What is going on with the economy?

[2Real4me!]

Fed joins with European banks to battle credit crisis
Friday May 2, 9:17 am ET
By Martin Crutsinger, AP Economics Writer



Fed announces new moves Friday with European banks to battle ongoing credit crisis

WASHINGTON (AP) -- The Federal Reserve announced Friday that it will expand a series of efforts to deal with the global credit crisis, in coordination with European central banks.
The Fed said it was boosting the amount of emergency reserves it supplies to U.S. banks to $150 billion in May, from the $100 billion it supplied in April. The Fed took this action and several other moves to boost credit in coordination with the European Central Bank and the Swiss National Bank.
The latest moves are part of a series of actions the Fed has made since the credit crisis struck in August.
The efforts are designed to increase reserves so that banks don't become hesitant about lending to consumers and businesses, which would make the current economic slowdown even more severe.
The Fed's decision to boost the amount of loans it makes to banks every two weeks, in a process known as a Term Auction Facility, was aimed at sending a strong signal that the central bank is prepared to supply as much in reserves as U.S. banks need. The latest move was made in coordination with the European central banks' efforts to bolster their financial systems as well.
The Fed said it was also expanding the types of assets that investment banks can use as collateral to receive loans from the central bank. In March, the Fed used powers it obtained during the Great Depression to begin making loans to investment banks. Previously, the Fed only made direct lends to commercial banks.
The European Central Bank said it will increase the amount of dollars offered to $25 billion in the latest series of tenders, with the auctions to come every two weeks. The tenders' maturity will be 28 days. Previously, the ECB has auctioned off amounts that have ranged from $10 billion to $15 billion per tender but without a set schedule.
"It is intended to continue the provision of U.S. dollar liquidity for as long as the governing council considers it to be needed in view of the prevailing market conditions," the bank said in a statement.
Switzerland's central bank also said it would increase the scheduled frequency of its own auctions to every 14 days, with a maximum allocation of $6 billion per auction. Its next auction is scheduled for May 6 with a settlement on May 8. Like the ECB, the term would be 28 days.
AP Business Writer Matt Moore contributed to this story from Frankfurt, Germany.

[2Real4me!]

Fed approves crackdown on unfair credit cards
Friday May 2, 3:08 pm ET
By Jim Abrams, Associated Press Writer



Federal Reserve approves plan to crackdown on harsh credit card practices that hurt borrowers

WASHINGTON (AP) -- The Federal Reserve is taking steps to crack down on "unfair and deceptive" credit card industry practices that have added to the financial woes of millions of people trying to cope with the economic downturn.
The Fed on Friday gave approval to proposed rules that would target credit card companies that arbitrarily raise interest rates or don't give borrowers adequate time to pay their bills.
Consumers and lawmakers praise the proposals as needed and long-overdue. The banking industry opposes them, saying they would limit consumer choice.

[GoodDay]

IV Wrote:What Recession? First Quarter GDP Shows Modest But Better-Than-Expected Growth...




Smells like a lot of you know what if you ask me. There is a recession and if anything, it may even be a depression. You have everybody owing but not paying. You have gas prices way out of control and ....no it is not because of supply and demand when Exxon made 17 billion in 3 months.

I agree IV-

Not in totallity nor do I know exact numbers or have statistics for proof nor is it my profession-

When I read or hear someone say we are not in a recession I cringe or laugh-

I read something about thisbeing the widest gap in many decades between the rich and the poor-Without doubt there is some truth to that and a very bad sign.

I also heard something briefly about this being something to do with the worse since the great depression.

We are obviosly not in a depression at this time but we are sure in store for some bad times in the near future.

It seems that not one single thing in our economy is stable or where it should be-

Again- Not my profession just a little bit of an opinion

[2Real4me!]

Stocks fall sharply on Fannie, Freddie worries
Friday July 11, 1:28 pm ET
By Tim Paradis, AP Business Writer



Stocks tumble on worries about Fannie, Freddie; Dow falls below 11,000 for first time in 2 yrs

NEW YORK (AP) -- Wall Street sank further into a bear market Friday as investors dumped stocks in response to troubles at mortgage companies Fannie Mae and Freddie Mac and oil's continuing climb into record territory. The Dow Jones industrials at times fell more than 250 points and slid below the 11,000 mark for the first time in two years.
Investors appeared unimpressed by a statement from Treasury Secretary Henry Paulson, who said the government's focus is ensuring that Fannie Mae and Freddie Mac keep operating in their current form -- countering reports that the government would announce plans to take over one or both of the companies.
The government-chartered companies have fallen sharply in recent days on concerns about their stability. Wall Street is worried that a collapse of the two financiers would cause further shock to the financial system, and trigger more losses to banks and brokerages with significant holdings of mortgage-backed securities.
The well-being of Fannie Mae and Freddie Mac is crucial because they hold or guarantee about $5 trillion worth of mortgages -- roughly half the $9.5 trillion debt of the United States. Their troubles are just the latest depressing turn in a year-old credit crisis that shows no sign of ending, disappointing some stock traders who thought just months ago that the worst was perhaps over.
Meanwhile, Citigroup Inc., also struggling with the consequences of failed mortgages, announced it will sell its German retail banking operation to France's Credit Mutuel for $7.7 billion. Global banks and brokerages have scrambled to sell assets and raise capital in an effort to offset nearly $300 billion of write-downs linked to the credit crisis.
Investors also had little reason to shop for bargains Friday because many financial companies are reporting results next week and are expected to announce another round of big write-downs. And there is nervousness on Wall Street over corporate results in general; they're expected to be down overall, and if results are worse than forecast, stocks could take yet another beating.
The market's other trouble spot, oil, continued its ascent on supply concerns. A barrel of oil vaulted to a record above $147, raising more concerns about inflation and the overall economy.
Concerns about energy and the finanicals dominated trading.
"You have two issues: Crude popped back up $10 to $11 in the last few days, and that is causing some concern. The second point is the financial services sector. There is concern and speculation that Freddie, Fannie and Lehman won't be around on Monday. That's obviously causing worry," said Phil Orlando, chief equity market strategist at Federated Investors.
In early afternoon trading, the Dow fell 230.82, or 2.06 percent, to 10,998.20 after having fallen to 10,977.68, a drop of 251.68. It last traded below 11,000 on July 25, 2006.
Broader stock indicators also skidded lower. The Standard & Poor's 500 index fell 25.63, or 2.04 percent, to 1,227.76, and the Nasdaq composite index fell 48.40, or 2.14 percent, to 2,209.45.
Friday's drop meant Wall Street moved squarely into a bear market, which is defined as a 20 percent drop from a recent peak. At its low today, the Dow was down 22.5 percent from the record high of 14,198.09 it reached in October. The S&P 500 was down 21.7 percent and the Nasdaq fell 22.9 percent.
Oil, meanwhile, extended its move into record territory, rising as high as $147.27. At midday, light, sweet crude traded up $2.92 at $144.57 a barrel on the New York Mercantile Exchange amid tensions between the West and Iran and the potential for attacks on Nigerian oil facilities.
Bond prices fell sharply. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.91 percent from 3.80 percent late Thursday. The dollar was mixed against other major currencies, while gold prices rose.
Orlando said investors are looking to Federal Reserve President Ben Bernanke and Paulson for guidance.
"It feels like that Friday before the big Bear Stearns/JPMorgan announcement, so you're wondering if Bernanke and Paulson are going to sit around on the weekend trying to figure things out," Orlando said, referring to the near-collapse and subsequent Fed-orchestrated buyout of Bear Stearns.
"It seems all the confidence in the market has dissipated in these key financial services companies. When you talk about too big to fail, the government has to step in to figure out a solution to the Fannie and Freddie confidence issue," he said.
Freddie Mac fell $1.92, or 24 percent, to $6.08, while Fannie Mae tumbled $3.73, or 28 percent, to $9.47 as investors worried about their stability. Piper Jaffray analyst Robert Napoli lowered his price targets on both companies, and said in a note to clients investors should "not be in a position that only two government-sponsored lenders are willing to make mortgage loans and, without them, our economy would collapse."
Lehman Brothers Holdings Inc. fell $3.40, or 19.7 percent, to $13.90 as traders fretted that the No. 4 investment bank will succumb to soured debt.
Citi slipped 47 cents, or 2.9 percent, to $15.81 after saying it will book a $4 billion gain from the sale of its German retail operation. The deal is part of a plan by Chief Executive Vikram Pandit to sell up to $500 billion in assets to help boost profitability.
Investors remain cautious about the entire financial sector, especially ahead of second-quarter reports due next week from major names like JPMorgan Chase & Co. and Merrill Lynch & Co. JPMorgan declined $1.98, or 5.7 percent, to $32.53 and Merrill fell $2.07, or 7.2 percent, to $26.64.
The confluence of negative news offset a mostly positive quarterly report from General Electric Co. The industrial and financial conglomerate reported second-quarter profits that met analysts' expectations. The company, which announced Thursday that it plans to spin off its lighting and appliance businesses, said the forecast across its business lines was mixed.
In economic news, the United States' trade deficit narrowed in May as exports -- including industrial supplies and consumer goods -- climbed to all-time highs. The Commerce Department said growing exports drove the trade gap down to $58.8 billion, a 1.2 percent decrease from April and the best showing since March.
Investors did get a better-than-expected reading on consumers. The Reuters/University of Michigan Consumer Sentiment index rose to 56.6 for July from 56.4 in June. It had been expected to decline.
Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to 866.5 million shares.
The Russell 2000 index of smaller companies fell 10.14, or 1.51 percent, to 660.30.
Overseas, Japan's Nikkei stock average fell 0.21 percent. Britain's FTSE 100 fell 2.69 percent, Germany's DAX index declined 2.41 percent, and France's CAC-40 fell 3.09 percent.

[2Real4me!]

Analyst say more banks will fail

As home prices continue to decline and loan defaults mount, federal regulators are bracing for dozens of American banks to fail over the next year.

But after a large mortgage lender in California collapsed late Friday, Wall Street analysts began posing two crucial questions: Just how many banks might falter? And, more urgently, which one could be next?

The nation’s banks are in far less danger than they were in the late 1980s and early 1990s, when more than 1,000 federally insured institutions went under during the savings-and-loan crisis. The debacle, the greatest collapse of American financial institutions since the Depression, prompted a government bailout that cost taxpayers about $125 billion

But the troubles are growing so rapidly at some small and midsize banks that as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months, analysts say. Other lenders are likely to shut branches or seek mergers.

“Everybody is drawing up lists, trying to figure out who the next bank is, No. 1, and No. 2, how many of them are there,” said Richard X. Bove, the banking analyst with Ladenburg Thalmann, who released a list of troubled banks over the weekend. “And No. 3, from the standpoint of Washington, how badly is it going to affect the economy?”

Many investors are on edge after federal regulators seized the California lender, IndyMac Bank, one of the nation’s largest savings and loans, last week. With $32 billion in assets, IndyMac, a spinoff of the Countrywide Financial Corporation, was the biggest American lender to fail in more than two decades.

Now, as the Bush administration grapples with the crisis at the nation’s two largest mortgage finance companies, Fannie Mae and Freddie Mac, a rush of earnings reports in the coming days and weeks from some of the nation’s largest financial companies are likely to provide more gloomy reminders about the sorry state of the industry.

The future of Fannie Mae and Freddie Mac is vital to the banks, savings and loans and credit unions, which own $1.3 trillion of securities issued or guaranteed by the two mortgage companies. If the mortgage giants ever defaulted on those obligations, banks might be forced to raise billions of dollars in additional capital.

The large institutions set to report results this week, including Citigroup and Merrill Lynch, are in no danger of failing, but some are expected to report more multibillion-dollar write-offs.

But time may be running out for some small and midsize lenders. They vary in size and location, but their common woe is the collapsed real estate market and souring mortgage loans. Most of these banks are far smaller than the industry giants that have drawn so much scrutiny from regulators and investors.

Still, only six lenders have failed so far this year, including IndyMac. In 1994, the Federal Deposit Insurance Corporation listed 575 banks that it considered to be troubled. As of this spring, the agency was worried about just 90 banks. That number may go up in August, when the government releases an updated list.

“Failed banks are a lagging indicator, not a leading indicator,” said William Isaac, who was chairman of the F.D.I.C. in the early 1980s and is now the chairman of the Secura Group, a finance consulting firm in Virginia. “So you will see more troubled, more failed banks this year.”

And yet IndyMac, one of the nation’s largest mortgage lenders, was not on the government’s troubled bank list this spring — an indication that other troubled banks may be below the radar.

The F.D.I.C. has $53 billion set aside to reimburse consumers for deposits lost at failed banks. IndyMac will eat up $4 billion to $8 billion of that fund, the agency estimates, and that could force it to raise more money from the banks that it insures.

The agency does not disclose which banks it thinks are troubled. But analysts are circulating their own lists, and short sellers — investors who bet against stocks — are piling on. In recent weeks, the share prices of some regional banks, like the BankUnited Financial Corporation, in Florida, and the Downey Financial Corporation, in California, have stumbled hard amid concern about their financial health. A BankUnited spokeswoman said the lender had largely avoided risky subprime loans.

In his “Who Is Next?” report over the weekend, Mr. Bove listed the fraction of loans at banks that are nonperforming, meaning, for example, that the assets have been foreclosed on or that payments are 90 days past due. He came up with what he called a danger zone, which was a percentage above 5 percent. Seven banks fell in this category.

An important issue for the regional and community banks will be whether they have managed to sell their riskiest loans to Wall Street firms.

And the government may have fewer failures than in the past because private investment funds might buy some troubled lenders. Regulators are considering rule changes that would allow private equity firms to buy larger shares of banks, and several prominent investors, like Wilbur Ross, have raised funds to leap in.

[2Real4me!]

Bernanke: economy faces 'numerous difficulties'
Tuesday July 15, 5:12 pm ET
By Jeannine Aversa, AP Economics Writer



Bernanke says economy faces 'numerous difficulties' that challenge Fed policymakers

WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke told Congress Tuesday the fragile economy is facing "numerous difficulties" despite the Fed's aggressive interest rate reductions and other fortifying steps.
At the same time, Bernanke, testifying before the Senate Banking Committee, sounded another warning that rising prices for energy and food are elevating inflation risks. This problem looms even as officials try to cope with persistent strains in financial markets, rising joblessness and housing problems.
The situation, he said, poses "significant challenges" for Fed policymakers as they try to chart the best course for keeping the economy growing, while making sure inflation doesn't dangerously flare up. All the economy's problems -- including slumping home values, which threaten to make people feel less wealthy and less inclined to spend in the months ahead -- represent "significant downside risks" to economic growth.
Over the rest of this year, the economy will grow "appreciably below its trend rate" mostly because of continued weakness in housing markets, high energy prices and tight credit conditions.
On Wall Street, stocks slumped. The Dow Jones industrials were down around 50 points, after suffering steeper losses earlier in the morning.
Bernanke's testimony comes just two days after the Fed and the Treasury Department came to the rescue of mortgage giants Fannie Mae and Freddie Mac, offering to throw them a financial lifeline.
The Fed chief was later joined by Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Chris Cox, who were summoned to detail the rescue plan.
The two companies hold or guarantee more than $5 trillion in mortgages -- almost half of the nation's total. The Bush administration is asking Congress to temporarily increase lines of credit to Fannie and Freddie and to let the government buy their stock. The Fed has offered to let the companies draw emergency loans.
The pledges of aid have raised concerns about the government's role in such financial problems and the risk to taxpayers.
Sen. Christopher J. Dodd, D-Conn., the Banking Committee chairman, called the plan "unprecedented."
Dodd said the rescue raises serious questions "about the nature of the economic crisis facing our nation, about the ability of these proposals to address this crisis effectively, and about the burden that the American taxpayer potentially is being asked to carry."
Paulson said that if the government extends any financial backing to the two institutions it will be done "under terms and conditions that protect the U.S. taxpayer." He didn't provide details. "This is a backup facility that hopefully ... will never be used," Paulson said. The Treasury chief said he hoped that the pledge itself would help to boost eroding investor confidence in the companies.
Sen. Richard C. Shelby of Alabama, the panel's senior Republican, cautioned, "I fear that we're sitting on a financial powder keg." Officials may envision never using the powers, Shelby added, but "this is not an empty gesture.... what if they did?"
On the economic front, inflation has remained high and "seems likely to move temporarily higher in the near term," Bernanke warned.
Indeed, before Bernanke delivered his twice-a-year comprehensive economic assessment to Congress, the Labor Department reported wholesale prices jumped 1.8 percent in June. That left inflation rising over the past year at the fastest pace in more than a quarter-century.
"Given the high degree of uncertainty" about the Fed's economic outlook, Fed policymakers will need to carefully assess incoming information about inflation and economic growth, he said.
The Fed in June signaled an end to its nearly year long rate-cutting campaign because of growing concerns about inflation. Bernanke kept up his tough anti-inflation talk on Tuesday but stressed many other problems that could short circuit economic growth. He seemed to be keeping his options open in terms of rates. Given all the risky cross currents, economists believe the Fed will leave rates alone when they meet on Aug. 5.
Righting wobbly financial markets is key to getting the economy back on track, he said.
"In general, healthy economic growth depends on well-functioning financial markets," Bernanke said. "Consequently, helping the financial markets to return to more normal functioning will continue to be a top priority," he said.
Strengthening regulatory oversight of Fannie and Freddie, Bernanke said, is "job one." Congress is moving ahead on a broad housing rescue package that includes provisions to tighten regulation over the two companies. Bernanke said legislative efforts to help stabilize the housing market -- the biggest threat to the economy -- are of vital importance.
Bernanke, in the first day of back-to-back appearances on Capitol Hill, said investors are nervous in general because of the cloudy outlook for the economy and credit conditions, feeding a vicious cycle that can be hard to break.
"Many financial markets and institutions remain under considerable stress, in part because the outlook for the economy and thus for credit quality, remains uncertain."
The Fannie and Freddie troubles came on the heels of the failure of IndyMac, a big bank. "Its failure ... was inevitable," Bernanke said because the bank was weighed down by low-quality mortgages. "All banks are being challenged by credit conditions now," he said, adding that the Fed is keeping close tabs on the nation's banking sector.
Earlier this year, a run on investment bank Bear Stearns pushed the company to the edge of bankruptcy and into a takeover by JPMorgan Chase, backed financially by the Fed. That prompted critics to call it a government bailout, putting taxpayers money at risk.
Bernanke defended its decisions in the cases of Bear Stearns as well as Fannie and Freddie, and rebuffed claims that the government is helping Wall Street at the expense of Main Street. If problems aren't contained, they can ripple throughout the economy, hurting everyone, he said. "Financial stability is critical to economic stability."
The Fed, in new projections, now believes inflation will be higher this year than previously thought, with prices rising as high as 4.2 percent under one inflation measure.
Growth for the year will be sluggish -- at best 1.6 percent growth -- but not as bad as previously forecast, helped by the government's $168 billion stimulus, including rebates. The unemployment rate, which could rise as high as 5.7 percent this year, is the same as earlier projections.

[2Real4me!]

Oil prices plummet more than $6 amid economic fear
Tuesday July 15, 4:44 pm ET
By Adam Schreck, AP Business Writer



Oil plunges in huge sell-off fueled by economic fears; biggest drop since Gulf War

NEW YORK (AP) -- Oil prices fell harder than they have in 17 years Tuesday, as fears that record fuel prices are spreading broad economic pain exacerbated the third big sell-off in just over a week.
Light, sweet crude plunged $6.44, or 4.4 percent, to settle at $138.74 a barrel in an extremely volatile session. Prices at one point plummeted more than $10 from the day's high.
Mounting concerns about the risks inflation poses to the United States, the world's biggest oil consumer, helped spark the declines. Analysts also attributed the sell-off to Thursday's expiration of options contracts, which tend to increase volatility, and to computers programed to automatically sell once prices reach certain thresholds.
"There was this big ... selling pressure when prices dipped below $140 a barrel. It got a lot of bulls very nervous," said Tom Kloza, chief oil analyst at the Oil Price Information Service. "If it was a fire, you'd call it an accelerant."
The drop, which eclipsed last Tuesday's slide of $5.33, marked the biggest decline in dollar terms since the Gulf War. Even so, prices remain no lower than they were a week ago.
Longtime market observers cautioned that the turnaround may not signal a lasting shift in sentiment -- prices have swung violently in recent days as they flirted with record highs. But it does underscore investor uncertainty about the sustainability of sky-high prices and their potentially long-lasting effects on the broader economy.
Over the course of the day, the contract rose as high as $146.73 and fell as low as $135.92. Prices hit a record $147.27 Friday.
Concerns about the economy were high on traders' minds Tuesday.
Federal Reserve Chairman Ben Bernanke told Congress that "numerous difficulties" are racking the U.S. economy, and warned that rising prices for energy and food are elevating the risks of inflation.
At the same time, the Labor Department reported that wholesale inflation jumped by 1.8 percent last month, a larger-than-expected gain. Over the past year, wholesale prices have risen 9.2 percent, the most since 1981.
"Traders get spooked and simply sell positions," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. "The threat of recession, at some point the market's going to plug that in."
Lingering concerns about the health of the financial sector continued to weigh on banking stocks, reminding energy traders that oil prices are not immune to troubles elsewhere in the market.
"Since investment banks have been increasing their ... exposure to commodities, their current distress can have (a) significant impact on oil prices if they are forced to liquidate commodity positions in a run for cash," Olivier Jakob, an analyst at Petromatrix in Switzerland, said in a research note.
The latest monthly market report from the Organization of Petroleum Exporting Countries gave traders further reason to unload oil.
The cartel predicted world oil demand will rise by 900,000 barrels a day in 2009, or 100,000 barrels per day less than this year. OPEC blamed the slowdown on a slumping economy and high pump prices in richer industrialized countries.
Meanwhile, a five-day strike by Brazilian oil workers that began early Monday had less effect on output than feared.
The dollar fell to a new low against the euro, but that did little to halt oil's decline. The weaker dollar has driven prices sharply higher in recent months, enticing investors to pump money into oil as a hedge against inflation and making crude cheaper for overseas buyers.
In Washington, President Bush continued to press the Democratic-run Congress to open up new areas to offshore oil drilling. The president lifted a ban on Continental Shelf drilling Monday, but a Congressional prohibition remains.
"I readily concede it won't produce a barrel of oil tomorrow, but it will reverse the psychology," Bush said at his first White House news conference since April.
At the fuel pump, retail gas prices in the U.S. remained at a record near $4.11 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express. Diesel rose six-tenths of a penny to its own high of $4.83 a gallon.
Tuesday's sell-off alone is unlikely to bring drivers much relief.
"People shouldn't expect to see their pump prices drop," Kloza said. "By the end of the week, we may be talking about $4 (a gallon), we may be talking about $4.20. That's the nature of the beast."
General Motors Corp., the leading U.S. automaker, said it is assuming oil prices will hover between $130 to $150 a barrel next year. The company made the prediction as it laid out plans to slash jobs and truck production, suspend its dividend and borrow up to $3 billion as it grapples with an ailing U.S. economy and record high fuel prices.
In other Nymex trading, heating oil futures fell 14.59 cents to settle at $3.919 a gallon, while gasoline futures tumbled 17.29 cents to settle at $3.3848 a gallon. Natural gas dropped 48.2 cents to settle at $11.477 per 1,000 cubic feet.
In London, August Brent crude fell $5.17 to settle at $138.75 a barrel on the ICE Futures exchange.

[2Real4me!]

Bernanke tries to settle nerves over economy,banks
Wednesday July 16, 5:25 pm ET
By Jeannine Aversa, AP Economics Writer



Bernanke tries to calm jitters over the economy and mortgage giants Fannie, Freddie

WASHINGTON (AP) -- When Missouri Democrat Emanuel Cleaver asked Federal Reserve Chairman Ben Bernanke on Wednesday when the nation's financial woes would end, he was expressing the yearning of many on Main Street and Wall Street that the yearlong pain would soon be over.
"Is there a bottom? And, if so, how long before we hear a splash?" Cleaver asked during Bernanke's testimony before the House Financial Services Committee on the problems plaguing the economy.
In back-to-back appearances before Congress, Bernanke sought to soothe nerves frazzled by rising prices for food and oil, slumping home values and faltering banks.
"We will work our way through these financial storms," Bernanke said.
Bernanke focused on one of those maelstroms Wednesday, when he said troubled mortgage giants Fannie Mae and Freddie Mac are in "no danger of failing."
Trying to stem eroding investor confidence in the two companies, the Treasury Department and the Fed on Sunday offered to throw them a financial lifeline if they needed it to stay afloat. The two companies hold or guarantee more than $5 trillion in mortgages -- almost half of the nation's total -- and are major sources of financing for the mortgage market.
The Bush administration is asking Congress to temporarily increase lines of credit to Fannie and Freddie and to let the government buy their stock. The Fed has offered to let the companies draw emergency loans. Those pledges of aid have raised concerns on Capitol Hill and elsewhere about the government's role in intervening to ease such financial troubles and the risk posed to taxpayers.
The Fannie and Freddie troubles came on the heels of the failure of IndyMac Bank, which was taken over last Friday by the Federal Deposit Insurance Corporation.
Earlier this year, a run on investment bank Bear Stearns pushed the company to the edge of bankruptcy and into a takeover by JPMorgan Chase, backed financially by the Fed.
Seeking to strike a note of confidence, Bernanke said Fannie and Freddie are "adequately capitalized. They are in no danger of failing."
However, "the weakness in market confidence is having real effects as their stock prices fall, and it's difficult for them to raise capital. If their debt spreads widen, it'll increase the borrowing costs," he said.
The companies' shares have plunged as losses from their mortgage holdings threatened their financial survival. They clawed back some ground on Wednesday, however, when Wall Street got a lift from a dip in oil prices. Fannie shares gained 30.8 percent to close at $9.25. Freddie shares rose 29.9 percent to $6.83.
Treasury Secretary Henry Paulson told Congress on Tuesday that he hoped the proposed lifeline won't need to be used. He said the pledge was aimed at restoring confidence in the companies.
Bernanke said the "best solution" is to keep Fannie and Freddie "in their current form" as opposed to having the government take them over. It is also vital for Congress to boost regulatory oversight on the two companies. Such powers are contained in a sweeping housing-rescue package. Congressional leaders plan to add to the bill the provisions Paulson is seeking to aid Fannie and Freddie.
Spencer Bachus of Alabama, the panel's most senior Republican, said of the housing boom-to-bust situation: "Fortunes were made on the way up and pain will be felt on the way down."
With the bust, banks and other financial companies have racked up huge losses due to soured mortgage investments. Foreclosures have risen to record highs.
The Fed chief was upfront about the economy's problems, including a housing slump, financial turmoil, credit troubles and high energy and food prices. And, employers have cut jobs for sixth straight months.
"Families are facing hardships ... this is clearly a rough time," Bernanke said. "It is clear (economic) growth has been slow and the labor market is weak. So conditions are tough on average families."
Rep. Barney Frank, D-Mass., chairman of the Financial Services panel, said: "I think conditions clearly call for a second stimulus." He's among the Democrats in Congress exploring more economic stimulus efforts to follow up on the $168 billion package, including tax rebates, enacted earlier this year.
Bernanke said it was a too soon to go that route, but he didn't rule out such a course of action.
"On the fiscal stimulus, I believe the one that was done is having some effects, but it is somewhat early to make that judgment, and so, you know, I certainly think that we should consider all options. At the moment, I think it's a bit premature," Bernanke said.
He repeated his call for Congress to take action to shore up the housing market.
When asked about what the government can do to lift the sagging dollar, which has contributed to the rise in both oil prices and inflation, Bernanke replied that getting the economy back to good health would help the currency.
"Market intervention is a policy that's been undertaken a few times. I think it's something that should be done only rarely. But there may be conditions where markets are disorderly, where some temporary action might be justified," Bernanke said. "But I think the dollar in the long term depends really on the fundamentals, and it's up to us to get fundamentals right."

[2Real4me!]

Stocks soar on drop in oil, Wells Fargo report
Wednesday July 16, 5:51 pm ET
By Tim Paradis, AP Business Writer



Dow jumps 276 points as drop in oil prices eases some concern about rising inflation

NEW YORK (AP) -- Wall Street at least temporarily shrugged off some of its many concerns Wednesday and bounded higher thanks to a drop in oil prices. The Dow Jones industrial average rose 276 points, or 2.5 percent, posting its best daily gain in three months.
The broader Standard & Poor's 500 index also gained 2.5 percent, while the technology-dominated Nasdaq composite index surged 3.1 percent. Investors exited government bonds and back into stocks as it appeared that the slowing economy will curtail demand for fuel and, in turn, energy costs.
Light, sweet crude fell $4.14 to settle at $134.60 a barrel on the New York Mercantile Exchange, bringing its two-day decline to $10.58.
In addition to sinking oil prices, investors found relief in a decision by Wells Fargo & Co. to boost its dividend that helped counter some of the market's concerns about the health of banks. The San Francisco-based bank's move to raise its payout, along with its tamer-than-expected profit decline, was seen as a bullish sign for the troubled sector.
Still, the Labor Department's report that consumer prices shot up in June at the second fastest pace in 26 years reminded investors that inflation still poses a threat to economic growth.
And Wall Street remains uncertain about the economy and specifically the financial sector. This week has brought fresh attention to potential trouble spots in the mortgage market. Fannie Mae and Freddie Mac, the government-chartered mortgage financiers, are still a concern, as are regional banks that could have bad mortgage debt on their books.
But, for the moment, investors were pleased by the drop in oil from record levels.
"I think the pullback in oil is significant. The market and the market participants clearly had digested what the impact was going to be if oil prices had stayed at that level," said Dan Genter, president and chief investment officer of RNC Genter in Los Angeles.
The Dow rose 276.74, or 2.52 percent, to 11,239.28. It was the blue-chips' biggest one-day gain since April 1, when the index rose 391 points.
On Tuesday, stocks ended mostly lower on continuing worries about the financial sector; the Dow logged its first close below 11,000 since July 2006.
Broader stock indicators also rose Wednesday after fluctuating in the early going. The S&P 500 index advanced 30.45, or 2.51 percent, to 1,245.36, and the Nasdaq rose 69.14, or 3.12 percent, to 2,284.85.
Advancing issues narrowly outpaced decliners by more than 3 to 1 on the New York Stock Exchange, where consolidated volume came to 6.58 billion shares, down from 7.26 billion on Tuesday.
While Wednesday's advance likely indicates some enthusiasm among investors, it could also reflect simple bargain hunting rather than a great change in conviction. With many quarterly reports due in the coming weeks, many investors remain uncertain about the health of the economy.
Bond prices declined. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 3.94 percent from 3.82 percent late Tuesday.
The dollar was mixed against other major currencies, while gold prices fell.
Oil prices declined after Energy Department figures showed that domestic inventories of crude oil and gasoline rose last week, rather than declining as analysts had expected.
"I think what you're seeing is people are feeling more confident that civilization as we know it is not going to cease to exist and that we're going to make a landing here," Genter said of the decline in oil. "The negative is there is not much of a catalyst here to really pick us up and get us back in the air."
The Labor Department's report that its Consumer Price Index rose 1.1 percent in June came after economists had expected a gain of 0.8 percent. Two-thirds of the increase is linked to surging energy prices. The core reading, which excludes often volatile food and energy costs, ticked up 0.3 percent.
Wall Street has been concerned in recent months that rising prices for necessities like food and fuel would force investors to curb their spending in other areas. A pullback is a disturbing prospect for investors as consumer spending accounts for more than two-thirds of U.S. economic activity. In addition, rising prices could lead the Federal Reserve to raise interest rates, a move that risks derailing economic growth by making access to capital more expensive.
Beyond the inflation reading, which follows a report Tuesday that showed a 1.8 percent increase in wholesale prices for June, investors examined a Fed report that industrial production rose 0.5 percent in June after declining 0.2 percent in May. The increase was the highest since a 0.6 percent gain in July of last year.
Minutes from the last month's meeting of the Federal Open Market Committee, the arm of the Fed that sets interest rates, indicated that policymakers believed that the next move on rates would be an increase. The Fed in June broke a string of reductions by leaving rates unchanged at its last meeting, a recognition that lower rates had weighed on the dollar and led to increases in commodities such as oil and food.
But given the big developments in the financial system over the past several days, the minutes were largely regarded by the market as old news.
It was a huge day for sectors such as financials and airlines that have seen massive sell-offs recently.
Wells Fargo & Co. said its second-quarter earnings fell 22 percent as more customers at the nation's fifth-largest bank failed to repay loans. But the company's results beat Wall Street expectations, and investors were pleased by Wells Fargo's decision to raise its quarterly dividend to 34 cents from 31 cents. Wells Fargo rose $6.72, or 32.8 percent, to $27.23.
Delta Air Lines Inc. rose $1.24, or 26.6 percent, to $5.91 after reporting that high fuel prices led to a hefty second-quarter loss despite a strong increase in sales. The results topped Wall Street estimates, however, which excluded one-time items.
The Russell 2000 index of smaller companies rose 24.40, or 3.68 percent, to 686.75.
Overseas, Japan's Nikkei stock average rose 0.05 percent. Britain's FTSE 100 fell 0.60 percent, Germany's DAX index rose 1.21 percent, and France's CAC-40 rose 1.26 percent.

[2Real4me!]

You probably heard today that Merril Lynch soldandLeihman brothershave declared chapter 11 bankruptcy and other banks maybe shutting down this week. I got inside news from some bankers last week. We will be hearing about more companies and banks in trouble also real estate will take more of a plunge as well.




Top Economist: Americans Should Worry About Bank Deposits if Congress Doesn't ActPosted Sep 15, 2008 12:58pm EDT by Aaron Task in Investing, Recession, Banking
Related: LEH, MER, BAC, AIG, WM, ^DJI, ^GSPC


Updated from 12:58 p.m. EDT

With the "financial storm of the century" hitting financial institutions, many Americans are worried about the safety of their bank deposits. While the FDIC insures individual accounts up to $100,000, the reaction to IndyMac's failure this summer -- lines outside retail branches -- shows Americans have limited faith in the Federal Deposit Insurance Corp., which guarantees individual accounts up to $100,000.

Update: "The banking system is safe and sound," Treasury Secretary Hank Paulson declared at a mid-afternoon press conference Monday, seeking to ameliorate such concerns.

"Nothing is more important than the stability and orderliness of our financial markets [and] regulators remain vigilant," Paulson continued. "We're working through a difficult period in our financial markets right now as we work of some of the past excesses, but the American people can remain confident in the soundness and resilience of our financial system."

But Americans are justified to be worried, says Nouriel Roubini, of NYU's Stern School and RGE Monitor, who notes there is already a "slow-motion run on retail banks" occurring nationwide.

That "run" could accelerate as people realize the FDIC fund has about $50 billion to "insure" about $1 trillion in assets at the nation's financial institutions, says Roubini. "They're going to run out of money" unless Congress acts soon to recapitalize the FDIC.

In addition, the recent spike in number of banks on the FDIC's "troubled list" is only through June, meaning even that inflated number understates the problem.

The intent here isn't to add to people's anxieties, but Roubini is one of the few market watchers to correctly predict the severity of this ongoing credit crisis. If nothing else, he says people with accounts exceeding $100,000 in value should spread their money - and the risk - among different firms