” The fingerprints will be part of what the amendment calls “a comprehensive licensing and supervisory database.”

And the database would cover a broad swath of individuals involved with mortgage lending. The amendment defines “loan originator” as anyone who “takes a residential loan application; and offers or negotiates terms of a residential mortgage loan for compensation or gain.” It states that even real estate brokers would be covered if they receive any compensation from lenders or mortgage brokers. Since many jobs in both real estate and mortgage lending are part-time and seasonal, even some of the most minor players in the mortgage market may have to submit their prints.

Justifications listed in the bill for this database include “increased accountability and tracking of loan originators,” “enhance[d] consumer protection,” and “facilitat[ing] responsible behavior in the subprime mortgage market.”

I conducted a wide Internet search and found fingerprint provisions in some state bills, but I don’t know if any, or how many passed. But in my search, I could find no arguments explaining how, specifically, collecting the fingerprints of loan originators would better serve borrowers getting mortgages. I called the Senate Banking Committee asking this question, but my call has not been returned yet. (I will update OpenMarket readers when and if it is.)

I imagine that, yes, a fingerprint registry might stop an ex-con from handling loans, but I doubt it will make even a dent in the lending problems the bill aims to stop. And I would venture to guess that the vast majority of the problem mortages were handled by employees with no criminal record. Rather, this seem like another thoughtless idea that lets politicians brag that they are “getting tough” about a particular problem.

But this fingerprint database, in addition to the privacy violations, might create a host of new problems of mortgage fraud. Identity theft involving fingerprints is becoming a major concern among data security experts. Security consultant Bruce Schneier has argued that hackers can steal electronic images of fingerprints directly from the databases they are stored in. And there is virtually nothing in this bill about security procedures that would apply to this database.

It amazes me. We have wrenching debates about privacy and freedom vs. national security when it comes to proposed anti-terrorist programs. But then a smililar scheme is done in response to an economic problem, and it almost escapes without notice. A similar thing has happened with anti-money laundering requirements that mandate that banks effectively spy on their customers for possible violations of everything from drug laws to the tax code.

Chertoff Says Fingerprints Aren’t ‘Personal Data’


Gold Hits Record $1,009, Oil $111, Euro $1.56

Gold hits new record at $1,009

March 14, 2008

Gold surged to a record $1,009 an ounce in New York as the Bear Stearns Cos. bailout and a plunging dollar increased demand for the precious metal. Silver also gained.

Bear Stearns got emergency funding from JPMorgan Chase & Co. and the New York Federal Reserve. The securities firm said its cash position had “significantly deteriorated.” The dollar fell to a record against the euro and a 12-year low against the yen. Gold has jumped 19 percent this year, while the Standard & Poor’s 500 Index fell 13 percent.

“Gold’s assault on $1,000 is happening for a good reason,” said James Turk, founder of, which had $337 million in gold and silver in storage for investors at the end of February. “Gold is not only an inflation hedge, it’s a catastrophe hedge. Gold is becoming increasingly important as the credit crunch continues to spiral out of control.”

Gold futures for April delivery rose $5.70, or 0.6 percent, to $999.50 an ounce on the Comex division of the New York Mercantile Exchange. The price reached the highest ever for a most-active contract at 10:45 a.m., topping yesterday’s record of $1,001.50. The metal has tripled in the past five years.

Silver futures for May delivery climbed 23.5 cents, or 1.2 percent, to $20.655 an ounce. The price has gained 38 percent this year.

“Gold at $1,000 is a clear sign of a lack of confidence in the dollar and the Fed’s handling of monetary affairs,” said Adrian Day, president of Adrian Day Asset Management in Annapolis, Maryland.

Read Full Article Here


Oil Hits Record $111, Euro Reaches $1.56

March 14, 2008

The dollar struck a fresh all-time low against the euro Friday as gold prices traded close to record highs a day after topping 1,000 dollars for the first time on US economic woes.

Oil prices fell on profit-taking after striking an historic peak of 111 dollars per barrel Thursday.

The European single currency reached a record high of 1.5651 dollars in Asian trade Friday, prompting the EU presidency to voice deep concern.

In later European trading the euro stood at 1.5566 dollars, down from 1.5624 late on Thursday in New York.

Read Full Article Here


Jim Rogers: Abolish The Federal Reserve

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Fed Endorses Home Mortgage Protections

Fed Endorses Home Mortgage Protections

December 18, 2007

The Federal Reserve moved Tuesday to protect home buyers from dubious lending practices, its most sweeping response to a mortgage meltdown that has forced record numbers of people from their homes.

The Fed has been under attack for not doing more to stem the crisis as hundreds of thousands of people lost the roof over their head. The situation raised the odds the country will fall into recession, unhinged Wall Street, racked up multibillion losses for financial companies and resulted in political finger-pointing over who was to blame.

The proposed rules, endorsed by the Federal Reserve Board in a 5-0 vote, would crack down on a range of shady lending practices that has burned many of the nation’s riskiest “subprime” borrowers — those with spotty credit or low incomes — who have been hardest hit by the housing and credit debacles. The rules also would curtail misleading ads for many types of mortgages and bolster financial disclosures to borrowers.

Read Full Article Here

Greenspan Urges U.S. To Help In Subprime Mess

NY Times
December 17, 2007

Alan Greenspan, former chairman of the Federal Reserve, said Sunday that the government should provide direct financial assistance to homeowners who are threatened by foreclosure in the worsening credit crisis.

In an interview on “This Week” on ABC, Mr. Greenspan said that helping homeowners directly would create “a short-term fiscal problem” for the government, but that doing so would be more effective than solutions like freezing mortgage rates.

Two ways to help homeowners directly would be to reduce taxes or to give cash grants similar to those given to disaster victims.

Either approach would strain the federal budget, but Mr. Greenspan said, “It’s far less damaging to the economy to create a short-term fiscal problem, which we would, than to try to fix the prices of homes or interest rates.”

Either of those efforts, Mr. Greenspan said, would “drag this process out indefinitely.”

“It’s important to recognize that there are a very large number of people who are in very major stress and having great difficulty in paying off their mortgages,” Mr. Greenspan said.

“Cash is available,” he added, “and we should use that in larger amounts, as necessary, to solve the problems of the stress of this.”

In one step taken by the Bush administration, Henry M. Paulson Jr., the secretary of the Treasury, has negotiated a freeze on interest rates on some subprime mortgages. Mr. Paulson has not called for any government spending to help homeowners or banks.

Read Full Article Here

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Ron Paul on Mad Money with Jim Cramer

Ron Paul on Mad Money with Jim Cramer


Central Banks to Pump Billions into World Financial System

Central Banks to Pump Billions into World Financial System

NY Times
December 13, 2007

A day after the Federal Reserve disappointed investors with a modest cut in interest rates, central banks in North America and Europe on Wednesday announced the most aggressive infusion of capital into the banking system since the terrorist attacks of September 2001.

Most market specialists and economists welcomed the effort but concluded that it would probably have only limited success in addressing broader problems in the global economy and the credit markets.

In response, stocks initially surged in New York, but most of the early gains dissipated in afternoon trading as the market moved wildly up and down through the day.

The effort to grease the wheels of bank lending suggested that policy makers were increasingly concerned about the risk that economies could fall into recession because of failures in the credit markets, which have seized up again in the last couple of weeks after they overcame a bout of panic in August and September.

Economists and market specialists say policy makers are trying to reassure bankers that they will stand firm as the lenders of last resort. The coordinated action is being led by the Fed, which will lend $40 billion this month. The European Central Bank, the Bank of England, the Swiss National Bank and the Bank of Canada will lend $50.2 billion this month and next.

Read Full Article Here


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Wall Street Tumbles After Rate Cut

Wall Street Tumbles After Rate Cut

December 11, 2007

WASHINGTON (AP) – The Federal Reserve dropped its most important interest rate to a nearly two-year low on Tuesday and left the door open to additional cuts to prevent a housing and credit meltdown from pushing the economy into a recession.

Fed Chairman Ben Bernanke and all but one of his colleagues agreed to trim the federal funds rate by one-quarter percentage point to 4.25 percent.

The rate reduction, the third this year, was needed to energize national economic growth, Fed officials said. The deepening housing slump is affecting the behavior of consumers and businesses alike, the Fed said.

“Economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks,” the Fed said in a statement explaining its decision to cut rates again. The three rate cuts ordered thus far “should help promote moderate growth over time,” the Fed added.

On Wall Street, stocks tumbled, reflecting disappointment among some investors who were hoping for a larger rate cut. The Dow Jones industrial plunged more than 200 points.

The funds rate affects many other interest rates charged to individuals and businesses and is the Fed’s most potent tool for influencing economic activity.

In response, commercial banks, including Wachovia and Wells Fargo, lowered their prime lending rate by a corresponding amount, to 7.25 percent. The prime rate applies to certain credit cards, home equity lines of credit and other loans.

The fact that the Fed’s key rate was lowered again marked an about- face for the central bank. At its previous meeting in October, Fed officials hinted that their two rate cuts probably would be sufficient to help the economy survive the housing and credit stresses. Since then, however, financial conditions have deteriorated, prompting Bernanke to signal before Tuesday’s meeting that another rate cut may be needed after all as an insurance policy against undue economic weakness.

As another bolstering move, the Fed on Tuesday also lowered its lending rates to banks by one-quarter percentage point. That was the fourth cut to the discount rate since mid-August.

“Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation,” the Fed said in its statement.

Banks, financial companies and other investors who made loans to people with spotty credit or put money into securities backed by those subprime mortgages have lost billions of dollars. Investors in the U.S. and abroad have grown more wary of buying new debt, thereby aggravating the credit crunch.

Harder-to-get credit has thwarted would-be home buyers, intensifying the housing collapse. Foreclosures have soared to record highs. The number of unsold homes have piled up. Problems are expected to persist well into next year.

The 9-1 decision for a quarter-point reduction to the funds rate was opposed by Eric Rosengren, president of the Federal Reserve Bank of Boston. He preferred a bolder, half-percentage point cut.

“Fed’s language clearly reflects a heightened degree of concern about the economic outlook,” said Carl Tannenbaum, chief economist at LaSalle Bank. “They left open the possibility of additional rate reductions,” he added. If the economy were to take a turn for the worse, another rate cut could come before the Fed’s next scheduled meeting on Jan. 29-30, Tannbenbaum said.

The situation poses the biggest challenge yet to Bernanke, who took over the Fed in February 2006. Some analysts have questioned whether he waited too long to cut the Fed’s key rate and whether he has acted aggressively enough to the nation’s economic woes.

In September, the central bank dropped the funds rate for the first time in four years. Then it was a half-point drop; on Oct. 31 came a quarter-point cut.

The rationale behind the lower rates is that they will induce consumers and businesses to boost spending, invigorating economic activity. With Tuesday’s reductions, both the funds rate and the prime rate are now at their lowest levels in nearly two years.

From July through September, the economy logged its best growth in four years. But it is expected to slow to a pace of just 1.5 percent or less over the final three months of the year as the housing collapse and credit crunch chill consumers, sapping overall economic growth. The odds of a recession have grown.

With growth cooling, the unemployment rate, now at a relatively low 4.7 percent, is expected to rise. Analysts expect the jobless rate to climb to 5 percent by early next year.

High oil prices could complicate the Fed’s job of trying to keep the economy expanding and inflation low.

Oil prices, which had neared $100 a barrel, have moderated. But they are still high. High energy prices are a double-edged sword. They can slow economic activity and spread inflation if they cause the prices of lots of other goods and services to rise.

“Elevated energy and commodity prices, among other factors, may put upward pressure on inflation,” the Fed said. “Inflation risks remain,” the Fed said, adding that it “will continue to monitor inflation developments carefully.” Some economists believed the Fed’s decision to go with a moderate quarter-point cut was a nod to those inflation concerns.


Dropping dollar cramps the style of Americans abroad

LA Times
December 9, 2007

LONDON – Karla Keating and her husband had retirement on their minds in May when they got what they considered an offer too good to refuse: a three-year stint in London.

Coming from North Carolina, they knew it was going to be a bit of a financial leap. But the major US bank where her husband is an executive lured him with a 33 percent increase in pay. Within weeks, they had crossed the ocean and found a nice flat near Marylebone for 1,820 pounds – about $3,750.

“The estate agent told me the price, and I said OK, I guess that’s kind of comparable to prices around Europe. And he said, ‘That’s the price per week,’ ” Keating recalls. Since then, it’s been all downhill.

The iPod Nanos for the children cost 99 pounds apiece (about $204), compared with $149 in the United States. Keating’s six-Diet Coke-a-day habit got shaved quickly to one, at $2 a can. They sit at the end of the day on their small balcony overlooking Great Portland Street, and her husband smiles (sort of) and says, “Here’s your $12 glass of wine.”

“When I got here I was like a deer in headlights. I was just, ‘Oh my God’ about everything,” Keating said. “We figured out that with the increasingly weakening dollar, in reality he is making less than he was making 20 years ago.”

Read Full Article Here

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Big Fed rate cut may spur a rally

Big Fed rate cut may spur a rally

Kristina Cooke
December 8, 2007

A big interest-rate cut by the Federal Reserve next week, or at least a hint more cuts are coming, coupled with this week’s subprime rescue plan could lift investor confidence and inspire a pre-Christmas rally.

While most investors are banking on a cut of at least a quarter percentage point in the benchmark fed funds rate, many think a deeper reduction is needed to unfreeze credit markets and boost confidence.

On Thursday, President George W. Bush announced a plan to stem U.S. home foreclosures, sending stocks surging on optimism it would keep the economy from sliding into a recession.

“The big focus next week is the Fed meeting,” said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.

He said that while the market was pricing in an interest- rate cut, there was still speculation about how big such a cut would be and whether the Fed also would cut the discount rate.

“Also if the comments reflect an easing bias, then together with positive momentum on the subprime plan, that should give a good support to equities,” he said.

Read Full Article Here


Housing Prices Seen Falling 30%

December 6, 2007

Housing markets from Punta Gorda, Florida, to Stockton, California, will crash and suffer price drops of more than 30 percent before the housing crisis is over, a report from Moody’s said on Thursday.

On a national level, the housing market recession will continue through early 2009, said the report, co-authored by Mark Zandi, chief economist, and Celia Chen, director of housing economics.

The report paints a worsening picture of the hard-hit housing sector, which is in the midst of its worst downturn since World War II.

While activity will stabilize in 2009, it will not be until 2010 before a measurable improvement in sales, construction and pricing will emerge, the report said.

Read Full Article Here

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Why America’s Currency Is the World’s Problem

THE DOLLAR NOSEDIVE: Why America’s Currency Is the World’s Problem

Spiegel Online
December 3, 2007

The ailing US economy seems to be driving the exchange rate of the dollar inexorably downward, with serious consequences for the global economy. Politicians and central bankers are looking on helplessly as the economic outlook worsens by the day and European companies rack up huge losses.

It costs about four cents to produce a one-dollar bill — a pittance, compared to the greenback’s influence on the world’s economy.

The exchange rate of the dollar can boost the fortunes of companies and entire economies — or plunge them into crisis. Its rate against the euro fluctuates by a few hundredths of a cent each day. But in the past five years that fluctuation has more often than not taken the US currency on a downward trajectory, causing consternation — and now despair — among people around the world.

Last Thursday, Thomas Enders, the CEO of Airbus, gave a speech to employees in building 261 at the consortium’s production complex in Hamburg. He was there to tell them that a pain threshold had reached. The graph he had projected on the wall revealed the horrifying progression of the dollar over time. The US currency has lost 13 percent of its value against the euro since the beginning of the year. Conversely, the euro has risen in value, and for a short time last Friday it even approached the symbolic $1.50 threshold.

According to Enders, the rate at which the US currency is falling makes “reasonable processes of adjustment” a virtual impossibility. Every cent the dollar drops against the euro costs Airbus €100 million. This has even the normally optimistic Enders alarmed. “It’s life-threatening,” he told his audience.

Read Full Article Here


Merrill Lynch Predicts Recession

Silicon Alley Insider
December 5, 2007

Two major Wall Street firms have finally thrown in the towel and are now calling for a recession. For a variety of reasons, Wall Street is usually late to call downturns, so this probably means that 1) we’re already beginning to come out of the recession, or 2) this recession is going to be a doozy (the more likely explanation, in our opinion).

The pessimism of Jan Hatzius at Goldman prompted Ben Stein to call him a lightweight, conflicted shill who was just “selling fear” to help Goldman’s proprietary trading desk. We therefore look forward to Stein’s explanation for the pessimism of Merrill Lynch economist David Rosenberg:
“The US consumer is on the precipice of experiencing its first recessionary phase since 1991 – the last time we had the combination of high, punishing energy prices; weakening employment conditions; real estate deflation and tightening credit conditions…

We reiterate that real estate deflations are unique and have never ended well for the consumer, the credit market or the economy. We can identify only five periods post WWII when the real value of housing assets turned negative on a year-on-year basis. All of these time periods inevitably included a consumer downturn. Maybe it will be different this time, but we fail to see why.”

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Real Estate Foreclosures Topping Great Depression

Real Estate Foreclosures Topping Great Depression

November 27, 2007

Home foreclosures will worsen reaching new record highs in 2008 as a result of the credit crunch, topping the Great Depression, according to a new report by Housing Predictor, which forecasts housing markets in more than 250 local markets in all 50 U.S. states.

Foreclosures have already hit record highs in the majority of the U.S. and they are beginning to show a broader extent of damage to the overall economy. But the epidemic of foreclosures will also provide the best buyers real estate market in years for many new home buyers and investors.

The CEO of says the epidemic is developing into “the perfect storm” of foreclosure activity. “With 2 million subprime loans resetting over the next 12 months, higher gas prices and with banks tightening mortgage standards the foreclosure activity sweeping across the nation will grow,” said Tim Chin, Realty Store President and CEO.

The tightening of lending standards will further depress real estate sales, creating a wave of foreclosures that will bring down home prices as bank owned properties generate downward pressure on prices. As a result of higher gas prices consumers are spending more on gas and less on other necessities, slowing consumer spending. Housing Predictor analysts forecast the national economy is moving into a recession, which will become apparent at the latest in the third quarter of 2008.

In Detroit, where real estate foreclosures are the highest in the nation the U.S. Conference of Mayors is holding a meeting today of big city mayors to deal with the crisis. It will include talks on the state of the mortgage industry and examine ways home owners can avoid foreclosure. Mayors also hope to find strategies to keep foreclosed properties from dragging the quality of life down in their communities.

Detroit Mayor Kwame Kilpatrick is hosting the forum. “We’re talking about finding a local solution to a national problem, ” said Kilpatrick, who added that mayors will not be considering legislation to solve the national epidemic. “We’ll start with conversation here.”

Cities hardest hit by foreclosures in Arizona, California, Florida, Indiana, Michigan, Nevada and Ohio will be a focus of the conference.

Housing Predictor forecast early this year that 3 million foreclosures will occur through 2009. More than one million homes have already been foreclosed, most of which have been subprime mortgages. But defaulting mortgages are also growing in exotic conventional loans, also known as Alternative A mortgages.

To find out more about the foreclosure forecast and search for foreclosures visit


Bernanke Clears Way For Fed Rate Cut

Bernanke Clears Way For Fed Rate Cut

Financial Times
November 30, 2007

Ben Bernanke put the Federal Reserve on a path towards a December rate cut in a speech on Thursday night in which he said the relapse in financial markets had resulted in a “tightening in financial conditions” that had the potential to harm the real economy.

The Fed chairman also said recent data on household spending had been “on the soft side” and warned that the combination of higher petrol prices, the weak housing market, tighter credit conditions and declines in stock prices seem likely to create some headwinds for the consumer in the months ahead.


Paulson’s Plan to Punish the Public

The Motley Fool
November 30, 2007

If you don’t learn from the past …
If the mortgage crisis and housing bubble have taught us one thing, it should be to watch out for the unintended consequences of greed. Unfortunately, our nation’s legislators and political appointees haven’t learned that lesson. Recent plans for housing and mortgage bailouts generally run from dumb to dumber. Today, The Wall Street Journal reported on yet another scheme, reportedly being spearheaded by Treasury Secretary Hank Paulson. It’s an idea so naively populist and antimarket that you would think it came from Hugo Chavez, Evo Morales, or Mahmoud Ahmadinejad, if not for its cringe-inducing, Beltway-wonk moniker: the Hope Now Alliance.

In short, bankers and loan-servicing outfits are going to lower interest rates on strapped borrowers so they don’t lose their houses. How much, how long, and who qualifies are all still up in the air. No doubt, this will sound good to those folks who signed on for mortgages they can’t actually afford. It will also look good to politicians angling to score points before the next election, and to bleeding hearts everywhere. It will also look good to select mortgage-industry players — like Countrywide Financial (NYSE: CFC) and Citigroup (NYSE: C), which could really use a government-led bailout.

Unfortunately, this ill-conceived salve will ultimately punish the silent majority of Americans, people who didn’t go out and make boneheaded financial decisions over the past half-decade. Let’s take a look at why.

Read Full Article Here

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Fed and ECB Print More Money Out Of Thin Air

Fed Pumps $8 Billion More Into market

The Independent
November 27, 2007

Central bankers are becoming nervous that a renewed credit crunch could destabilise financial markets around the end of next month, and the US Federal Reserve has pumped an initial $8bn (£3.9bn) into the market to help ease the mounting pressure.

Wall Street banks have been hoarding cash rather than lending it out, fearful that losses on US mortgages and related products are undermining the strength of their balance sheets.

And the Federal Reserve said that the problem could become acute before 31 December, when many institutions close their books on the financial year and when many important accounting calculations are made.

In a highly unusual move, the Federal Reserve Bank of New York said yesterday that it was putting an additional $8bn into the financial system through 43-day loans, money that won’t have to be paid back until 10 January. The duration of the loans is substantially longer than that in normal market operations by the Fed.

If Wall Street’s banks become unwilling or unable to lend to each other, there could be knock-on consequences throughout the financial system, with high street lenders and other businesses finding it impossible or punitively expensive to find the short-term money required to fund their operations. It was just such a credit crunch that led to the problems at Northern Rock at the height of the crisis in the summer.

Read Full Article Here


ECB injects £35bn into markets

November 29, 2007

The European Central Bank pumped a further €50bn (£35bn) into the money markets yesterday but it did little to alleviate funding fears, pushing the inter-bank lending rate back towards record highs.

At auction, the ECB lent banks less than half the amount they bid for to cover their funding needs as the year-end credit squeeze intensified. They paid an average 4.65pc, the highest in six-and-a-half years, and well above the ECB’s base rate of 4pc.

Despite the move, three-month inter-bank lending rates in the eurozone climbed for the 11th consecutive day to 4.75pc.

Banks are reluctant to lend across the New Year period as they do not want to jeopardise their year-end figures by exposing themselves to further shocks. To date, banks have revealed writedowns of more than $50bn (£24bn) related to US sub-prime mortgages.

The US Federal Reserve plans a series of repurchase agreements into 2008, starting with an $8bn operation yesterday.

Read Full Article Here


Gold Slips Under $800, Oil Plummets $94 on Firmer Dollar

November 28, 2007

LONDON (Reuters) – Gold slid under the $800 mark in increasingly volatile conditions on Wednesday, as softer oil prices and a firmer dollar against the euro dented the metal’s wider appeal for investors.


Spot gold hit an intraday high of $815.30 but later fell sharply, losing more than 2 percent at one point to a low of $792.10.

Bargain hunters stepped in at the lower levels to pare losses to $798.05/798.75 an ounce by 1150 GMT from $811.90/812.70 quoted late in New York on Tuesday.

The dollar edged up to one-week highs against the euro on Wednesday as investors took profit from the U.S. currency’s tumble to multi-year lows, while oil prices softened to below $94 a barrel .

A stronger dollar makes gold dearer for non-U.S. buyers while easing oil prices take the heat out of gold’s role as a hedge against oil-led inflation.

“Selling today was initially triggered by the strengthening dollar and increased speed after pivotal chart points were broken,” said Alexander Zumpfe, precious metals trader at Heraeus in reference to gold dipping below support at $800.

However, traders generally remained confident on the metal’s ability to contain losses below $800 due to expectations for further dollar losses as investors anticipated cuts in U.S. borrowing costs that would dent the dollar’s yield appeal.

Read Full Article Here

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Jim Rogers Urges People To Sell Dollars

Jim Rogers Urges People To Sell Dollars

November 15, 2007

Nov. 15 (Bloomberg) — Investor Jim Rogers urged people to get out of the dollar and says he expects to be rid of all his U.S. currency assets by summer next year.

“If you have dollars, I urge you to get out,” Rogers said in an interview from Singapore. He is chairman of New York-based Rogers Holdings, formerly known as Beeland Interests Inc. “That’s not a currency to own.”

The dollar fell 9.5 percent this year against a basket of six major currencies as a housing slump slowed the economy and losses stemming from subprime mortgage defaults spread among U.S. banks. Rogers, who said last month he was shifting out of all his dollar assets, plans to buy commodities, Japan’s yen, the Chinese yuan and the Swiss franc.

Interest rate futures traded on the Chicago Board of Trade show a 72 percent chance that the central bank will lower its target rate for overnight loans between banks to 4.25 percent on Dec. 11, its third reduction this year.

Rogers, who predicted the start of the global commodities rally in 1999, criticized Federal Reserve Chairman Ben S. Bernanke for comments on the currency before a congressional committee on Nov. 8.

“He is a total fool,” Rogers said. “He said Americans who buy only American goods are not affected if the value of the U.S. dollar goes down. I was terrified.”

Bernanke said the only effect of a weaker dollar on a typical American with their wealth in dollars, buying consumer goods in dollars, would be “their buying powers, it makes imported goods more expensive.”

Rogers said that’s not right.

“If you only buy American products and the dollar goes down, the price of oil goes up, copper goes up, wheat goes up,” he said. “That affects you. He doesn’t understand the economy as far as I can see.”

Pound hits fresh 4-yr low vs euro after weak data

November 14, 2007

Sterling fell to a new four-year low against the euro on Thursday, while British shares timmed losses after UK retail sales data showed an unexpected monthly fall in October, boosting the case for Bank of England rate cuts.

Retail sales fell 0.1 percent on the month versus expectations for a flat reading.

“It suggests that the economy is slowing down in the fourth quarter and it’s looking like there is going to be a rate cut in February which will mean cable (sterling/dollar) will go lower,” said Geoff Kendrick, currency strategist at Westpac.

Sterling fell to a session low of $2.0472, down about half a cent from pre-data levels .

The euro rose as high as 71.52 pence, highest since July 2003 .

The FTSE 100 .FTSE trimmed losses, down 0.46 percent after the UK retail sales data.

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Dollar’s decline may prompt joint intervention, Morgan Stanley says

Dollar’s decline may prompt joint intervention, Morgan Stanley says

Stanley White
Bloomberg News
November 5, 2007

The decline of the dollar to record lows might turn into a “more violent correction” that requires the United States, the European Union and Japan to intervene in foreign exchange markets, analysts at Morgan Stanley say.

Coordinated intervention could occur after the U.S. Federal Reserve has finished cutting interest rates and the European Central Bank has ceased raising them, according to Morgan Stanley, the investment bank.

Japan might act if the dollar approached ¥100, the bank added. But the three major economies are unlikely to intervene as long as the euro stays below $1.50, it said.

“The dollar could potentially weaken meaningfully further,” two Morgan Stanley analysts, Stephen Jen and Charles St-Arnaud, wrote in a note sent to clients late last week. “Though coordinated interventions may not be an immediate threat, they should now be on our radar screen.”

The dollar index, a measure of the U.S. currency against six others, fell to 76.331 on Friday, the lowest reading since it was created in 1973 and down from 77.03 at the end of the previous week.

The euro traded at $1.4505 at the close of trading in New York, up from $1.4393 a week ago. The dollar bought ¥114.853, little changed on the week.

Read Full Article Here


Veteran investor calls Bernanke `a nut’ over rate cut

November 4, 2007

US Federal Reserve Chairman Ben Bernanke is “a nut” and interest-rate cuts by the central bank are harming the US economy by fueling inflation, investor Jim Rogers said.

“Bernanke loves printing money,” Rogers said in an interview in New York. “This man is a nut. The dollar is collapsing, commodities are going through the roof, which means inflation’s going through the roof. These people are leading us to terrible problems down the line.”

Rogers, the 65-year-old chairman of Beeland Interests Inc, also said he was selling short shares of Citigroup Inc, the biggest US bank, and Fannie Mae, the largest provider of money for US home loans.

Investors should buy commodities and the Chinese currency, Rogers said.

The Fed this week cut its benchmark interest rate by a quarter point to 4.5 percent. Policymakers have now lowered their target rate for overnight loans between banks by 0.75 percentage points in six weeks, the most aggressive easing since the economy was emerging from its last recession in 2001.

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Friction over weak dollar expected at G-7 meeting

Friction over weak dollar expected at G-7 meeting

October 17, 2007

WASHINGTON — When the finance ministers of six leading developed nations come to Washington later this week, they’ll bend Treasury Secretary Henry Paulson’s ear about the weak dollar and gripe that it’s hurting their exports.

They won’t find much sympathy.

Paulson will be in no mood to talk up the dollar, which has nose-dived against many leading currencies, because the weak greenback has sent U.S. exports soaring by almost 13 percent year over year through August. And that’s offsetting some of the economic pain from the crumbling U.S. housing sector.

What’s been good for U.S. exporters of airplanes, car parts and farm products hasn’t been so hot for rivals in Canada, Europe and parts of Asia, who now find their goods more expensive on the global market than U.S-made and U.S.-grown goods.

Group of Seven (G-7) ministers from Germany, France, Italy, Great Britain, Canada and Japan are expected to press Paulson on Friday to talk up the dollar in hopes that it will slow the dollar’s slide. The dollar has lost more than 8.1 percent of its value so far this year against the euro, the currency of 12 European Union nations, and that’s on top of last year’s drop of 8.2 percent.

For the first time in three decades, the U.S. and Canadian dollars are virtually on par. For Canadian energy companies and mining giants, whose commodities are priced globally in U.S. dollars, that means they earn less for their products when measured by their own currency. And although Canada’s online pharmacies still offer bargains to American prescription-drug consumers because of differing industry cost structures, dollar parity has hurt them, too.

“It has affected business negatively … the perception has decreased sales, for sure,” said Alan Flowers, a spokesman for in Vancouver, British Columbia.

Paulson has said repeatedly that a strong dollar is in the U.S. interest, but financial markets determine the value of freely traded currencies. The U.S. dollar’s value has eroded relative to other currencies because of the U.S. economic slowdown, the Federal Reserve’s recent half-point cut in lending rates and strong economic growth in Europe.

“I think Paulson may have to talk nice, but he won’t be forced to do anything more than that,” said Adam Posen, the deputy director of the Petersen Institute for International Economics, a think tank in Washington.

In fact, behind the scenes, Paulson is likely to tell the Europeans to look east, not west, to resolve their trade problems. European powers did little to help Washington make its case that China’s fixed exchange rate makes its products artificially cheap. Now Europeans are shouldering the brunt of the dollar-euro realignment while China’s exchange rate remains pegged to the dollar, so China doesn’t suffer.

“I think, if anything, he’s going to be sort of smirking and saying, ‘You guys could have gotten on board and helped us pressure the Chinese,'” Posen said. “I think the game is not going to be about coordinating or making any promises, but getting together to confront the Chinese.”

This year’s G-7 meeting in Washington stands out from past gatherings because finance ministers won’t be focused much on the outside world.

“For the first time, much of the agenda and problems come from inside the G-7, rather than outside,” said John Kirton, a lecturer at Canada’s University of Toronto and director of the G8 Research Center there.

Finance ministers will focus on problems in the U.S. credit and mortgage markets, he said, which have spilled across the Atlantic to banks in France and Germany and north to Canada, forcing central bankers to intervene with cash to keep markets functioning properly.

“It may have started in the U.S., but it’s a collective G-7 problem,” Kirton said.


Japan and China lead flight from the dollar
“Data from the US Treasury showed outflows of $163bn (£80bn) from all forms of US investments. “These numbers are absolutely stunning,” said Marc Ostwald, an economist at Insinger de Beaufort.”

October 18, 2007

Japan and China led a record withdrawl of foreign funds from the United States in August, heightening fears of a fresh slide in the dollar and a spike in US bond yields.

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  • Data from the US Treasury showed outflows of $163bn (£80bn) from all forms of US investments. “These numbers are absolutely stunning,” said Marc Ostwald, an economist at Insinger de Beaufort.

    Asian investors dumped $52bn worth of US Treasury bonds alone, led by Japan ($23bn), China ($14.2bn) and Taiwan ($5bn). It is the first time since 1998 that foreigners have, on balance, sold Treasuries.

    Mr Ostwald warned that US bond yields could start to rise again unless the outflows reverse quickly. “Woe betide US Treasuries if inflation does not remain benign,” he said.

    The release comes a day after the IMF warned that the dollar was still overvalued and likely to face “some depreciation in the medium term”.

    The dollar’s short-lived rally over recent days stopped abruptly on the data, increasing pressure on US Treasury Secretary Hank Paulson to shore up Washington’s “strong dollar” rhetoric at the G7 summit this week.

    The Greenback has already fallen below parity against the Canadian Loonie for the first time since 1976 and has touched record lows against a global basket. It closed at $2.032 against the pound.

    David Woo, an analyst at Barclays Capital, said Washington was happy to see the dollar slide. “They don’t care so long as the fall is not disorderly. They see it as a way of correcting the deficit. ” he said.

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  • Mr Woo said a chunk of the August outflows may have come from foreigners borrowing in the US during the liquidity crunch to meet needs in euros. “We think it may be a one-off,” he said.

    The US requires $70bn a month in capital inflows to cover its current account deficit, but the key sources of finance are drying up one by one.

    BNP Paribas said America has relied on “hot money” from abroad to cover 25pc to 30pc of the US short-term credit and commercial paper market over the last two years.

    This flow is now in danger after the seizure in parts of the market over the summer and after the Federal Reserve’s half point rate cut, which has shaved the US yield advantage over other countries.

    Ian Stannard, a Paribas currency analyst, said the data was “extremely negative” for the dollar. “It exceeds the worst fears. It is not just foreigners who are selling US assets. Americans are turning their back as well,” he said.

    Central banks in Singapore, Korea, Taiwan, and Vietnam have all begun to cut purchases of US bonds, or signalled an intent to do so. In effect, they are giving up trying to hold down their currencies because the policy is starting to set off inflation.

    The Treasury data would have been even worse if it had not been for $60bn of inflows from hedge funds based in Britain and the Caymans, which needed to cover US positions at the height of the credit crunch.

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    UBS upgrades gold price forecast for 2008 and 2009

    Metals – UBS upgrades gold price forecast for 2008 and 2009

    Thompson FInancial
    October 8, 2007

    LONDON, Oct. 8, 2007 (Thomson Financial delivered by Newstex) — UBS (NYSE:UBS) has upgraded its gold price forecasts for 2008 and 2009 due to the changing macroeconomic outlook, on top of growing evidence the jewellery market adapted to higher prices.

    The investment bank has increased its 2008 forecast to 760 usd per ounce from 650 usd, while they now expect bullion to average 700 usd per ounce in 2009 versus a previous forecast of 550 usd.

    The potential for further weakness in the US dollar, which has recently fallen to a series of all-time lows against the euro, and the ongoing economic uncertainty stemming from the US sub-prime crisis has led UBS analysts to predict gold prices will now be stronger over the next two years than anticipated.

    ‘The past twelve months has seen strong jewellery demand growth despite higher prices,’ said John Reade, UBS metals analyst. ‘Potential for a weaker US dollar, concerns about the credit crunch and the impressive rally have brought investors back to gold in ways not seen for years, or in the case of safe haven buying, decades.’
    Gold prices often rise during times of heightened economic uncertainty, as it serves as a store of value when other investments begin to look too risky. Gold also moves in an inverse relationship to the US dollar, as it serves as an alternative investment against the currency with the largest global circulation.

    Gold has rallied up to its highest point in almost 28 years over the past month, holding well above 700 usd due to the dollar’s recent decline and the ongoing fears rippling throughout the financial markets.

    Analysts at UBS expect gold’s recent push upwards to attract further investment in the medium term.

    ‘Although gold looks a little over-done in the near term and some consolidation may result, we expect further waves of investment and speculation over the next 12-18 months,’ said Reade at UBS.

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    For home builders, the worst is to come

    For home builders, the worst is to come

    MSN Money
    October 2, 2007

    The era of NINJA (“no income, no job or assets” ) subprime loans sold by fast-talking storefront mortgage brokers is dead, after all. By some estimates, up to three quarters of sales made in Southern California, Nevada and Florida in the go-go era of 2004-2006 involved some sort of fraud, particularly in the form of exaggerated income.

    Foreclosure rates are soaring, and as those owners are kicked out of their homes for not paying, the structures are sitting empty, with no one waiting in line to buy at any price. Meanwhile, more than $1 trillion in adjustable-rate loans will kick mortgage payments much higher by June 2008 for tens of thousands of homeowners, which will push foreclosure rates even higher as people simply walk away from houses they can’t afford. I saw this happen in the last down-cycle in Los Angeles in the late 1980s; it gets ugly and stays that way for years, not months.

    According to a report by investment bank Punk Ziegel, there are 17.4 million vacant houses in the country, and only 4.3 million of those are second homes. That means there are more ownerless houses in the United States today as a percentage of total inventory than at any time since records have been kept.

    Not only are there not enough qualified households available to take them over, but demographics are heading the opposite direction. A Punk Ziegel analysis shows that the number of people aged 25 to 34 — the age of most home buyers — peaked in 1989 and will not get back to that level until 2013.

    Waiting for a bankruptcy

    As a result of too few buyers facing too many homes, the rate of price depreciation has been accelerating, with a 3.9% year-over-year decline in July nationwide after a 3.4% decline in June and a 2.8% decline in May. There is little doubt that builders will be forced to write down more of their inventory as losses over the next quarter, further eroding book values.

    Although there are pockets of strength, such as my hometown of Seattle, home values in areas like Detroit, Los Angeles, Phoenix, Tampa, Miami and Washington, D.C., are plunging, with year-over-year declines as great as 9.7%, according to data released by research group Case-Shiller.

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    New data show housing market ’in freefall’

    New data show housing market ‘in freefall’

    Bloomberg News
    October 3, 2007

    WASHINGTON — The number of Americans signing contracts to buy previously owned homes dropped to the lowest level on record in August as the housing recession deepened.

    “The existing homes market is now in freefall,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd., in Valhalla, N.Y. “The downside from here is still substantial.”

    The National Association of Realtors’ index of signed purchase agreements fell 6.5 per cent from the previous month, the group said yesterday. The decline was more than economists anticipated and pushed the measure to the lowest level since the organization began tracking purchases in 2001. The gauge plunged 11 per cent in July.

    Higher credit costs and lending restrictions after the collapse in subprime mortgages may push the industry downturn well into 2008. Market futures contracts show the Federal Reserve will probably cut rates later this month to avert spillover from the credit squeeze and keep the broader economy expanding.

    Compared with a year earlier, pending home sales were down 22 per cent. Purchases declined in all four regions of the country, led by a slide of 9.5 per cent in the South. The smallest drop was in the West, which notched a fall of 2.7 per cent.

    So far, the Fed’s half-point rate cut on Sept. 18 has failed to lower mortgage rates and boost demand. Buyers have been further constrained by the tighter lending standards and the shutdown of mortgage lenders such as American Home Mortgage Investment Corp. in early August that closed off access to credit.

    “Fewer contracts were being written because of mortgage-availability issues,” said Lawrence Yun, a senior economist at the real estate agents group. “More than 10 per cent of sales contracts fell through at the last moment in August, primarily the result of cancelled loan commitments” from lenders.

    “There is still no bottom in sight,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm. “Sales will continue to fall until there is a greater price capitulation by sellers. It still appears that we have not reached market-clearing prices to reduce the inventories of unsold existing homes.”

    Other housing market indicators have pointed to a second leg down after concerns over subprime mortgage defaults caused credit markets to seize up in mid-August. Sales of previously owned homes fell in August to the lowest level in five years, the Realtors group reported Sept. 25. Two days later, the Commerce Department said new-home sales declined to a seven-year low and median prices dropped the most since 1970.

    The stock of unsold homes rose to a record of 5.1 million in August, forcing builders to further scale back projects. Housing will continue to hinder the expansion after already reducing growth for the last six quarters, economists say.

    As stockpiles climbed and sales fell, home prices in 20 U.S. metropolitan areas dropped 3.9 per cent in the 12 months through July, according to the S&P/Case-Shiller index. The decline was the biggest since record keeping began in 2001. Lower home values threaten to hurt consumer spending by preventing owners from tapping equity for extra cash.

    Mounting foreclosures are adding to the problem. The number of Americans who may lose their homes more than doubled in August from a year earlier, according to a Sept. 18 report by Irvine, Calif.-based RealtyTrac Inc.


    Is the credit crisis over? Not so fast

    October 2, 2007

    NEW YORK (Reuters) – The audacious rise in the Dow industrials to a record will do little to prevent the millions of new “For Sale” signs likely to dot U.S. lawns soon.

    Fears of mounting foreclosures and predictions of a lackluster holiday season remain even in the face of Dow 14,000, which has removed some, but not all, uncertainty about the faltering U.S. housing market.

    At the root of investors’ anxiety are so-called subprime loans made to borrowers with shaky credit. Delinquencies are rising on subprime mortgages and defaults are piling up at record rates as home prices sink, pressuring consumers’ desire to spend.

    The ripple effect from the slump in housing doesn’t stop there. Strains still exist in the U.S. credit markets even though there are signs of easing in the global liquidity squeeze, which was triggered by a lack of confidence in financial markets as subprime mortgage defaults soared.

    Already, the housing slowdown has subtracted about 1 percentage point from growth in inflation-adjusted gross domestic product so far this year.

    “I don’t think the worst is over,” said Robert Arnott, chairman of Research Affiliates LLC, a Pasadena, California-based investment management firm.

    “We are coming off the greatest lending bubble — not housing bubble! — in U.S. history. We will feel its impact for a very long time.” For more investor comments see (ID:nN02411723: Quote, Profile, Research)

    Falling home prices are leaving subprime borrowers who took out adjustable-rate mortgages with a major dilemma. Millions with subprime mortgages, which go to borrowers with checkered credit histories, are faced with negative equity in their homes that could make it increasingly unlikely they will qualify for new mortgages in an environment of tighter lending standards.

    At current home prices, about $693 billion in ARMs are “already under water,” according to Stephanie Pomboy, financial economist at MacroMavens in New York.


    That’s frightening news for banks that already have absorbed losses on their balance sheets due to delinquent subprime borrowers. The losses so far amount to about 10 percent of the forecast of $100 billion in losses.

    “The disturbing number here isn’t 10 percent … but the $100 billion,” Pomboy said.

    With nearly $700 billion in ARMs in negative equity facing interest-rate resets, “depending on how much lenders can ultimately recover, this implies (bank) losses will be more like $210 billion to $346 billion,” she said.

    “And that’s assuming the situation doesn’t get worse.”

    In July, Federal Reserve Chairman Ben Bernanke had estimated the losses at $100 billion at the most.

    But it appears Bernanke had underestimated those figures and their effects on the consumer.

    In September, the Fed took the benchmark federal funds rate, which governs overnight loans between banks, down an aggressive half-percentage point to 4.75 percent, its lowest since May of last year. The Fed also cut the discount rate it charges for direct loans to banks by a half-percentage point to 5.25 percent.

    “With the reset wave about to gather intensity and ‘For Sale’ signs dotting the lawns of 5.1 million homes across the country, the credit hit parade has only just begun,” Pomboy added.

    Aside from the resetting of interest rates on home mortgages and falling home prices, both leading to a slowdown in consumer spending, Arnott of Research Affiliates is concerned about slumping home construction.

    That, he said, was 5-plus percent of Gross Domestic Product at the latest housing peak. He puts the odds of recession around 60 percent.


    Indeed, September was a record month for investment-grade issuance of about $100 billion, but that came as conditions in the commercial paper market remained tight.

    Since August, U.S. commercial paper outstanding shrank by $370 billion, with commercial and industrial loans also helping to pick up some of the slack. Now, those loans are growing at the fastest rate in more than 20 years, Goldman Sachs’ chief U.S. economist Jan Hatzius wrote in a research report published late on Monday.

    All told, the stock market is underpinned by powerful factors. U.S. equities appear cheap relative to many asset classes, especially since Wall Street has been a laggard in the global equity rally over the last several years. And now that many oil-exporting countries are flush with cash, they’ve been putting that surplus money to work in higher-yield securities in the United States.

    “Investors with new money to put into the marketplace probably will be less interested in certain other real asset classes, like houses, because the luster has come off the sector,” said Keith Wirtz, president and chief investment officer at Fifth Third Asset Management in Cincinnati.

    Ironically, equity markets have created the least amount of “grief” for investors in this cycle, he added.