Fed Cuts Key Interest Rate 75 Basis Points to 2.25 The Federal Reserve slashed a key U.S. interest rate by three-quarters of a percentage point Tuesday, a substantial cut but smaller than many in financial markets had expected, as part of an effort to hold off a deep recession and financial meltdown. The Fed's action takes the bellwether federal funds rate to 2.25 percent, the lowest since February 2005, and comes two days after the central bank announced the latest in a series of emergency measures to stem a fast-spreading global financial crisis. Many in financial markets had expected the Fed to chop the overnight rate by a full point.
Bernanke Confounds Rate-Cut Calls, Avoids Rattling Investors Federal Reserve Chairman Ben S. Bernanke bucked investors' bets on a deeper interest-rate cut without spoiling the biggest U.S. stock-market rally in five years. Policy makers yesterday lowered their benchmark rate by 0.75 percentage point, falling short of traders' bets for at least a full percentage point. The Federal Open Market Committee, in its announcement, left the door open for further reductions. At the same time, it restored language saying inflation has picked up. "The Fed still has its primary focus on growth and the threat to growth from markets,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. "This is still a huge move,'' given that Alan Greenspan, Bernanke's predecessor, never lowered rates more than a half-point at a single meeting, O'Sullivan said.
Monster Rally Fools No One The second epic short-squeeze in a little more than a week has sent bears a clear message: If you want to get rich betting on the sure thing, you had better be prepared to die trying. The Dow Industrials popped for a 420-point gain yesterday, driven as always by hysterical short-covering. Compounding the bears’ shock and awe was the fact that the catalyst for this latest rally was a news announcement that should have disappointed investors. A 100-basis-point easing had been all but ordained by the bond markets, but the actual cut came in at 75 basis points. Rather than plunging in despair, however, stocks sold off only moderately in the gratuitous gyrations that followed. Bears need only have looked in a mirror to see what was holding stocks up. Big Federal Bailout of Housing Gains Momentum The expression "We're from the government, we're here to help" may come back in vogue as global markets continue to feel the impact of the U.S. housing market slump. The fallout from the housing market claimed the 85 year old U.S. investment bank Bear Stearns & Co and its 14,000 employees as its latest victims on Sunday, and is threatening to rock markets even more, and drag the faltering U.S. economy into a recession.
Dollar Falls on Speculation Housing Slump to Swell Bank Losses The dollar fell against the euro, erasing most of yesterday's gains, on speculation the worst U.S. housing slump in a quarter of a century will swell credit-market losses. The currency weakened against the Japanese yen and the Swiss franc after Bank of America Corp. predicted the Federal Reserve will lower its target rate by another 75 basis points this year following a reduction to 2.25 percent yesterday. Reports this week on U.S. mortgage demand and manufacturing will probably show the economy is slowing.
Fannie Mae And Freddie Mac Get New Rules Fannie Mae (FNM) and Freddie Mac (FRE) are about to get less strict capital rules and that should put $200 billion into the mortgage market. According to Reuters "Under the agreed-to plan, the two companies will be permitted to use some of their capital reserves to soak up mortgage assets while pledging to raise equity capital -- probably in the form of preferred stock -- in the near future."
Porsche, Sprint Unsettle Banks With Rush for Credit Citigroup Inc., JPMorgan Chase & Co. and the rest of the banking industry face a new drain on their capital. Borrowers from Sprint Nextel Corp. to Porsche Automobil Holding SE to MGIC Investment Corp. are drawing on credit lines. JPMorgan analysts say it's the start of a trend that may force banks to raise as much as $40 billion to keep an adequate cushion against potential losses. Companies are scrambling for cash at one of the worst times for the financial services industry. The world's biggest firms have taken $195 billion in writedowns and losses on securities tied to subprime mortgages, and the 10 biggest U.S. banks have the lowest capital levels in at least 17 years, according to Credit Suisse Group. The tapping of credit lines may be enough to grind new lending to a halt, said David Goldman, a senior portfolio strategist at London-based hedge fund Asteri Capital
Calculating an End to the Credit Crisis How long will the credit crisis last and how bad will it get? Experts say the turmoil will extend at least through the end of the year and could cost financial institutions up to $600 billion in losses, leading perhaps to a 10 percent shrinkage in their assets. The exact answer to the question depends on how severely the meltdown spreads beyond subprime mortgage securities to other areas of the credit markets.
Chukotka to strike gold With temperatures falling to minus 40 degrees Centigrade in winter, Chukotka in Russia’s north east is not an easy place to live. Still, although weather conditions are tough, the land is rich in gold and coal. The region has been showing stable growth over the last few years and it seems the trend is set to continue. Regarding gold deposits, Chukotka is one of Russia's richest regions, with extraction expected to reach 30 tonnes per year by 2020.
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