Oil, Gold, Crops Drop as Stronger Dollar Cuts Commodity Demand Crude oil, precious metals and crops fell as a stronger U.S. dollar limited the appeal of commodities as a hedge against inflation. Oil dropped for a second day, capping a 15 percent slide from a record $147.27 a barrel on July 11, as the dollar strengthened and gasoline demand fell. Gold traded close to its lowest in a week and corn neared a two-month low as expectations of higher interest rates supported the U.S. currency. "Oil and some other commodities are down on the back of the dollar,'' said Mike Wittner, head of oil research at Societe Generale in London. "Also, general pessimism about the economy has caused the market to refocus on the demand outlook.''
Bush Drops Opposition to Housing Bill President Bush dropped his opposition Wednesday to legislation aiming to calm the chaotic housing market despite his objections to a $3.9 billion provision. The House was expected to vote on the bill Wednesday, and it could become law as early as this week. Under the bill, the government would help struggling homeowners get new, cheaper loans and would be allowed to offer troubled mortgage giants Fannie Mae and Freddie Mac a cash infusion. The Bush administration and lawmakers in both parties teamed to negotiate the measure, which pairs Democrats' top priorities -- federal help for homeowners facing foreclosure and $3.9 billion for neighborhoods hit hardest by the housing crisis -- with Republicans' goal of reining in mortgage giants Fannie Mae and Freddie Mac while reassuring financial markets of their stability.
The Real Reason the Federal Reserve Can't Raise Interest Rates Given that the U.S. Federal Reserve is the master of "Three-Card Monte," can you tell what’s in the cards for short-term interest rates? Three-Card Monte is a confidence game in which manipulation and misdirection are employed as the “mark” tries to guess where the "money card" is among the three facedown choices. The Federal Reserve's job is to masterfully manipulate the public's perception of where interest rates are headed. And it runs this larger-than-life game with three specific face cards:
Inflation.
The U.S. dollar.
And the actual "money card," which is interest rates.
For the Fed, the end game is public confidence itself. The central bank actually intended to gain and keep our confidence in its ability to stem inflation and strengthen the greenback. And it pursues these two objectives by simultaneously managing the direction of interest rates and working to keep the economy from dropping into a recession, or worse, a depression.
Congressman Ron Paul talks about Bernanke's Testimony on Wednesday (takes a while to load but well worth the wait)
Paulson Eyes Sickly Hedge Funds The U.S. government can't really regulate living hedge funds, but it's looking at a way to oversee dying ones. On Tuesday, Treasury Secretary Hank Paulson said that in cases of insolvency, he wanted "additional powers to manage the resolution, or wind-down, of large nondepository financial institutions, such as larger hedge funds, so as to limit the impact of a failure on the broader financial system." Paulson has previously raised the idea that the Federal Reserve should have expanded surveillance powers over hedge funds, among other kinds of financial institutions, "to access necessary information from complex financial institutions" and "the tools to intervene to mitigate systemic risk in advance of a crisis."
Paulson & Co. Plans Fund to Provide Capital to Banks John Paulson, the money manager whose wagers against the U.S. housing market helped him earn an estimated $3.7 billion last year, is starting a hedge fund to provide capital to financial firms hurt by mortgage writedowns. The fund may open by December, according to two people with knowledge of the matter. New York-based Paulson & Co., which oversees $33 billion, hasn't set a fund-raising target, said the people, who declined to be identified because the plans aren't complete.
Oil extends decline as supply worries ebb Oil prices fall further on easing supply concerns as hurricane appears to spare Gulf rigs Oil prices slipped further Wednesday after tumbling more than $3 a barrel in the previous day's session as a hurricane looked likely to spare key oil installations in the U.S. Gulf of Mexico. Feeding bearish sentiment were expectations that U.S. oil supply data to be released later in the day would show a rise in gasoline stocks amid weakening demand in the world's largest energy consumer.
Congress Pursues $80 Oil With Trading Limits, Disclosure Rules Congress may outlaw elements of oil futures trading that lawmakers found distorted demand and contributed to the 69 percent surge in prices in the past year. U.S. legislators are considering limits on the number of oil contracts an investor can hold and may increase disclosure requirements. Speculators such as Goldman Sachs Group Inc. use the practices to bet on price swings, which may drive up prices, though they have no intention of taking delivery of underlying goods, lawmakers say.
Wachovia mortgage unit halting loans via brokers Wachovia Corp, the fourth-largest U.S. bank, on Monday said its main mortgage unit will stop offering home loans through brokers this week, joining a growing number of lenders to curb wholesale lending. "We thought it was important to focus on customers who have relationships with the bank, and in geographies where Wachovia has branches," spokesman Don Vecchiarello said. "Based on that, we've decided to discontinue doing business through our wholesale mortgage channel as of July 25." WaMu's Big Credit Cushion Brings Huge Loss Washington Mutual on late Tuesday posted a wider-than-expected quarterly loss due to a significant boost to its loan loss provision, as the bank said it expects as much as $19 billion in mortgage-related losses. The Seattle-based bank recorded a loss of $3.3 billion, or $6.58 a share. Excluding a previously disclosed EPS reduction of $3.24 a share related to the company's June conversion of preferred stock, WaMu's second quarter earnings loss was $3.34 a share. Analysts estimated the thrift would post a loss of $1.05 a share.
Wachovia posts $US8.9b loss Wachovia Corp. chief executive Robert Steel plans to cut $US2 billion of expenses by the end of next year and sell parts of the fourth-biggest US bank after posting a record quarterly loss, slashing the dividend 87% and eliminating 6350 jobs. Wachovia rose as much as 13% in New York trading on optimism that Steel, the US Treasury official hired two weeks ago, can stem damage from the worst housing market since the Great Depression. The Charlotte, North Carolina-based company posted a second-quarter loss of $US8.9 billion, or $US4.20 a share, more than it has ever earned in an entire year.Bank of America's Scheme to Stiff Countrywide Bondholder.
Bank of America's Scheme to Stiff Countrywide Bondholders A reader provided a link to a post by Institutional Risk Analytics, which in turn cites a merger filing by Bank of America with respect to its plan to acquire Countrywide. The document details what can only be called a scheme by which Bank of America intends to acquire Countrywide (specifically, the FDIC insured entity) but leave the debt behind. Now I am not a bankruptcy expert, nor am I current on the state of the art in M&A, but the intent of this deal flies in the face of a fundamental precept of well established practice. A huge no no is what is called fraudulent conveyance, and this deal is a clear, flagrant effort to do precisely that.
Japan's Inflation Rate Probably Accelerated to 10-Year High Japan's consumer prices probably rose at the fastest pace in a decade, discouraging households from spending and slowing economic growth. Core prices, which exclude fruit, fish and vegetables, climbed 1.9 percent in June from a year earlier after rising 1.5 percent in May, according to the median estimate of economists surveyed by Bloomberg ahead of figures to be released July 25.
U.S. Lawmakers Reach Deal on Fannie, Freddie Bill U.S. lawmakers reached agreement on a rescue plan forFannie Mae and Freddie Mac that the House may vote on tomorrow, Representative Barney Frank said. Under a modified version of proposals made by the Bush administration, the Treasury Department would gain authority to inject capital into the two largest U.S. mortgage finance companies, through loans and equity investments.
WaMu Shows Paulson Mortgage Rescue Plan Is Perilous Treasury Secretary Henry Paulson's plan to revive U.S. mortgage financing depends on investors buying the same kind of bonds they're shunning in Europe. Paulson wants to create a version of Europe's market for covered bonds in the U.S. just as sales of the debt have fallen to a six-month low and prices have dropped 2.5 percent this year. While the securities are backed by loans and bank assets to get AAA ratings, most are valued, on average, as if they were three levels lower.
Bush says Wall Street 'got drunk' President George W. Bush said Wall Street had “got drunk” and was experiencing a hangover at a recent closed-door fundraiser in Houston in which he also made light of the US housing crisis. In a video recording that emerged on Tuesday, Mr Bush questioned how long Wall Street banks would remain sober and “not try to do all these fancy financial instruments”. The recording, obtained by an ABC outlet in Houston and filmed even after the president apparently asked for cameras to be turned off, represents the first time Mr Bush has fallen victim to a “YouTube moment”. Politicians on the campaign trail have been forced to watch their every word since the 2006 congressional elections, when a video showing George Allen, the former Virginia senator, using a racial slur became a YouTube phenomenon, ending the Republican’s senate career and his presidential ambitions.
Oil tumbles below $127 a barrel Oil prices tumbled by more than $5 a barrel on Tuesday, resuming their retreat as Monday’s rebound proved only a temporary reprieve after last week’s sharp correction. The US Senate is to consider proposals to curb excessive speculation in oil markets after a Democratic-backed bill received procedural approval yesterday for debate. Meanwhile, T. Boone Pickens, the billionaire oil investor, warned oil prices would reach $300 a barrel in 10 years if the US failed to re-duce its dependence on imports.
Problems at loan giants push mortgage rates higher in the U.S. 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.
U.S. home prices plunge U.S. home prices fell 4.8 percent in May from a year earlier, according to the Office of Federal Housing Enterprise Oversight, as banks restricted lending in the second year of a worldwide credit crunch. The monthly house price index is down 4.9 percent from its peak in April 2007, Washington-based Ofheo said Tuesday in a report. The worst U.S. housing slump in more than a quarter of a century is deepening as banks rein in mortgage lending after recording more than $400 billion in home loan-related losses and writedowns.
Bailouts and Fannie, Freddie Revelations that the Federal Deposit Insurance Corporation (FDIC) authored faulty and improper sub-prime loans to consumers after it took over operations of Hinsdale, Illinois-based Superior Bank FSB could not be more troubling and should signal Congress that rushing to pass reactionary bailout provisions and new regulatory legislation will likely be inadequate. More than 6,700 mortgages worth in excess of $550 million were doled out to consumers under FDIC authority, and hundreds of those borrowers who couldn't afford the loans have been foreclosed on, according to the Wall Street Journal. The FDIC is being sued by Texas-based Beal Bank that bought 5,315 of the loans from Superior alleging that half of them originated while the bank was under FDIC control. The FDIC, in an initial report, estimated it could be liable for about $70 million. An agency official said the case could be settled for about $23 million.
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 theWachovia Corporation and Washington Mutual, that question is nagging banking executives and their investors. Kenneth D. 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.
GE partners with Abu Dhabi firm for a $8 billion finance fund General Electric, seeking higher returns overseas, and Abu Dhabi's Mubadala Development formed a partnership Tuesday to invest in emerging markets in the Middle East and Africa, led by an $8 billion commercial finance fund. GE and Mubadala, run by the ruling al-Nahyan family, will each contribute $4 billion in equity over three years to the fund, with the aim of reaching $40 billion in assets, the companies said in a statement Tuesday. Mubadala separately said that it wanted to become one of the Fairfield, Connecticut-based GE's top 10 shareholders through stock purchases in the open market. Jeffrey Immelt, the GE chief executive, coping with a stock that has declined about 25 percent since he cut his 2008 forecast in April, told investors in May that GE may join with a sovereign wealth fund to invest in finance assets hurt by the global credit crunch. GE, the world's biggest maker of power-plant turbines and medical imaging machines, will also build a research center in Abu Dhabi's new Masdar City among other ties.
'They're All Toast': Roubini Says Brokers, Even Goldman, Can't Stay Independent The broker/dealer business model is "inherently unstable" and the four remaining major firms will not be independent in a few years, says Nouriel Roubini, economics professor at NYU's Stern School and chairman of RGE Monitor. Embattled Lehman Brothers is likely to seek a buyer "within months," Roubini says. Lehman Brothers ceasing to be independent is not such a shocking outcome, but Roubini ultimately sees a similar outcome for Goldman, Merrill Lynch, and Morgan Stanley. The problem, he says, is that broker/dealers use the same model as banks -- borrow short and lend long -- only they borrow on even shorter timeframes, use more leverage, and don't have the kind of government backstop banks enjoy.
US general warns Russia on bombers Russia would cross "a redline for the United States of America" if it were to base nuclear capable bombers in Cuba, a top US air force officer warned. "If they did I think we should stand strong and indicate that is something that crosses a threshhold, crosses a red line for the United States of America," said General Norton Schwartz, nominated to be the air force's chief of staff. He was referring to a Russian news report that said the military is thinking of flying long-range bombers to Cuba, and possibly establishing a base there. Schwartz and Michael Donley, nominee for secretary of the air force, appeared before a Senate confirmation hearing yesterday. They said the will work to restore trust and confidence in the beleaguered service, under fire for poor handling of its nuclear duties and other missteps.
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