Quoted from Shadow

Just remember who was President when restrictions on banks and lending agencies were lifted so that every person could live the American Dream and own their own home. I'll give you a hint, he was a Dem. This was one of the main causes of the subprime disaster that we're facing today.

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Fed chairman: Outlook grim
BY NEIL IRWIN The Washington Post

    WASHINGTON — The economy is not close to a 1970s-style mix of stagnant growth and high inflation, Federal Reserve Chairman Ben Bernanke said Thursday, but he painted a generally dour outlook and cautioned that the downturn is likely to cause some small banks to go under.
    “I don’t anticipate stagflation,” Bernanke told the Senate banking committee, during his semiannual report to Congress on monetary policy. Some analysts have become increasingly worried about that possibility after recent high readings on inflation and weak readings on growth. “I don’t think we’re anywhere near the situation that prevailed in the 1970s,” he said.
    As Bernanke spoke, new data and activity on financial markets underscored the risks that the economy is facing. The Commerce Department said that the gross domestic product, the broadest measure of economic output, rose only 0.6 percent in the fourth quarter, disappointing analysts. The Labor Department said that the number of new unemployment claims rose to their second-highest weekly level since Hurricane Katrina. Almost every piece of economic data that has come out this week has been worse than economists had projected.
    Those signs of a weaker economy led investors to buy up ultrasafe government bonds, driving the yield on two-year Treasuries down 0.18 percentage points to 1.82 percent, its lowest level in more than a month. The dollar fell to a new low against the euro for the third straight day, and the stock market was off 0.9 percent, as measured by the Standard & Poor’s 500 index.
    At a news conference, President Bush said, “I don’t think we’re headed to a recession, but no question we’re in a slowdown.” He criticized a bill in Congress that he said would bail out housing speculators and indicated that he wanted to let the $152 billion stimulus bill he signed earlier this month have a chance to work before considering a second one.
    In his second straight day of congressional testimony, Bernanke repeatedly made clear that he believes the greatest risk facing the economy is slower growth — not high infl ation. He said that policymakers have fewer options for responding to the situation than they did in 2001, amid the dot-com crash.
    Then, the government was running large surpluses, which left more room to cut taxes or increase spending. And inflation was very low, giving the Fed leeway to cut interest rates. Finally, world credit markets held up well through that downturn, so Fed rate cuts resulted in lower borrowing costs for consumers and businesses, which is how they are intended to stimulate the economy.
    “Am I hearing you correctly that we’re in actually — we’re in a worse position today to respond to this than we were eight years ago?” asked the committee’s chairman, Sen. Christopher Dodd, D-Conn.
    “I think that’s fair,” said Bernanke. “In that both fiscal and monetary face some additional constraints.”
    And when asked whether he expects the downturn to result in bank failures, his response was similarly bereft of rose-colored glasses.
    “There probably will be some bank failures,” Bernanke said. “There are, for example, some small, or, in many cases, (newly created) banks that are heavily invested in real estate in locales where prices have fallen and therefore they would be under some pressure.”
    He stressed that he was referring to smaller institutions, not the giant ones, many regulated by the Fed, that are at the center of the world’s financial infrastructure.
    “Among the largest banks, the capital ratios remain good,” he said. “And I don’t anticipate any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system.”
    He did urge the major institutions to raise more capital, in addition to the $75 billion or so they have raised so far. Those funds are not needed so much to stay solvent, Bernanke said, as to ensure that the banks can continue making new loans and thus keeping the credit crunch from causing broad economic distress.
    “I think he was trying to get a message of realism across,” said Arun Raha, a senior economist at Swiss Re.
DENNIS COOK/THE ASSOCATED PRESS Federal Reserve Chairman Ben Bernanke delivers the Fed’s Monetary Policy Report on Thursday during an appearance before the Senate Banking Committee.

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He did urge the major institutions to raise more capital, in addition to the $75 billion or so they have raised so far. Those funds are not needed so much to stay solvent, Bernanke said, as to ensure that the banks can continue making new loans and thus keeping the credit crunch from causing broad economic distress.

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Buy It
First published: Monday, March 3, 2008

If you can afford to buy what you need and what you want, by all means do it.
     
That, we are convinced, is the best advice the average citizen can give himself in this time of doubt. It is the course that best serves his own interests and those of his country.
We do not know what causes recessions, rolling readjustments and all the other euphemisms that economists coin for trouble times. We think we do know one of the biggest reasons why troubled times have in the past turned into bad times.
It was because people began to think times would get worse, and began to postpone the buying of things they actually needed or sorely wanted, even though they could well afford them.
When this happened, factories began to reduce their outputs of the things people needed or wanted, workers and sellers lost their jobs, buying power shrank further and there set in the "vicious downward spiral" so well remembered by an older generation.
Economists are agreed that built-in safeguards make impossible another depression like that of the '30s. But that does not mean the current recession cannot get worse if buying power dries up.
President Eisenhower said last week he is counting on this buying power of the public, more than on government spending, to halt the recession.
We are not urging purchases upon the jobless, or those barely squeezing by, or those heavily in debt.
We are talking about those with secure jobs or secure incomes, those with money in the bank, those with savings and sound prospects.
And that is the overwhelming majority of us. First published March 19, 1958.

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Personal bankruptcy filings expected to top 1 million in 2008
BY JACQUELINE PALANK Dow Jones Newswires

    WASHINGTON — Personal bankruptcy filings climbed last month to their highest level since 2005, when Congress enacted laws aimed at discouraging such filings, and experts predicted more than a million Americans will seek bankruptcy protection this year.
    The American Bankruptcy Institute, citing data from the National Bankruptcy Research Center, said 76,120 people filed for bankruptcy in February, a 15 percent increase from January. Business bankruptcies also surged, climbing to a four-month high of 4,326, according to Jupiter eSources, which tracks business and personal bankruptcy filings.
    The numbers highlighted the rising toll of the U.S. housing slump and the credit crunch it precipitated. Those developments have brought the economy to the brink of recession and led to a surge in home foreclosures. In response, the U.S. central bank has cut interest rates at the fastest clip in more than two decades, but the economy has remained sluggish.
    Samuel Gerdano, executive director of the ABI in Alexandria, Va., said Tuesday the institute expects personal bankruptcy filings to top 1 million in 2008. That would mark the highest number since 2005, when Congress enacted laws that made it harder for individuals to file for bankruptcy. Personal bankruptcy filings totaled 800,000 last year, a 40 percent increase from 2006, he said.
    “I don’t see a problem reaching one million,” said consumer bankruptcy attorney Brian J. Small of Thav Gross Steinway & Bennett in Michigan. “I would be surprised if … we don’t exceed it.”
    Small said home foreclosures have been the leading impetus” for the increase in personal bankruptcy filings. That’s because by the time homeowners face foreclosure “they’ve already borrowed every penny that they could; they already spent everything in their savings. They’re at the point where there’s nothing left,” he said.
    Lenders initiated about 1.5 million home foreclosures last year, up from an annual average of “fewer than 1 million” in the previous two years, Federal Reserve Chairman Ben Bernanke said in a speech Tuesday.
    “This situation calls for a vigorous response,” Bernanke said. “Measures to reduce preventable foreclosures could help not only stressed borrowers but also their communities and, indeed, the broader economy.”
    Small also said his clients today have much greater debt than in the past. For example, he said he used to think that credit card debt in the range of $10,000 to $12,000 was high. Now, some clients are reporting credit card debt between $30,000 and $50,000.
    “The proliferation of available credit, combined with the increase in mortgage interest rates, has stretched everyone to their maximum, and they’re going to break,” Small said.
    As consumers tighten their pocketbooks, businesses — especially those that depend on consumer spending — will feel more pain, analysts said. Businesses already have been hurt by the global credit crunch, which is pushing a growing number of companies into bankruptcy and making it harder for others to emerge from bankruptcy.
    “Commercial cases are very reliant on credit availability and so that’s where the credit crunch comes into play,” Gerdano said. “For several years, the wide availability of credit and almost excess liquidity really masked an underlying vulnerability of businesses.”

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Jobless rate rises; outlook ‘rather glum’
BY JAMES SCHLETT Gazette Reporter
Reach Gazette reporter James Schlett at 395-3040 or jschlett@dailygazette.net

    Economic volatility sent shock waves through the Capital Region in January, stunting growth in all but two major sectors and kicking the unemployment rate up to 5 percent, according to statistics released Thursday by the state Department of Labor.
    With recession fears mounting, employers slimmed the region’s nonfarm work force to 438,300, down 400 jobs, or 0.1 percent, from a year earlier.
    During the same period, the unemployment rate rose to 5 percent from 4.5 percent a year earlier. From December, unemployment rose 0.9 percentage points.
    “I really think things are rather glum right now. One thing that’s affecting everything is the low consumer confidence,” said William Brigham, director of the University at Albany’s Small Business Development Center.
    New York’s slumping consumer confidence, which the Siena Research Institute put at a historic low in January, explains why the region’s retail trade and service sectors are “peeling back,” Brigham said.
    On Wednesday, the research institute reported that the state’s overall confidence in February slid 2.5 points to an all-time low of 62.4.
    With high energy prices dissuading consumers from eating out, the accommodation and food services sector over the year shrunk by 900 jobs, or 3.4 percent.
    Reflecting distress in the housing and credit industries, the region’s financial activities sector shed 700 jobs, or 2.7 percent.
    The housing slump continued to weigh down on the region’s natural resources, mining and construction sector, which shrunk by 800 jobs, or 5 percent.
    But weather factors might also have influenced those lower work force levels.
    “The breadth of job loss is troubling,” said Labor Department Market Analyst James Ross.
    Growth in the professional and business services sector, which includes engineers, accountants, scientists and temporary workers, helped offset January’s job losses.
    The sector grew by 1,700 jobs, or 3.2 percent. The education and health services sector also increased by 1,300 jobs, or 1.7 percent.
    While the region’s labor force contracted in January, it expanded statewide.
    Over the previous year, the state grew by 86,900 jobs, or 1 percent, totaling 8.62 million jobs.
    But New York’s unemployment rate still rose to 5.6 percent from 5 percent.

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On Wednesday, the research institute reported that the state’s overall confidence in February slid 2.5 points to an all-time low of 62.4.

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Retail sales, dollar plunge
BY MARTIN CRUTSINGER The Associated Press

    WASHINGTON — Oil hit a record high, the dollar sank again, and consumers stopped buying pretty much everything.
    Stocks kept gyrating, too, on Thursday, swinging between gloomy recession evidence and rising hopes that all the bad news would bring another aggressive cut in interest rates when the Federal Reserve meets next week.
    The Bush administration, conceding the economy was facing “difficult” times now, rushed out new proposals aimed at next time — plans to fix various problems that have led to a severe crisis in credit markets.
    Administration officials predicted an economic rebound once the impact of the Fed’s credit cuts and the recently passed economic stimulus package begin to be felt.
    Private analysts were not as confident, worrying that the economy is being hit by multiple blows and noting that some of the problems, such as plunging home sales and mortgage defaults, are showing no signs of abating.
    “We’re in the belly of the recession beast right now, and all we really can do is take defensive action,” said Bernard Baumohl, managing director of the Economic Outlook Group.
    The Commerce Department reported that consumers, battered by falling home values, job losses, soaring energy costs and a severe credit squeeze, stopped going to the malls in February, triggering a 0.6 percent drop in retail sales.
    That was the second big drop in retail sales in the past three months, a pattern consistent with the onset of a recession. Sales were down across a broad swath of the economy, from autos and furniture to appliances.
    Consumer spending accounts for two-thirds of total economic activity, and many economists believe the country is in recession or soon will be.
    At the White House, deputy press secretary Tony Fratto said the Bush administration expected a “difficult and challenging” period. But he also said Americans should have confidence in the long-term future of the economy because of the positive impact of the Fed’s rate cuts and the economic stimulus package that will send rebate checks to 130 million households starting in May.
    Bush is headed to New York today to deliver a speech on the economy.
    “I think it’s important for the president to get out and talk about how he sees the economy, and why he sees the economy improving as the year goes on,” Fratto said. But he conceded that surging energy prices were acting as a drag and “higher oil prices and higher gasoline prices are not going to go away overnight.”
    Indeed, both crude oil and gasoline prices hit all-time highs Thursday with crude closing at $110.33 per barrel on the New York Mercantile Exchange. Gasoline prices jumped 2.1 cents a gallon overnight to a national average of $3.267 a gallon, according to AAA and the Oil Price Information Service. Analysts forecast that gasoline prices will keep climbing.
    The dollar, meanwhile, dropped anew as global investors worried about the length and severity of any U.S. downturn. The dollar dipped briefly below 100 yen for the fi rst time in 12 years and fell to a new low against the euro.
    On Wall Street, stocks slid but then rebounded somewhat as traders grew hopeful about a Fed rate cut Tuesday of one-half point to as much as three-fourths of a point. Investors’ moods were also bolstered after Standard & Poor’s predicted that financial companies are nearing the end of the massive write-downs in the value of subprime mortgages and other assets.
    The rating agency estimated that writedowns of subprime asset-backed securities could reach $285 billion globally, up from a previous projection of $265 billion. However, it said that “the end of write-downs is now in sight for large financial institutions.”
    The worst of the U.S. slowdown has been the housing sector, which has been in a two-year slump that has seen sales and prices plunge in many formerly hot real estate markets. Those declines have shaken consumer confidence and triggered rising mortgage defaults. Homeowners could no longer count on rising prices to build equity in their homes that would allow them to refinance into more affordable loans.
    The president’s Working Group on Financial Markets, led by Treasury Secretary Henry Paulson, put forward a broad blueprint of changes on Thursday. The proposals were aimed at correcting a variety of abuses from mortgage brokers who pushed prospective buyers into loans they could not afford, Wall Street investment firms that aggressively packaged the mortgages in securities, and credit rating agencies that failed to assess the risks those securities carried.

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Dollar falls to a record low vs euro

Associated Press
Monday, March 17, 2008

TOKYO -- The dollar fell to a record low against the euro and to its lowest level in 12 1/2 years against the yen Monday as investors reacted nervously to news that JP Morgan Chase is buying rival investment bank Bear Stearns.
     
The move, aimed at averting a bankruptcy, sparked renewed worries among traders about the full extent of the credit crisis, sending Asian stock markets tumbling.
The U.S. currency also was hit by word that the Federal Reserve on Sunday cut its discount rate, or its lending rate to financial institutions, by a quarter point to 3.25 percent.
The dollar fell as low as 95.72 yen, its lowest point since August 1995, in morning trading in Tokyo before recovering to 96.76 yen in afternoon trading. The dollar finished in New York trading on Friday at 99.17 yen. It broke below 100 yen just last Thursday.
The euro rose to a record against the dollar, climbing as high as $1.5903.
Japanese officials quickly called for calm in the currency markets, but did not announce any plans for intervention to shore up the greenback by buying up dollars.
"Excessive fluctuation is never favorable for the Japanese and world economy," Chief Cabinet Secretary Nobutaka Machimura said. "We are concerned about the current situation with currencies fluctuating too much."
The weak dollar hurts the country's key exporters by eroding their overseas earnings when repatriated to Japan.

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Fed Takes New Steps to Ease Crisis
Monday March 17,2008
By Jeannine Aversa, AP Economics Writer

Fed Takes Steps to Ease Crisis, Cuts Lending Rate to Financial Institutions to 3.25 Percent

WASHINGTON (AP) -- Worry about the damage a growing credit crisis is inflicting on an ailing U.S. economy led the Federal Reserve to make a rare weekend move, lowering a key lending rate before Wall Street opened Monday.
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The central bank approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created a lending facility for big investment banks to secure short-term loans. The new lending facility will be available to Wall Street firms on Monday.

"These steps will provide financial institutions with greater assurance of access to funds," Federal Reserve Chairman Ben Bernanke told reporters in a brief conference call Sunday evening.

The Fed acted just after JPMorgan Chase & Co. agreed to buy rival Bear Stearns Cos. for $236.2 million in a deal that represents a stunning collapse for one of the world's largest and most venerable investment banks. Just on Friday the Fed had raced to provide emergency financing to cash-strapped Bear Stearns through JPMorgan. Days earlier the Fed announced a set of other unconventional steps to thaw out a credit market in danger of freezing shut.

"It seems as if Bernanke & Co. are pulling out all the stops to avoid a serious financial market meltdown," Richard Yamarone, an economist at Argus Research, said Sunday evening.

However on world financial markets, Asian stocks plunged Monday after the JPMorgan and Fed announcements. Markets in Australia and New Zealand were also off and European stocks fell in early trading.

Oil prices hit a record in Asian trading as the value of the dollar continued its free fall and U.S. stock index futures were down sharply, suggesting Wall Street would open lower after sinking Friday.

"There is persistent credit uncertainty. Market players have been repeatedly let down which shows the subprime mortgage problems are so deep-rooted," said Atsuji Ohara, global strategist of Shinko Securities in Tokyo.

President Bush has scheduled a White House meeting Monday afternoon with his Working Group on Financial Markets, which includes Bernanke, Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox.

Paulson said Sunday, "I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liquidity and orderliness of our markets."

The new lending facility -- described as a cousin to the Fed's emergency lending "discount window" for banks -- is geared to give major investment houses a source of short-term cash on a regular basis -- if they need it.

It will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25 percent and a range of collateral -- including investment-grade mortgage backed securities -- will be accepted to back the overnight loans.

The "discount" rate cut announced Sunday applies only to the short-term loans that financial institutions get directly from the Federal Reserve. It doesn't apply to individual borrowers.

The Fed's actions are the latest in a recent string of innovative steps to deal with a worsening credit crisis that has unhinged Wall Street. The action comes just two days before the central bank's scheduled meeting on Tuesday, where another big cut to a key interest rate that affects millions of people and businesses is expected to be ordered. That key rate is now at 3 percent and is expected to be cut by at least one-half percentage point on Tuesday. Analysts said the Fed's new steps may lessen pressure for a super-sized cut to that rate.

The Fed said in a statement that the steps are "designed to bolster market liquidity and promote orderly market functioning ... essential for the promotion of economic growth."

Even with the Fed's aggressive moves, economic and financial conditions keep deteriorating. An increasing number of economists believe the country already has slipped into its first recession since 2001. Many economists think that the economy is shrinking now in the January-to-March quarter. The first government figures on first-quarter economic activity will be released in late April.

The Fed on Sunday also approved the financing arrangement through which JPMorgan will acquire Bear Stearns. JPMorgan said the Fed will provide special financing for the deal. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets, according to JPMorgan.