Hill Budget Chief Weighs Odds, Cost Of Rescue Plan Fannie, Freddie Could Need $100 Billion or Not a Cent The Bush administration's plan to prop up troubled mortgage-finance giants Fannie Mae and Freddie Mac is likely to cost taxpayers less than $25 billion, Capitol Hill's chief budget analyst said yesterday. But there is an outside chance that a further collapse in the housing market could require an infusion of $100 billion or more. In a letter to lawmakers, Peter R. Orszag, director of the Congressional Budget Office, also said there is "a significant chance -- probably better than 50 percent" -- that federal officials would never have to use the authority to lend the firms money or buy their stock. "There is significant uncertainty involved here," Orszag told reporters. The cost "could be zero. It could be $100 billion."
Oil & the Gold-Oil Ratio (GOR) We have finally gotten our break in oil. That is a major fundamental relief because with manic oil bulls stampeding, congress and the administration fretting (and plotting hair brained solutions) and the Fed stuck in a box made with walls of Greenspan's easy money policy (inflation) and the effects of that policy (escalated prices), all of us - from the average guy going paycheck to paycheck to precious metals investors - were being held in suspended animation. The Fed is not simply pretending to be concerned about inflation in this scenario, they ARE concerned because a price explosion like that of oil - and especially the one likely in gold at a later date - threatens to discredit the institution for all to see as they pray to the munny gods for the ability to ease policy while at the same time some moonshot asset class slaps them upside the head day after day.
Oil bounces back after dropping a day earlier Oil rises above $125 a barrel after steep fall in previous session on worries over US demand Oil prices rose Thursday after shedding nearly $4 a barrel in the previous day's session on concerns that high fuel prices are dampening demand in the world's biggest energy consuming country. By the afternoon in Europe, light, sweet crude for September delivery was up $1.16 at $125.60 a barrel in electronic trading on the New York Mercantile Exchange. The contract on Wednesday dropped $3.98 to settle at $124.44 a barrel, crude's lowest finish in floor trade since June 4. A weekly report by the U.S. Energy Department's Energy Information Administration showed that gasoline demand over the four weeks ended July 18 was 2.4 percent lower than a year earlier -- offering further evidence that Americans are cutting back on fuel.
Oil Survey Says Arctic Has Riches The Arctic may contain as much as a fifth of the world’s yet to-be-discovered oil and natural gas reserves, the United States Geological Survey said Wednesday as it unveiled the largest-ever survey of petroleum resources north of the Arctic Circle. Oil companies have long suspected that the Arctic contained substantial energy resources, and have been spending billions recently to get their hands on tracts for exploration. As melting ice caps have opened up prospects that were once considered too harsh to explore, a race has begun among Arctic nations, including the United States, Russia, and Canada, for control of these resources.
Gold Falls as Dropping Energy Costs Cut Inflation-Hedge Demand Gold fell the most in six weeks as slumping energy costs and a stronger dollar cut demand for the metal as a hedge against inflation. Silver also declined. Crude-oil futures traded as low as $124.34 a barrel, a 16 percent decline from a record reached on July 11. The dollar rose for a second straight session to a two-week high against the euro. Before today, oil jumped 69 percent in the past year while gold climbed 39 percent. The metal reached a record $1,033.90 an ounce on March 17. "Investors are selling gold against the crude,'' said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. "You've taken away the oil-inflation premium. We're ultimately blaming the short-term moves on oil because it's impacting everything.''
Wall Street Shrinks From Competing With Fannie Mae, Freddie Mac Bobby Joe Cooper says she "kicks herself every day'' for not using a Fannie Mae or Freddie Mac mortgage when she refinanced her Terre Haute, Indiana, home three years ago. Instead, the 29-year-old mother of three borrowed $55,000 at 5 percent, a point lower than a so-called conforming loan guaranteed by the nation's two biggest mortgage-finance companies. Cooper, the manager of Courtesy Cleaning Center on the city's south side, said she didn't understand it was a subprime mortgage, reserved for borrowers with poor credit histories, and that its rate would triple within two years
No Bottom Yet for Failing Financials In recent months, even the most blindly optimistic forecasters have come to grips with how our banks and investment banks took wildly imprudent risks that will result in horrific losses. The resulting sell-off in financial shares has tempted many investors to scoop up these companies at apparently fire sale prices. Wise investors should resist the temptation, as the pain for financials is just getting started. Although voices of prudence were dismissed at the time, these banks’ risks were leveraged largely through “off-balance sheet” mechanisms that generated massive financial rewards for the financials while keeping the losses supposedly at arm’s length. The resulting windfall yielded $26 billion in bonuses for Wall Street in 2007. The tolerance for the risks and leverage was based upon the widespread belief that real estate prices were set to rise without correction. We now know that this was a fairy tale.
Bush the Bartender Sure, Wall Street was drunk. But who does he think served the drinks? "Wall Street got drunk," President Bush told a group of Republicans last week, unaware that his comments were being recorded. "It got drunk, and now it's got a hangover. The question is, how long will it sober up and not try to do all these fancy financial instruments?" He's right about Wall Street. Speaking candidly, Bush pointed the finger at the now struggling financial giants that fueled the mortgage crisis with risky products that generated huge profits. But Bush neglected to add that he was behind the bar, pouring the tequila shots for most of the night, and refusing to cut off the drunks long before they'd reached their limits. And this morning, Bush offered up a hangover cure for the capital markets by throwing his support behind a federal housing package that would prop up Fannie Mae and Freddie Mac at the expense of taxpayers. The dollar's secret weapon: Intervention The global foreign exchange market has grown to be a $3.2 trillion-a-day behemoth, but one maxim still holds true: Ignore concerted central bank intervention at your peril. An international move to support a currency - in this case the dollar - may not be imminent, but traders are probably on their highest alert because monetary authorities in the United States, the euro zone and Japan rallied to the euro's defense in September 2000. As the euro rose to a record high of $1.6038 last week and threatened a new round of increases in food and fuel price, calls grew for action to strengthen the dollar. The Federal Reserve chairman, Ben Bernanke, left the door open to such a move, if needed. And even though the amount of foreign currency reserves the Group of 7 central banks have at their disposal is tiny relative to foreign-exchange market volumes, analysts insist that coordinated intervention remains a potent weapon for policy makers.
Fed report says U.S. economy continued to slow Americans are cutting back on everything from cars to food to name-brand products, the Federal Reserve said on Wednesday, in another sign that the economy could slow significantly as money from the federal stimulus checks dries up. The Fed's beige book report for June and July, considered a snapshot of the economy, highlighted fears that economic growth will stagnate as Americans cut back in the face of a weak job market and higher gasoline prices. Consumer spending accounts for more than two-thirds of the nation's total growth. Prices are also rising, particularly for fuel and food, even as wages stay steady. And while some businesses said they had not raised prices for fear of losing customers, there were signs that inflation continues to bubble.
FDIC head says more banks skirting failure 90 listed in trouble during first quarter The chairwoman of the Federal Deposit Insurance Corp. said Tuesday more banks are in danger of failing and that the government agency expects to raise premiums to restore its reserve fund after paying out billions of dollars to depositors at IndyMac Bank. In an appearance in San Francisco, Sheila Bair sought to reassure consumers that up to $100,000 they have in a bank, failed or not, is protected by a program that's been in place since the bank failures of the late 1920s. For certain retirement accounts, deposits of up to $250,000 are covered. Bair said in an interview that she expects turbulence in the banking industry to continue well into next year, and more banks to appear on the FDIC's count of troubled institutions.
Fed Says All District Banks Report 'Price Pressures' The Federal Reserve said all 12 of its regional bank districts reported "elevated or increasing'' price pressures during June and July amid slower economic growth. Five of the districts indicated "a weakening or softening'' in their economies, and consumer spending was "sluggish or slowing'' in every region, the central bank said today in its economic survey, known as the Beige Book for the color of its cover. The survey reinforced testimony by Fed Chairman Ben S. Bernanke to lawmakers this month indicating that risks to both growth and inflation are increasing. Central bank policy makers differ over whether to increase the benchmark interest rate or leave it unchanged.
Paulson's failure will end Wall Street's dominance in American politics misguided and misinformed policies take its toll Treasury Secretary Henry Paulson has created disaster for the American economy. The Wall Street trader just did not understand the precarious condition of the housing and mortgage market. Now he is upbeat with his faulty policies and lack of basic understanding the dynamics of the economy. He predicted the Bush administration would prevail in its effort to convince Congress to pass legislation that would allow the government to rescue Fannie Mae and Freddie Mac. "I'm very optimistic that we're going to get what we need from Congress,'' Paulson said on the CBS News "Face the Nation'' program. "Congress understands how important these institutions are.'' Paulson is pushing Congress to authorize the Treasury to purchase equity stakes in Fannie Mae and Freddie Mac, which account for about half of the $12 trillion mortgage market, and expand government-backed credit lines to them.
Bank investors redefine bad news Can the bad news for banks get any worse? After the last week brought another round of woeful quarterly results from the industry, capped by news on Tuesday of multibillion-dollar losses at the Wachovia Corporation and Washington Mutual, that question is nagging banking executives and their investors. Kenneth Lewis, the chief executive of Bank of America, insisted this week that the industry was turning the corner, after his company reported a mere 41 percent drop in profit. Many investors seem to see signs of hope in red ink that once would have shocked them. But it has now been a year since the credit crisis erupted, and, so far, the optimists have been proven wrong time and again. Skeptics say it could take years for banks to recover from the worst financial crisis since the Depression. And even when things do improve, the pessimists maintain, banks' profits will be a fraction of what they were before.
Fannie Mae Unsold $5 Billion Homes Bring Peril to Shareholders Fannie Mae, the largest U.S. mortgage finance company, couldn't find a buyer who would pay $6,900 for the three-bedroom house at 1916 Prospect St. in Flint, Michigan. So broker Raymond Megie, who is handling the foreclosure sale, advised cutting the price to $5,000. Megie still couldn't sell it. "There's oversupply,'' he said. The home sold in 2005 for $110,000. Fannie Mae acquired twice as many homes through foreclosure in the first quarter as it sold, regulatory filings show. Unsold properties may weigh on the company's stock, which lost almost half its value since June 5, said Moshe Orenbuch, managing director of equity research at Credit Suisse Group AG in New York. Late payments on the company's home loans, a harbinger of foreclosures, almost doubled in the past year.
San Diego sues Bank of America to halt foreclosures San Diego's city attorney said on Wednesday he filed a lawsuit against Bank of America Corp and its Countrywide unit to prevent the mortgage lenders from foreclosing on homes in the city, which he aims to make a "foreclosure sanctuary." City Attorney Michael Aguirre plans to file similar lawsuits against Washington Mutual Inc, Wells Fargo & Co and Wachovia Corp in an effort to make the lenders negotiate with mortgage borrowers facing foreclosure. "We would like to see San Diego become a foreclosure sanctuary," Aguirre said. Housing markets across Southern California, including the city of San Diego and the county of the same name, are seeing steep increases in foreclosure rates because so many homes bought there earlier this decade involved subprime mortgages and other types of risky loans
Minimum wage going up, little help as costs soar About 2 million Americans get a raise Thursday as the federal minimum wage rises 70 cents. The bad news: Higher gas and food prices are swallowing it up, and some small businesses will pass the cost of the wage hike to consumers. The increase, from $5.85 to $6.55 per hour, is the second of three annual increases required by a 2007 law. Next year's boost will bring the federal minimum to $7.25 an hour. Workers like Walter Jasper, who earns minimum wage at a car wash in Nashville, Tenn., are happy to take the raise, but will still struggle with the higher gas and food prices hammering Americans. "It will help out a little," said Jasper, who with his fiancee support a family of seven, and who earns the minimum plus commissions when customers order premium car-wash services.
Slower growth, rising prices slam economy The country slogged through slower economic growth and rising prices during the summer, packing a double whammy to people and businesses alike. The Fed's new snapshot of business conditions, released Wednesday, also underscored the challenges confronting Federal Reserve Chairman Ben Bernanke and his colleagues as they try to get the economy back on track. For now, many economists predict the Fed will probably leave a key interest rate alone when it meets next on Aug. 5 - given all the economic crosscurrents. Boosting rates to fend off inflation would hurt the fragile economy and the already crippled housing market. On the other hand, the Fed isn't inclined to lower rates because that would aggravate inflation. The report "supports our notion that the Fed is firmly stuck on the horns" of a policy dilemma, said T.J. Marta, a fixed-income strategist at RBC Capital Markets. Growth and inflation barometers turned worse in the summer, according to the Fed report. Some worry that the country may be headed for a bout of stagflation, that toxic combination of stagnant growth and stubborn inflation not seen in decades.
Builders Sue Banks That Pull Financing$$ As Construction Projects Lie Unfinished The love affair between banks and builders during the housing boom has deteriorated into a series of divorces now spilling into the courts.As lenders rush to curtail their real-estate exposure and preserve sorely needed capital, they are triggering lawsuits from builders that say the banks have unfairly cut off their construction financing, stopped their projects midstream and forced their companies to the brink of bankruptcy. "Lender-liability lawsuits are coming. It's only just beginning," says Michael Hackard, a lawyer in Sacramento, Calif., who focuses on real-estate law. "There are going to be builders who argue that the lender forced me into insolvency by not acting in good faith."
The next oil shock: a stunning plunge in prices? Oil prices amazed nearly everyone with how high they went. Could the next shock be how low they’ll soon go? Crude futures in New York fell today for the sixth time in seven sessions, losing $3.51 to $124.44 a barrel, the lowest closing price since June 4. The government’s report of a larger-than-expected weekly rise in gasoline inventories helped spark the sell-off. Later, the Federal Reserve’s report on regional economic trends indicated the pace of activity had "slowed somewhat since the last report" on June 11. And that last report wasn’t exactly brimming with optimism. Oil is down 14.4% from its record closing high of $145.29 on July 3. But given how many times traders and analysts were wrong in calling the peak over the last year -- $90, $100, $120, $130 -- there’s a natural reluctance to believe this time it’s for real. "We’ve see this movie before," said John Kilduff, senior vice president of risk management at trading firm MF Global Inc. in New York. Still, he said, "Things are a little different this time because of the economy."
SemGroup Fall May Be Tied to Oil Drop$$ The collapse this week of SemGroup LP, a little known private oil-marketing firm, may have played a role in crude oil's 14% drop over the past 10 days. The Tulsa, Okla., company filed for Chapter 11 bankruptcy protection Tuesday, citing among other financial woes a loss of at least $2.4 billion in crude-oil futures. Changes in its hedging strategies coincided with big moves in oil recently. The company had taken out short positions, or bets that crude prices would fall, as a hedging strategy for oil it intended to move through a subsidiary's pipelines and sell to refiners, according to an affidavit filed in Delaware bankruptcy court by Terrence Ronan, SemGroup's senior vice president, finance. Then, when oil prices rose, SemGroup moved to "cover" its short positions by taking out equivalent long positions, or bets that oil prices would rise.
Treasurys extend losses as investors move back into stocks, react to auctions Treasury prices fell for a second straight session Wednesday as investors grew increasingly optimistic about the ability of banks and brokerages to weather the credit crisis. The drop in Treasurys came as the government sold $31 billion of two-year notes Wednesday afternoon in an auction met with relatively tepid demand, said Jay Mueller, an economist at Well's Capital Management. "I think that shows that people are somewhat leery of short maturities, which have been pretty soft over the last week," Mueller said. The Treasury Department will issue about $21 billion of five-year notes on Thursday. The auctions increase the amount of debt, and the increase in supply tends to send prices lower.
Woes Afflicting Mortgage Giants Raise Loan Rates Mortgage rates are rising because of the troubles at the loan finance giants Fannie Mae and Freddie Mac, threatening to deal another blow to the faltering housing market. Even as policy makers rushed to support the two companies, home loan rates approached their highest levels in five years. The average interest rate for 30-year fixed-rate mortgages rose to 6.71 percent on Tuesday, from 6.44 percent on Friday, according to HSH Associates, a publisher of consumer rates. The average rate for so-called jumbo loans, which cannot be sold to Fannie Mae and Freddie Mac, was 7.8 percent, the highest since December 2000.
Most foreclosures in at least 20 years Foreclosures across the state jumped to their highest levels in at least 20 years over the past three months as tens of thousands of Californians lost their homes and more than 100,000 neared the brink. Notices of default, the first step in foreclosure proceedings, rose nearly 125 percent from a year ago during the second quarter, and trustee deeds recorded, which reflect the actual homes repossessed, soared more than 260 percent, according to research firm DataQuick Information Systems. The number of defaults and foreclosures was the highest ever noted in company records, which go back to 1992 and 1988 for those categories, respectively. There were 63,061 foreclosures statewide during the second three months of the year compared to 17,458 during the same period a year ago.
Chrysler plans to cut 1,000 salaried jobs Chrysler LLC said Wednesday it will cut 1,000 salaried jobs worldwide by Sept. 30 as it tries to return to profitability amid a severe downturn in U.S. sales. The automaker announced the cuts in a letter to employees. Chrysler spokesman David Elshoff said the company hopes most of the cuts will be accomplished through early retirements, attrition and voluntary separation programs, but he said involuntary layoffs will be considered if the company fails to meet its targets.
United cuts; shares run Airline to cut 7,000 workers; falling oil prices bolster stock value United Airlines will cut more flights and lay off 7,000 workers by the end of next year amid record fuel prices, parent company UAL Corp. said Tuesday. UAL lost $2.7 billion during the second quarter, much of it related directly or indirectly to the impact of high fuel costs, the company's largest operating expense. Fuel costs are hitting all of the nation's airlines, including Denver-based Frontier, which is in bankruptcy protection. Oil prices fell again Tuesday, closing at the lowest level since June 5, delivering some relief to airlines.
Office vacancies on the rise Real-estate woes spread to commercial market Look for lots of vacant office space in Scottsdale in the months ahead as the downturn in the housing and related sectors works its way through the Valley commercial real-estate market. In the second quarter, metropolitan Phoenix experienced a negative absorption of office space for the first time in 20 years, according to a CB Richard Ellis market report released last week. That means that instead of tenants filling more new office space, the market actually had less space occupied. In this case, the negative absorption was 171,278 square feet. Office vacancies hit 16.3 percent in the quarter ending June 30, up from 13 percent a year ago. Scottsdale's overall vacancy rate was 17.7 percent.
Inflation in Canada speeds past expectations Canada's annual inflation rate sped past expectations to 3.1 percent in June from 2.2 percent in May after the biggest yearly surge in gasoline prices since Hurricane Katrina, the country's statistics office said on Wednesday. June marked the first time since September 2005 that inflation rose past the central bank's target range of 1-3 percent. The Canadian dollar rose slightly after the report. But the Bank of Canada, which last week forecast inflation would peak at 4.3 percent early next year, has signaled it will not try to curb the rampant price growth through interest rate increases because it expects the underlying price trends to stay in check.
Banking Web sites, corporate computers are insecure A new study about security problems with financial Web sites may have you thinking twice about doing online banking. And a separate study found widespread security problems in corporate computers across numerous industries. More than 75 percent of the Web sites of more than 200 financial institutions were found to have at least one design flaw that could put customer data at risk, according to a study released this week from the University of Michigan. Atul Prakash, a professor in the university's Department of Electrical Engineering and Computer Science, and two doctoral students examined the Web sites of 214 financial institutions in 2006. They found that every single one of them, including sites from some of the largest banks, had at least one flaw that can't be fixed with a software patch, like many vulnerabilities and bugs can. The flaws stemmed from the flow and the layout of the sites. For example, nearly half of the banks were found to have placed secure login boxes on insecure pages, putting customers at risk of hitting spoofed pages
THE SAD ROAD TO SOCIALISM What happens When Private Property is No Longer a Right "But if the government undertakes to control and to raise wages, and cannot do it; if the government undertakes to care for all who may be in want, and cannot do it; if the government undertakes to support all unemployed workers, and cannot do it; if the government undertakes to lend interest-free money to all borrowers, and cannot do it; if .... 'The state considers that its purpose is to enlighten, to develop, to enlarge, to strengthen, to spiritualize, and to sanctify the soul of the people’ -- and if the government cannot do all of these things, what then? Is it not certain that after every government failure -- which, alas! is more than probable -- there will be an equally inevitable revolution?” -Frederic Bastiat, "The Law,” June, 1850 It's been more than 150 years since Frederic Bastiat wrote his treatise, The Law, a small work, challenging the ravages of failing socialism thrust upon France as a result of the French revolution. In that unique pamphlet, Bastiat points out that when the law of any country supports the moral belief systems of a people, defends the rights of said people and their property, the law is perceived as being moral; a defense against evil and those who flaunt it as being immoral. Payment of taxes and civic obligations are perceived as a virtue and those who flout this as criminals. However, when the law becomes a source of plunder or pits itself in opposition to the morals of the people, the people perceive the law to be immoral and widely despise it. Indeed, in those times, flouting the law is extolled as virtue.
- - - - - - - - - - - - - - - - Archived Page Link
- - - - - - - - - - - - - - - -
RSS
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/quotes_7a.gif)