Investors run for cover as Dow plunges 416 points, worst day since Sept. 2001

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People startin' to hunker down...

Further signs of US economic pain
Friday, 14 September 2007, Shoppers are getting more cautious

Retail sales and industrial output both slowed in the US last month, as the economy felt the strain from the housing slump and credit squeeze. Shop sales grew 0.3% in August, below market expectations of a 0.5% rise and below July's 0.5% increase. Industrial output rose 0.2%, the slowest pace in the past three months.

Analysts said the figures reinforced the case for the Federal Reserve to cut interest rates when it meets to decide on borrowing costs next week. US stock markets fell on the news, the Dow Jones index dropping as much as 76 points after opening in New York, but paring some of its losses later in the session to trail by 15.8 points at 13,409.1.

Eyes on the Fed

When it meets on 18 September, the Fed will be under enormous pressure to act to lower the cost of consumer borrowing. Many believe such a move would limit the wider economic fallout from the current turbulence in financial markets triggered by the crisis in the sub-prime mortgage market.

More BBC NEWS | Business | Further signs of US economic pain

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Subprime problem 'trickling down'...

Ripple effect of housing downturn
Sept 16, 2007 - Sunbelt city in grasp of housing undertow; Ripple effect could be national omen

To understand how the housing bust may ripple through the broader American economy, look beyond the countless for-sale signs that dot this middle-class city. Instead, stop by Boater's Landing, where salespeople sit idle, hoping someone will once again want to buy a boat. Or visit the women answering phones at the local United Way, which is dealing with a flood of aid requests from the unemployed, whose numbers have nearly doubled in a year. Or talk to the Shevlins, a real-estate agent and a carpenter, whose combined incomes dropped from $350,000 to less than $60,000 in two years.

Across this city, even businesses that have little to do with real estate are reeling. Unemployment is up, sales are down and redevelopment ambitions have been scaled back. The Sun Belt city of Fort Myers saw real estate and construction grow to dominate its economy, accounting in recent years for nearly one out of every four jobs. That meant the housing downturn hit swiftly here, making it a kind of early and extreme indicator of what might happen to the U.S. economy as a whole.

The effect could be less dramatic in places like Washington, where government contracting and other industries may provide a cushion. What the Federal Reserve is trying to determine, as it decides Tuesday how much to cut a key interest rate, is to what degree the rest of the U.S. economy will behave like that of Fort Myers.

1-in-3 chance of recession

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Happy days are here again...

Interest Rate Slashed; Bernanke Cuts Consumers a Big Break
Sept. 18, 2007 - The move seeks to prevent the housing slump and shaky market from triggering a recession.

WASHINGTON -- The Federal Reserve cut a key interest rate for the first time in four years, starting with an aggressive half-point move to prevent a steep housing slump and turbulent financial markets from triggering a recession. The action triggered a huge rally on Wall Street. The Fed announced Tuesday that it was reducing its target for the federal funds rate, the interest that banks charge each other, from 5.25 percent to 4.75 percent.

The half-point reduction was double the quarter-point move that many had expected and sparked euphoria among investors, who had been worried that the central bank would be too slow in responding to recent market turmoil. The Dow Jones industrial average, which was up by 84 points right before the announcement, soared by more 200 points in the first 10 minutes after the mid-afternoon announcement.

The Fed's action is designed to boost economic growth by lowering borrowing costs for millions of consumers and businesses. Commercial banks were expected to quickly match the Fed's action by cutting their prime lending rate. The prime rate has been at 8.25 percent for the past 15 months. The Fed's action came in the midst of the worst slump in housing in 16 years. That downturn has triggered record defaults in subprime mortgages and roiled financial markets around the globe as investors have become worried about where the spreading credit problems will next appear.

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Even a rate cut has its limitations...

Recession: What the cut won't do
September 18 2007: Even with the deepest rate cut in nearly 5 years from the central bank, many of the risks for the U.S. economy are beyond its reach.

Problems in housing, the financial markets and the first job decline in four years all played a role in the Federal Reserve making an aggressive rate cut Tuesday. But it has also raised talk about a recession - and whether the Fed is able to prevent one. The Fed, citing the growing risk to continued economic growth, cut the benchmark fed funds rate by half a percent Tuesday, a bigger cut than many economists had forecast. It was the biggest cut since a half-point cut in November 2002, and the first rate cut of any kind since June 2003.

While most economists still don't believe the nation will fall into a recession, there is general agreement that the economy now faces a greater risk than there was only a month or two ago. But many economists also say that the Fed can do little at this point to address many of the factors threatening continued economic growth. Some economists even argue that rate cuts could make matters worse.

The mortgage market would seem to be where the Fed could have the most effect. Most directly, a rate cut will reduce the rates for adjustable rate mortgages, one type of loan that has caused the problems for lenders and subprime borrowers, those with less-than-perfect credit. An estimated 2 million homeowners face sharply higher mortgage payments when their current loans reset over the next year. So a Fed rate cut could possibly stave off a wave of foreclosures.

That's key since more foreclosures could have the potential to hurt consumer spending as a whole, said David Wyss, chief economist for Standard & Poor's. "About 1 or 2 percent of the population is going to be seriously affected by these resets. That's not trivial," said Wyss. "One thing a Fed rate cut will do is reduce that reset shock fairly quickly."

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Discount rate cut a bit late...

Home starts hit 12-year low
19 Sept. 2007: Data indicate real estate slump is worsening

Construction of new homes fell in August to the slowest pace in 12 years as troubles in the housing industry continued to intensify. The Commerce Department reported Wednesday that construction of new homes fell by 2.6 percent in August to a seasonally adjusted annual rate of 1.331 million units.

The housing industry is experiencing its steepest downturn in 16 years with analysts forecasting weak prices and further declines in sales for months to come, given rising mortgage defaults which are dumping even more homes on an already glutted market.

On Tuesday, the National Association of Home Builders reported that its index of builder confidence fell in September to 20, tying the lowest level on record. But homebuilder shares soared Wednesday after the Federal Reserve's half-point cut.

Housing construction falls to 12-year low - Real Estate - MSNBC.com

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Fed rate cut no quick cure for housing mess
19 Sept. 2007 - Home builders cut back in August, say it's too soon to see the bottom

This week’s half-point cut in interest rates by the Federal Reserve accomplished several important objectives, reassuring jittery financial markets by cutting the cost of money while demonstrating its determination to head off an economic downturn. But the move will have little short-term impact on the worst housing market in 16 years, which is at the root of the problem.

That was made clear in the latest report on the ailing industry, just a day after the rate cut, showing a sharp drop in housing starts last month to the slowest pace in 12 years. "Housing starts have come down, at least in part, as a reaction by the home building industry to too much (unsold) inventory,” said Jerry Howard, CEO of the National Association of Home Builders.

Individual home builders say it’s too soon to know when conditions will begin to pick up again. On Tuesday, the NAHB reported that its index of builder confidence fell in September to the lowest level on record. And while the Fed’s rate cuts may have provided a psychological boost to the markets, many analysts and builders think it will take more cuts — and more time — before the housing market recovers. “Does anybody want to call this as a bottom because of the Fed cut?” said Robert Toll, CEO of home builder Toll Bros. at an investor conference Tuesday. “I don’t think you can call it yet.”

More Fed rate cut no quick cure for housing mess - Eye on the Economy - MSNBC.com

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Congress workin' on subprime problem...

Congress warned: Easy on loan fix
September 20 2007: Treasury boss Paulson and Fed chief Bernanke tell House panel what they are doing on mortgage crisis and express concern over some proposals.

Make more money available for mortgages to ease the credit crunch. Give borrowers greater protection from predatory lenders. And encourage homeowners to call their bank. Those are just a few of the proposed remedies being debated in Washington for remedying the nation's subprime mortgage crisis. At a House Financial Services Committee hearing Thursday, Treasury Secretary Henry Paulson told lawmakers they should send troubled homeowners one simple but urgent message: "Call your lender or mortgage counselor today."

He noted that 50 percent of foreclosures occur without borrowers ever talking to their lenders, and said that he has gotten reports that lenders have tried to reach distressed borrowers to work out more affordable loan terms. "Yet those calls rarely get returned," he said. The hearing highlights the challenges facing Congress as it gropes for solutions to the ever-worsening housing problems, which has seen foreclosure filings surge and home prices fall. Since the peak of the housing market in early 2006, national home prices have fallen 6.5 percent and are expected to fall further in the next year.

Lawmakers face political pressure to take action. But, at the same time, they are being warned by top economic officials like Paulson and Federal Reserve Chairman Ben Bernanke that some solutions could end up perpetuating risky lending practices that created the subprime mess in the first place. Bernanke also warned lawmakers to carefully consider steps they take. In particular, he noted that there are risks associated with one of the proposed remedies: raising the limits on the size of loans that Fannie Mae and Freddie Mac may buy. Leading lawmakers have supported the idea, and the Bush administration may go along with it under certain conditions.

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Bush expresses reserved optimism over US economy
September 21, 2007 - US President George W. Bush said Thursday that he is optimistic about the US economy provided Congress is not going to raise taxes.

"I'm optimistic about our economy. I would be pessimistic, however, if the Congress has its way and raises taxes," Bush told at a press conference in the White House. Asked whether there is an increasing risk of recession, Bush said the fundamentals of the U.S. economy remain strong despite some "unsettling times" in the housing market. "The fundamentals of our nation's economy are strong," he said. "Inflation is down. Job markets are steady and strong. The national unemployment rate is 4.6 percent. Corporate profits appear to be strong. Exports are up."

"There is no question that there is some unsettling times in the housing market and credits associated with the housing market, " Bush said, referring to the ongoing crisis in the subprime market which leads to a credit crunch and threatens the U.S. and global economy. He warned that the U.S. economy would suffer if the Congress manages to adopt bills designed to raise taxes. "I think taking money out the hands of investors and consumers and small-business owners would weakened the economy," said Bush, who has long believed that private investors outperform the government in the efficiency of investment. The president dodged a question about whether the United States was nearing a recession, saying that "you need to talk to an economist."

Some economists suggest the housing slump could lead to a recession even in spite of action earlier this week by the Federal Reserve to cut short-term interest rates by a half-percentage point. Bush's remarks came amid growing concerns that the subprime meltdown triggered by a slump in the housing market would eventually lead to a recession despite repeated interventions by the Federal Reserve, including a bigger-than-expected one half- percentage point cut in short-term interest rates on Tuesday. Some economists suggest the housing slump could lead to a recession even in spite of action earlier this week by the Federal Reserve to cut short-term interest rates by a half-percentage point.

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Another lender closes its doors...

HSBC closes down sub-prime branch in U.S
Friday 21st September, 2007 British-based banking giant, HSBC Holdings, has announced the closure of its subprime mortgage subsidiary in the United States.

HSBC says the branch is no longer sustainable and will close Decision One Mortgage, which puts wholesale mortgages through brokers.

The group said HSBC Finance will now focus on servicing loans through its consumer lending branch network. Over seven hundred employees are likely to lose their jobs with the closure.

The HSBC decision comes amid tightening credit in the US mortgage sector and rising foreclosures, particularly in the risky subprime sector, where home loans are given to people with poor credit histories.

HSBC closes down sub-prime branch in U.S

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France caught in the financial quicksand...

French finances in trouble
Sunday 23rd September, 2007 - European Central Bank head Jean-Claude Trichet says France's public finances are in very great difficulty.

Trichet said in an interview on Europe 1 radio that the deficit was becoming a heavy drag on the economy of France. Regarding the squeeze on credit sparked by the U.S subprime crisis, Trichet said the ECB had taken the right decision by pumping tens of billions of euros to facilitate inter-bank lending in global money markets.

He added that there were lessons to be learned from what was happening and that those who had taken unwise risks should be punished. Since coming to power in May, French President Nicolas Sarkozy has caused Mr Trichet to worry over his plans to cut taxes in order to stimulate economic growth.

Eurozone finance ministers committed in April to balance their budgets by 2010, but Sarkozy warned in July that as a result of his plans this goal might not be achieved until 2012.

French finances in trouble

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Dollar still sliding...

Dollar dips to new low against euro
September 25 2007: Dollar hits record low for the fourth consecutive day after troubling consumer confidence, home sales reports; interest rate speculation.

The dollar resumed its fall against the euro Tuesday, the fourth consecutive day of record lows, after a pair of economic reports pointed to the possibility of further interest-rate cuts by the Federal Reserve. The euro rose to its fourth consecutive record high, $1.4153, after worrying consumer confidence and home sales data were released Tuesday morning. By late afternoon in New York, the 13-nation euro was at $1.4146 compared with $1.4087 late Monday.

The New York-based Conference Board said worries about jobs and the economy drove the U.S. Consumer Confidence Index for September to 99.8, below analysts' expectations. The index is at its lowest level since November 2005. U.S. economic concerns were compounded by two housing reports. Sales of existing homes fell for a sixth straight month in August, pushing sales to the lowest point since 2002 because of turmoil in credit markets, a second report showed. U.S. home prices declined in July, posting their steepest drop in 16 years.

The declines may cause the Federal Reserve to lower its benchmark interest rate further, said David Jones, chief markets analyst at CMC Markets in London. "It's clearly still too soon for last week's rate cut by the Fed to be taking any effect, but the question is now what happens at the two remaining meetings this year," he said.

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The vultures are circlin'...

Mortgage meltdown: Vulture investors
September 27 2007: Real estate investors are betting on bargains in depressed markets they think are ready to bounce back.

Real estate investor Matthew Martinez is the point man for a private equity group that plans to invest $200 million in Florida condo developments. But recent forecasts show many housing markets in the Sunshine State are looking at double-digit drops in home prices. What is he thinking?

"The smart money is thinking about buying there right now," says Martinez. "It may be six to 12 months early, but it's a good time to be searching for deals." Local housing markets that have fallen far, yet have the potential to recover soon, are ripe targets for "vulture investors," who buy cheap in the hope that prices will rebound.

One area suffering from steep declines is the Miami/Ft. Lauderdale/Palm Beach region, where prices are expected to drop as much as 12 percent. The correction comes after years of intense real estate speculation. "We believe in the long-term viability of the Florida real estate market, but we're buying on rental economics," Martinez says. "People had been purchasing on condo economics and those numbers no longer apply."

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Home Sales Tumble
September 27, 2007 - New-homes sales tumbled in August to the lowest level in seven years, a stark sign that the credit crunch is aggravating an already painful housing slump.

Sales of new homes dropped by 8.3 percent in August from July, the Commerce Department reported Thursday, driving down sales to a seasonally adjusted annual rate of 795,000 units. That was the lowest level since June 2000, when sales clocked in at a pace of 793,000. The home sales report came on the same day that the government reported a relatively brisk business growth rate in revised figures for the second quarter. But the 3.8 percent GDP figure was less than first estimated and it occurred before the credit crisis and its repercussions across the broad spectrum of the economy had taken hold.

The median sales price in August fell by 7.5 percent from a year earlier to $225,700. That was the biggest drop in percentage terms in nearly 37 years. The median price is the middle point at which half sell for more and half for less. The average sales price dropped by 8 percent in August from a year earlier to $292,000. That was the biggest decline in 17 years. Sales fell in the South and the West in August compared with July. Sales, however, rose in the Northeast and Midwest. The new-homes sales report, combined with other recent economic reports showing a sharp drop in demand for big-ticket manufactured goods in August, suggesting the economy lost momentum as it headed into the fall.

Another report issued by Commerce showed the economy staged a rebound in the spring before a credit crisis raised new fears about longer-term business health. The economy grew at a 3.8 percent annual rate in the April-to-June quarter, the strongest showing in just over a year. Although the new reading for the second quarter was slightly less robust than a previous estimate of a 4 percent growth rate, it nonetheless marked a substantial improvement over the feeble 0.6 percent growth rate registered in the prior quarter.

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