Filed under: AIG, bailout, Bank of America, bear sterns, Big Banks, Credit Crisis, DEBT, Dictatorship, Dollar, Economic Collapse, economic depression, Economy, Empire, Fascism, FDIC, Federal Reserve, global economy, Great Depression, Greenback, housing market, hyperinflation, Inflation, JP Morgan, Lehman Brothers, liquidation, Merrill Lynch, middle class, mortgage, mortgage companies, mortgage lenders, nationalization, real estate, socialism, Stock Market, subprime, subprime lending, Taxpayers, US Economy, Wall Street, Wamu, washington mutual | Tags: failed banks, J.P.Morgan Chase, run on banks
WaMu: The Biggest Bank Collapse In U.S. History
TOP News
September 26, 2008
In what is being termed as the biggest bank collapse in US history, J.P.Morgan Chase & Co. will acquire massive branch network and troubled assets from Washington Mutual Inc. for $1.9 billion, as per a deal arranged by federal regulators. Under the deal – the latest stunning development in the ongoing credit crisis – J P Morgan Chase will acquire all the banking operations of Washington Mutual, including $307 billion in assets and $188 billion in deposits.
Washington Mutual had been one of the most hard-hit banks during the financial crisis after it bet big, like many of its competitors, on the strength of the housing market – only to see its fortunes sour as housing prices fell. Many analysts were speculating that the endgame for the embattled savings and loan was imminent, particularly after ratings agency downgrades this week, and a freefall in the company’s stock.
As a result of the Washington Mutual acquisition, the New York City-based J P Morgan Chase – after its mid-March acquisition of investment bank, Bear Stearns – will now boast some 5,400 branches in 23 states. “We think it is a great thing for our company,” said Jamie Dimon, J P Morgan Chase Chairman and CEO, in a conference call with investors late Thursday night.
Federal regulators who helped in finalizing the deal said the transition for Washington Mutual customers would be “seamless.” In a statement, FDIC Chairman, Sheila Bair, said: “There will be no interruption in services and bank customers should expect business as usual come Friday morning.”
The acquisition might prompt criticism from J P Morgan Chase rivals about preferential treatment by the government. For instance, no government assistance was extended to Bank of America Corp. in its recently announced purchase of Merrill Lynch. However, in the case of Washington Mutual acquisition, there were presumably other bidders who, in comparison to J P Morgan Chase, offered better deal for the deposits and branches.
The fall of Washington Mutual is the latest turn in a dizzying fortnight that has seen the bankruptcy of Lehman Brothers, the acquisition of Merrill Lynch by Bank of America (BAC, Fortune 500) and the near collapse of insurance giant AIG (AIG, Fortune 500). In fact, Washington Mutual has set a ‘record’ of sorts – it is the 13th bank to fail so far this year, and earns the title of the country’s ‘largest bank failure’ by assets on record, surpassing Continental Illinois’ $40 billion in assets when it failed in May of 1984.
Washington Mutual Is The 13th Bank To Fall This Year
http://www.fdic.gov/bank/individual/failed/banklist.html
Filed under: Alan Greenspan, bailout, Bank of England, bernanke, Big Banks, BOE, Britain, central bank, CFR, China, CNBC, Communism, Credit Crisis, DEBT, Dow, Economic Collapse, economic depression, Economy, energy, Europe, european union, fannie mae, Fascism, Federal Reserve, freddie mac, George Bush, george soros, global economy, gold, Goldman Sachs, Great Depression, Greenback, henry paulson, housing market, hyperinflation, Inflation, interest rate cut, interest rate cuts, jim rogers, martgage companies, Media, Merrill Lynch, mortgage, mortgage companies, mortgage lenders, Oil, Paulson, rate cut, real estate, Russia, Stock Market, subprime, subprime lending, Taxpayers, United Kingdom, US Economy, US Treasury, Wamu, washington mutual, WW2 | Tags: run on banks
Fannie and Freddie Seized…Cost to Taxpayer: Over $1 Trillion
Contrarain Profits
September 8, 2008
Uncle Sam has finally taken over Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE). Yesterday, the Bush administration placed the mortgage giants under a conservatorship, putting billions of dollars of taxpeyers’ money at risk in the process.
The Treasury says it will stump up $200 billion to back the companies in exchange for a 79.9% stake in each. The government is now the biggest player in the US mortgage market.
Don Rich warns that the government’s bailout spells trouble for anyone holding US dollars. A major issue is that the Congressional Budget Office’s estimation of the costs of the bailout is far too conservative…
This from last Thursday’s Daily Reckoning:
A recent study from the Congressional Budget Office (CBO) has zero credibility. It pegged likely taxpayer losses in the Fannie Mae and Freddie Mac bailouts at $25 billion. For those with a sense of history, it is worth remembering that the S&L bailout had a $160 billion price tag. The numbers diverge so far from reality as to be laugh-out-loud funny. Funny, that is, except that the CBO estimate demonstrates a willful disconnect with the actual consequences of federal government actions.
As demonstrated below, the real cost of the bailouts will easily exceed $1.3 trillion. In fact, the real cost is likely to range between $1.3 trillion to $1.6 trillion, and is not unlikely to reach $2.5 trillion.
Between 2001 and 2007, Fannie and Freddie purchased or guaranteed $700 billion of Alt-A and subprime loans. Given the default rates on these loans – and the fact that the price of the housing that is the ultimate security of the loans will, for reasons demonstrated below, fall by at least thirty percent – this alone implies a loss for Fannie and Freddie on the order of $210 billion.
Fannie and Freddie acknowledge already-impaired loans on the balance sheet of $19 billion, which they have used creative accounting to avoid deleting from the shareholder equity account. This means that Fannie and Freddie have a maximum of $64 billion in capital remaining.
Given the inevitable losses on the Alt-A/subprime portion of their portfolio, it must be the case that if the federal government, as it is doing, guarantees Fannie and Freddie’s solvency, the difference between the loss and the capital to be made up by the government (i.e., the taxpayers) must equal, not $25 billion but $147 billion.
That alone would mean that the CBO is blowing smoke with their estimated cost figures, and if you think back to the S&L cost of $160 billion, this is not a surprising result. The real picture is so much worse that it is pretty obvious the CBO is flat out inventing figures just to get the politicians through November.
It doesn’t take a genius to work out how the government is going to get its hands on such money: the Federal printing press…
I don’t know what those people in Washington are taking to sleep at night after all their electorally driven accounting and finance exercises, but I can tell you what they will be doing to keep the government open for business: printing a whole lot of money.
Chairman Bernanke has the discount window open to any collateralization not worth the paper it is written on, so in effect he has the helicopters ready to drop hundred-dollar bills over Wall Street – as he once famously described the ultimate policy instrument of a fiat-money system.
Of course, if he does that, we will have to change his nickname from Helicopter Ben to Hyperinflation Ben, which answers the question of who picks up the tab of bailing out Fannie and Freddie: anyone owning dollars.
Produce a lot of something, and it becomes worth less. And given the losses at Fannie and Freddie, the taxpayer guarantee, and the ongoing initiation of Boomer retirement, only the inflation tax will work to pay for keeping Fannie and Freddie afloat.
Like it or not, we are about to enter interesting times, and it is too bad our supposed professional civil servants at the Congressional Budget Office have failed to tell the emperor the truth: that he is buck-naked bankrupt and getting ready to take a lot of people with him.
P.S Don Rich is an instructor of economics, finance, and political science at Montgomery County Community College in Blue Bell, PA. He also teaches economics, government, and history at Delaware County Community College in Exton, PA. You can leave comments for Don on the mises.org blog.
Greenspan: U.S Economy in ’once-in-a-century’ financial crisis
September 15, 2008
The nationalization of Fannie Mae and Freddie Mac shows that the U.S. is “more communist than China right now” but its brand of socialism is meant only for the rich, investor Jim Rogers, CEO of Rogers Holdings, told CNBC Europe on Monday.
“America is more communist than China is right now. You can see that this is welfare of the rich, it is socialism for the rich… it’s just bailing out financial institutions,” Rogers said.
Stock markets jumped after the U.S. government’s decision to launch what could be its biggest federal bailout ever, in a bid to support the housing market and ward off more global financial market turbulence.
But Rogers said in the long term the move spelled trouble.
“This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents. I’m not quite sure why I or anybody else should be paying for this,” Rogers told “Squawk Box Europe.”
Soros Compares Mishandling Of Current Crisis To Great Depression
Paul Joseph Watson
Prison Planet
September 17, 2008
Billionaire investor George Soros has slammed US Treasury Secretary Hank Paulson for behaving in the same manner as bankers in the 1930’s and mishandling a financial crisis that threatens a repeat of the Great Depression.
Soros told BBC Newsnight that the world was merely at the beginning of a financial storm and warned, “We mustn’t allow the financial system to collapse as it did in the 1930s.”
Referring to Hank Paulson, the US Treasury Secretary, Soros stated, “The way Paulson is handling the situation is reminiscent of the way the bankers handled it in the 1930s.”
He added: “The financial system has gone overboard and the financial engineering has grown to big, it takes up too big a share in the world’s resources.”
“Now it is shrinking. When it becomes regulated it will be less profitable than the last 25 years.”
Soros, a former member of the Board of Directors of the Council on Foreign Relations, is ranked by Forbes as the 99th richest person in the world with a net worth of around $9 billion.
Ironically, Soros made his name by reaping the dividends of another financial meltdown when he “broke the Bank of England” by short-selling the pound sterling before the currency dropped out of the European Exchange Rate Mechanism in 1992, landing Soros a profit of around $1.1 billion.
In 2006, the highest court in France upheld a conviction that Soros had practiced insider trading when he bought shares in French bank Société Générale after discovering that the bank was on the verge of a takeover.
Soros has repeatedly predicted fiscal armageddon, writing three books about a “superbubble” that is on the verge of collapse.
In response to those accusing him of crying wolf in an effort to panic financial markets and benefit from the fallout, Soros stated, “I have a record of crying wolf…. I did it first in The Alchemy of Finance (in 1987), then in The Crisis of Global Capitalism (in 1998) and now in this book (2008’s The New Paradigm for Financial Markets). So it’s three books predicting disaster. (After) the boy cried wolf three times . . . the wolf really came.”
Respondents to a Daily Mail article about Soros’ comments accused the financier of engaging in wanton hypocrisy.
“I don’t know why on Earth they interview Soros since he has been proven again and again to deliberately spread financial rumour for his own exploitation and gain,” wrote one, “Soros became a multi multi billionaire precisely through manipulating markets like this – if this man says that we are heading for a 1930’s style crash you can guarantee he already has plans to profit from it.”
http://www.reuters.com/article/ousiv/idUSPEK4365020080917?sp=true
US authorities have now spent $900 billion to prop up the financial system
http://www.swissinfo.ch/eng/..d=9736054&cKey=1221686585000&ty=ti
Central banks pump £100bn into money markets
http://www.telegraph.co.uk/money/m..2008/09/17/cncentral117.xml
Treasury announces debt auctions for Fed
http://ap.google.com/article/ALeqM5jnS9Vm..m4iAD938I1A80
Fed Pumps $70B Into Financial System
http://news.yahoo.com/s/ap/20080916/ap_on_bi_ge/fed_credit_..E44U6Xfx.Fe7GUOQ.D1v24cA
Run On The Bank? Americans Could Lose Their Deposits
http://www.prisonplanet.com/run-on-the-bank-americans-could-lose-their-deposits.html
Merrill Lynch seals future with Bank of America deal
http://business.timesonline.co.uk/tol/bu.._finance/article4755438.ece
Rogers: Dollar To Lose World Reserve Status
http://www.prisonplanet.com/rogers-dollar-to-lose-world-reserve-status.html
Paulson: Congress Has No Authority Here
http://bigpicture.typepad.com/comments/2008/09/paulson-congres.html
Goldman profit plunges 70 pct amid market slump
http://news.yahoo.com/s/nm/20080916/bs_nm/goldmansachs_dc
August home starts seen at lowest level in 17 years
http://www.reuters.com/article/newsOne/idUSN1638353220080917
Russia halts trading after 17.5% share price fall
http://money.cnn.com/news/newsfeeds/articles..ORTUNE5.htm
Dow closed down 450
http://news.yahoo.com/s/ap/20..er=1;_ylt=Al5VvbZImvYKFj5hEtFaLktv24cA
Is Britain Heading For Worst Recession Since 1929?
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/09/15/bcnrecession115.xml
Washington Mutual Tumbles 30%
http://news.yaho..CZ6k2k2Rd38VKPgv6b.HQA
Now fear stalks British banks
Inflation rises to 4.7% and FTSE plunges ANOTHER 90 points as global markets tumble in wake of Meltdown Monday
Bush Claims Economy Can Weather Storm
Bailouts Will Push U.S. Into Depression
Filed under: Arizona, Big Banks, California, central bank, charles schumer, Credit Crisis, DEBT, Dollar, Economic Collapse, economic depression, Economy, fannie mae, FDIC, Federal Reserve, freddie mac, global economy, Great Depression, Greenback, henry paulson, housing market, indymac, Inflation, liquidation, mortgage lenders, nationalization, nevada, Paulson, real estate, Stock Market, subprime, subprime lending, US Economy, US Treasury, Wachovia, Wamu, washington mutual | Tags: federal bank, Federal Deposit Insurance Corp., Federal Deposit Insurance Corperation, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, First Heritage Bank, mutual of omaha, National Bank of Nevada, run on banks, william poole
FDIC Takes Over Two More Failed Banks
AP
July 26, 2008
The 28 branches of 1st National Bank of Nevada and First Heritage Bank, operating in Nevada, Arizona and California, were closed Friday by federal regulators.
The banks, owned by Scottsdale, Ariz.-based First National Bank Holding Co., were scheduled to reopen on Monday as Mutual of Omaha Bank branches, the Federal Deposit Insurance Corp. said.
The FDIC said the takeover of the failed banks was the least costly resolution and all depositors – including those with funds in excess of FDIC insurance limits – will switch to Mutual of Omaha with “the full amount of their deposits.”
The FDIC also said accountholders can access their funds during the weekend by writing checks or using ATM or debit cards.
Wachovia Joins the Financial Apocalypse
JBS
July 22, 2008
It’s beginning to look as if Fortis was right. In June the Belgium-Dutch financial giant, itself beset by financial woes, warned, according to a Dutch paper, that the “complete collapse of the U.S. financial markets” was in the offing, just days or weeks away.
Maybe it won’t be a “complete” collapse, but the dire warning is beginning to appear more credible daily. Just days after the Fortis warning, letters from Senator Charles Schumer speculating about the “possible collapse of big mortgage lender IndyMac Bancorp Inc.” set off a run on that ailing mortgage lender with depositors withdrawing more than $1.3 billion in just 11 days.
In the weeks since there has been increasing speculation about the stability of both the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These holdovers from the Roosevelt Administration’s ill-conceived New Deal presently own or guarantee half of the $12 trillion U.S. mortgage market, yet they were characterized recently as “insolvent” by former Federal Reserve President William Poole.
In a free market, when you perform poorly your business might fail. But Poole, a consummate government regulator, thinks Fannie Mae and Freddy Mac are too big to fail. “Clearly they must be supported,” he said according to a July 11 Reuters report. “They (the U.S. government) cannot allow that amount of assets … to go into limbo.” In other words, according to Poole, the federal government must take money (a lot of money!) from some and give it to others. As economist Frederic Bastiat eloquently pointed out, that is socialism, the law run amok and turned on its head.
On top of IndyMac and Fannie and Freddie, the bad news from the financial sector keeps coming. On Tuesday, Wachovia Corp. reported striking losses totaling nearly $9 billion for the quarter. “Our reported results today are clearly a disappointing performance for which we take responsibility,” Wachovia CEO Bob Steel told analysts on a conference call. The nation’s fourth largest bank also noted that it would eliminate as many as 10,750 positions.
http://www.bloomberg.com/apps/news?pid=20601110&sid=a3479q5QfJhw
Two Troubled U.S. Banks Post Big Losses
http://www.iht.com/articles/2008/07/22/business/bank.php
Bank Gave Counterfeit Bills, Couple Says
http://www.local6.com/news/16960809/detail.html
8,500 Banks Will Fail
http://cryptogon.com/?p=2994
Evidence of the US Banking System Teetering on the Brink of Collapse
http://www.marketoracle.co.uk/Article5594.html
Paulson Says Banks Safe & Sound (liar)
http://business.timesonline.co.uk/../united_states/article4368749.ece
Arabs Buying Up Failing Western Banks
http://www.israelnationalnews.com/News/News.aspx/126866
Filed under: Alan Greenspan, central bank, Chicago, China, citigroup, Credit Crisis, DEBT, dollar peg, Economic Collapse, economic depression, Economy, Euro, Federal Reserve, gas prices, george soros, gold, Great Depression, Greenback, henry paulson, imf, Inflation, Oil, Paulson, Petrol, platinum, silver, south africa, Stock Market, UAE, US Economy, washington mutual
Gold hits highs of $940, Current Price is $924
IBT Times
April 11, 2008
Gold pushed as high as $940 just before the open of the New York session on Thursday, then fell off until the noon hour, but then reversed field once again, moving higher to finish at $929.40/oz., down $4.60. Overnight, gold has edged lower.
Platinum was higher in the European markets, but declined in New York, to end at $2026/oz., unchanged. Overnight, platinum has slipped lower.
Silver peaked at $18.40 in early London trading, fell off until mid-morning in New York, then traded sideways for the rest of the day, closing at $17.95, down 22 cents. Overnight, silver has been flat.
It was a mixed day for the precious metals, with early weakness giving way to a spate of buying later in the day, and no major changes by the end.
Oil Prices Above $112 As Supplies Fall, Current Price $110
AP
April 9, 2008
The price of oil has surged to a new record, with a barrel a crude trading above $112 a barrel on the New York Mercantile Exchange.
A government report that oil and fuel supplies were lower than expected last week gave crude a push past its latest milestone. But months of buying by speculators and by investors seeking refuge from a falling dollar have also lifted oil to its new heights.
Light, sweet crude for May delivery has traded as high as $112.16, surpassing the previous trading record of $111.80 set ast month.
US Dollar Hits New Record Low Against Euro
RTT
April 10, 2008
The US dollar declined against its major counterparts in early deals on Thursday, hitting a fresh record low against the euro. Against its other major counterparts, the dollar weakened to new multi-day low during this time period.
The US trade balance, initial jobless and continuing claims are the major economic events slated for release later in New York morning.
The US dollar plummeted to new record low of 1.5915 against the euro at about 5:10 am ET Thursday, compared to yesterday’s closing value of 1.5832.
The dollar may face $1.65 against the euro by October
Bloomberg
April 7, 2008
Optimism for a dollar rebound that pervaded the currency market at the start of the year is fading.
Futures traders doubled bets against the greenback in the past two months, data from the Commodity Futures Trading Commission in Washington show. Citigroup Inc., Deutsche Bank AG and Royal Bank of Scotland Group Plc, which handle almost 40 percent of global foreign exchange trading, say the currency may slump to $1.65 per euro by October.
Recent News:
http://www.reuters.com/article/topNews/idUSWBT00874120080410
Fed: Severe Downturn Possible
http://www.reuters.com/article/ousiv/idUSTRS00005820080409?sp=true
South Africa: Analysts Say Gold Can Top $1000 Again
http://allafrica.com/stories/200804100124.html
Greenspan: I have no regrets on Federal Reserve’s past policies
http://news.yahoo.com/s/nm/20080408/bs_nm/usa_economy_greenspan_dc
The Great Chinese Crash of 2008
http://www.fool.com/investing/in..reat-chinese-crash-of-2008.aspx
Soros: USD Won’t Be World’s Reserve Currency
http://www.nytimes.com/2008..Y&pagewanted=print
Soros sounds the alarm again on world economy
http://www.iht.com/articles/2008/04/11/business/11soros.php
Federal Credit Cards Misused
http://www.washingtonpost.com/wp-dy../ST2008040803504.html
U.S. Economy: Consumer Sentiment Drops to 26-Year Low
http://www.bloomberg.com/apps/n..=af8M_eEjb_QY&refer=home
Gas, Diesel Prices Hit New Records
http://www.bloomberg.com..087&sid=af8M_eEjb_QY&refer=home
Gas Tops $4 In Chicago
http://cbs2chicago.com/consumer/gas.prices.milestone.2.697232.html
G24: IMF Regulatory Failures Caused Crisis
http://news.yahoo.com/s..bNmbqT52QemoOrgF
Official: UAE to maintain dollar-peg policy
http://news.xinhuanet.com/english/2008-04/08/content_7940355.htm
WaMu gets $7 billion infusion, cuts jobs, sees big loss
IMF: Mortgage Crisis May Cost $945 Billion
Dollar Falls Against Euro, Heads for Weekly Decline, Before G-7
US Fed prepares to replenish war chest
US trade deficit jumps despite weak dollar
Pound falls to 80p against the euro
IMF Says U.S. Crisis Biggest Since 1930s
IMF: Global Intervention Needed On Credit Crisis
Current crisis is worst since Great Depression: Soros
Soros Predicts End Of Easy Borrowing
Govt Expects Gas To Hit $4
Filed under: Bank of America, bernanke, central bank, credit card, Credit Crisis, DEBT, Dow, Economic Collapse, economic depression, Economy, Europe, Federal Reserve, food prices, foreclosure, gold, Great Depression, Greenback, housing market, Inflation, interest rate cuts, london, petroeuro, rate cut, rate freeze, Stock Market, subprime, subprime lending, UBS, United Kingdom, US Economy, Wall Street, washington mutual, wells fargo
Wall Street Tumbles After Rate Cut
AP
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.”
Related News:
Interest Rate Freeze: Real Story Is Fraud
http://www.sfgate.com/cgi-bin…2V.DTL&type=printable
Wall Street to Fed: Not good enough
http://money.cnn.com/2007/12/…postversion=2007121117
America faces day of reckoning with debt
http://www.telegraph.co.uk/mone…/2007/12/10/ccview110.xml
UBS posts fresh $10bn write-down
http://news.bbc.co.uk/2/hi/business/7135872.stm
UK Food Prices Rise Fastest In 14 Years
http://www.telegraph.co.uk/new…1/nprices111.xmlform
U.S. Trade Deficits Mirror Rome’s
http://biz.thestar.com.my/news/…siness/19691002&sec=business
Washington Mutual to close 190 offices
http://www.sfgate.com/cgi…B6TRQ84.DTL&tsp=1
U.S. Mortgage Crisis Rivals S&L Meltdown
http://online.wsj.com/article/SB11…tml?mod=hps_us_whats_news
Gold steadies above 800 usd as investors await Fed rate verdict
http://www.forbes.com/markets/feeds/afx/2007/12/11/afx4425300.html
Mortgage Crisis Forces Big Cuts at WaMu
http://www.washingtonpost.com/wp-…01226_pf.html
BofA money market fund dives 70%
http://money.cnn.com/2007/12/10/news/co…21014
Elites Consider Move To PetroEuro
http://www.roguegovernment.com/news.php?id=5400
Gulf States to Discuss Single Currency Plan by 2010
http://in.reuters.com/article/businessNews/idINIndia-30787820071202
Housing Prices Seen Falling 30%
http://www.reuters.com/artic…4897520071206
As credit crisis festers, Fed set to cut rates
CNBC Reports Bank of America Freezes $12 Billion Money Market
US Federal Reserve eyes rate cut, prepares for economic storm: analysts
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Filed under: Australia, bernanke, canadian dollar, central bank, ECB, Economic Collapse, economic depression, Economy, Euro, Federal Reserve, G7, Great Depression, Greenback, housing market, Inflation, interest rate cuts, job market, Stock Market, subprime, US Economy, washington mutual, Yen
Dollar falls, unable to shake gloom despite jobs report
Reuters
October 5, 2007
NEW YORK (Reuters) – The dollar fell on Friday as a solid U.S. employment report was not enough to convince investors the U.S. economy is growing fast enough to keep the Federal Reserve from cutting interest rates again.
The greenback rose sharply after the data showed September U.S. jobs growth of 110,000, the highest since May, and upwardly revised numbers for August and July, but the rally petered out ahead of the long Columbus Day holiday weekend.
“Even if you get some better news in terms of the employment report balancing out some of the doomsday scenarios for the U.S. economy, we still have a situation in which the Fed has eased and will likely ease further because of the risks to growth, while other central banks are on hold or tightening policy,” said Sophia Drossos, currency strategist with Morgan Stanley in New York.
In late afternoon trading in New York, the dollar index, a gauge of the greenback’s value against a basket of major currencies, was down 0.2 percent at 78.324 (.DXY: Quote, Profile, Research). After the jobs data, the index rose as high as 78.819. On Monday it had dropped to an all-time low of 77.660.
The euro fought back from earlier losses to trade little changed at $1.4140. The dollar rose 0.3 percent to 116.85 yen.
Commodity-related currencies were the biggest movers among the world’s most liquid.
The Australian dollar climbed to a 23-year high of US$0.9004 and was last up 1 percent at US$0.8970. The U.S. dollar tumbled to a three-decade low against the Canadian dollar of C$0.9816, falling 1.5 percent, the biggest daily decline in three years, after data showed the Canadian unemployment rate was the lowest in 33 years.
Despite the strong jobs report “it didn’t take long for the market to refocus on the overall fundamental weakness that remains for the U.S. dollar,” said Camilla Sutton, a currency strategist at Scotia Capital in Toronto.
G7 ON ITS WAY
While the jobs report reduced the chances of a cut in the Fed’s benchmark federal funds rate this month, it did not eradicate them. The futures market reflected a 50 percent perceived chance of a cut in the benchmark rate, down from a roughly 70 percent implied chance prior to the payrolls report.
Since mid-August when a crisis in the U.S. subprime mortgage market practically froze bank lending, the dollar has been on a one-way road downhill. The sell-off accelerated after the Fed slashed the fed funds rate by a half percentage point to 4.75 percent last month.
But this week’s U.S. economic data, as well as less-than-hawkish comments from European Central Bank President Jean-Claude Trichet, have at the very least introduced more two-way traffic.
“The jobs report makes what the Fed will do in October a very close call,” said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York.
The focus in the market has shifted to an upcoming meeting of finance ministers and central bankers from the Group of Seven rich nations this month and a Fed policy meeting at the end of the month.
Growing complaints by European politicians about the euro’s strength have added the risk in the market that the dollar could find firm footing in the run-up to the G7 meeting.
On Friday, French President Nicolas Sarkozy’s spokesman said France’s position on the euro’s surge is increasingly finding wider backing in Europe.
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Filed under: Alan Greenspan, Bank of America, canadian dollar, Credit Crisis, Economic Collapse, economic depression, Economy, Federal Reserve, foreclosure, Great Depression, Greenback, housing market, Inflation, JPMorgan, liquidation, Merrill Lynch, Stock Market, US Economy, Wall Street, washington mutual
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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