Fed Head Says Economy Dead; Recession Spreads Worldwide; Bush Unfazed

July 16th, 2008 - by: danny

THE ONION GETS IT:

WASHINGTON – A panel of top business leaders testified before Congress about the worsening recession Monday, demanding the government provide Americans with a new irresponsible and largely illusory economic bubble in which to invest.

“What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future,” said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. “We are in a crisis, and that crisis demands an unviable short-term solution.” A prominent finance expert asks Congress to help Americans rebuild their fictious dreams.

BERNANKE DOWNPLAYS CRISIS, SPEAKS OF “NUMEROUS DIFFICULTIES”
MORTGAGE CRISIS UNABATED
FIGHTING EVICTIONS, CHINA STYLE

While walking to work I came across a ad for a new TV series that seems rather prescient:
WRECKED: Life In The Crash Lane. How did they know?

There were more reassurances from the top. More sell-offs on the bottom.

Bernanke: ‘Headwinds’ thwart recovery
Fed chief Ben Bernanke offered a gloomy assessment as to any immediate economic turnaround.

“NUMEROUS DIFFICULTIES

AP – Federal Reserve Chairman Ben Bernanke told Congress Tuesday the fragile economy is facing “numerous difficulties” including persistent strains in financial markets, rising joblessness and housing problems – despite the Fed’s aggressive interest rate reductions and other fortifying steps.

NYT: Warning of the risks of a long slowdown and higher inflation, the Fed chairman offered a gloomy assessment as President Bush, speaking nearby, urged Americans to “take a deep breath.”

HOW DO WE KNOW WE NEED TO WORRY?

WASHINGTON – President Bush said Tuesday the nation’s troubled financial system is “basically sound” and urged lawmakers to quickly enact legislation to prop up mortgage giants Fannie Mae and Freddie Mac.

FROM THE FINANCIAL TIMES

GM suspends dividend and eyes asset sales

General Motors GM has suspended its dividend and is considering asset sales as part of a “self-help” plan to improve liquidity in the face of a downturn in the North American vehicle market.

Dollar leads the ‘ugly parade’

The fallout from the US rescue plan for Fannie Mae FNM and Freddie Mac on Tuesday sent dollar bulls scuttling for cover while raising the question: how much more pain can the battered US currency take?

NO SOLUTION YET FOR FREDDY AND FANNIE

Naked Capitalism reports:

So much for the notion that the not-quite-a-rescue-plan for Fannie and Freddie would calm troubled markets. Equities gave a raspberry yesterday and overnight, the TED spread widened 11 basis points to 133 basis points (a sign interbank funding trouble may be nigh) and today the currency markets, which initially seemed to take the news in stride, beat a path away from the dollar.

With this kind of reaction, and possibly worse in the offing (Friday is an options expiration day) are we really certain this bailout is the right move? I much prefer the idea of shared pain, that the taxpayers take some of the burden as a necessary gesture to our friendly foreign funding sources, but that creditors, who were told explicitly in all offering documents that Freddie and Fannie paper was not an obligation of the US government, take their lumps too.

More important, there has been not a word from the officialdom about how to manage the GSEs going forward. Of course, that’s because they are trying not to admit that nationalization of some form is the end game (and nationalism pretending to be something else is just about certain to be worse than the real deal). Indeed, a whistling-in-the-dark letter to Freddie employees envisions that the GSE can continue as before with a backstop in place.

CEO WHINERS SAY ECONOMY GETTING BAD:
CEOs portray a gloomy forecast for the US Economy, according to a new survey by Chief Executive Magazine:

PREDICTION IN THE Ml-implode Forum

“After this mess is all said and done, there will only be like 5 banks left. You will be able to buy your groceries, get gas, rent a movie and take out a loan all at the same place.”

MINYANVILLE: MORTAGES WILL GO UP

There’s only one truly safe bet in the entire financial arena: Mortgages will cost more in 2009 than they did in 2008.

The inevitable regulatory overreaction will meaningfully constrict lending for the next decade, if not longer, driving up costs for anyone buying a home in the foreseeable future.

But some things never change: Homeowners on the lower rungs of the economic ladder will ultimately bear the greatest burden for our collective transgressions.

Yesterday, the Federal Reserve outlined a regulatory overhaul effective October 2009. Lenders have one year to bring underwriting standards and internal procedures into alignment with the new rules. While many of the new laws take much-needed steps to protect borrowers from predatory lending practices, one particular change is evident of the Fed’s desire to placate consumer groups rather than implement good policy.

12 months ago, a scant minority of the investment public had heard of lenders insidiously penalizing borrowers for paying their loans off early. Such “prepayment penalties” allow borrowers to obtain a lower interest rate, for which they agree to pay fees if they repay the loan in a specific period of time (usually 1-3 years).

LIBERTARIAN PARTY SAYS: “LET THEM FAIL”

‘Let them fail,’ says Libertarian Party

Party says government bailouts of Freddie and Fannie like giving candy to problem children

Washington, D.C. – “Let them fail,” says Libertarian Party spokesperson Andrew Davis, referring to the mortgage institutions Freddie Mac and Fannie Mae, who the Bush administration has said it plans to rescue from financial collapse.

“Let them fail, and let them learn from their mistakes on their own dime,” says Davis. “Bailing out these two institutions will only delay the inevitable outcome of any financial firm insulated from the market by government backing. The long run damage of continuing a policy of bailouts far exceeds any short term woes in letting the market consume failing institutions.”

The Libertarian Party is calling for an end to government bailouts, which it equates to nothing more than welfare for businessmen. The Party believes that government support of these institutions decreases the incentive to make responsible decisions, and unfairly socializes the risk–putting taxpayers on the line for costly mistakes.

“It’s like giving more candy to problem children,” says Davis. “Lenders should recognize that there are repercussions for risky loans, and borrowers should realize that there are consequences for taking loans they can’t repay. If it’s financial collapse, or having your house foreclosed–so be it. It’s bad economics to remove the incentives, even if they are negative, which encourage sensible and responsible decisions.”

OH NO, this headline: Credit crunch hits hollywood

CONFESSSIONS OF SUBPRIME LENDERS

THIS RECESSION COULD EASILY TIP INTO A DEPRESSION

WORLD STOCKS PLUMMET ON U.S. WOES

WHY FANNIE AND FREDDIE HAVE DOOMED HOUSING PRICES REGARDLESS OF BAILOUTS

THE COLLAPSE OF FANNIE AND FREDDIE COULD END THE MORTGAGE MARKET AS WE KNOW IT

FIGHTING EVICTION IN CHINA

BEIJING (AFP) – A family in central Beijing has plastered the outside of their home with portraits of China’s top communist leaders and raised an Olympic flag in a rare show of defiance to fight an eviction order.
The family’s campaign to remain on some of Beijing’s hottest real estate has attracted much foreign media attention ahead of the Games, as it is seen as a symbol of a nationwide struggle by China’s marginalised against the powerful.

“This is the only thing we can do at this stage. We are asking China’s good leaders to protect our rights,” said Yu Pingju, one of an extended family of 14 living in the ramshackle home in the trendy Houhai district.

Yu’s family has put up posters featuring images of communist revolutionary hero Mao Zedong and current President Hu Jintao as part of their protest to fight eviction, a move that risks angering the government.
By raising an Olympic flag, the family has also tried to link their sensitive issue with the Games, a tactic China’s communist rulers have warned against in other human rights cases.
“Let’s follow big brother Hu as head of the Communist Party to build a harmonious society and a peaceful Olympics,” said one slogan, put up alongside Hu’s portrait.
Yu’s family has owned, lived and worked out of the home located inside the former “Imperial City” which surrounds the Forbidden City for 60 years, she said.

The family has sold fruits and roasted chestnuts and maintained a small grocery store on the premises, but have been offered inadequate compensation to leave, according to Yu.

Prime real estate in central Beijing has been hotly contested recently, with locals accusing the government of colluding with developers to cash in on a raging property boom.

DAILI LAMA TO CHINA: AS DIALOGUE BECAME A MONOLOGUE, WE ARE OUT OF HERE

BRUSSELS (AFP) – The Tibetan Dalai Lama’s special envoy said Tuesday that Tibetans had told China that they see no point in the dialogue with Beijing, begun in 2002, because Beijing is not serious about the talks.
“We do not see any useful purpose in continuing the dialogue, since there is obviously a lack of political will from the Chinese leadership to seriously address the issue of Tibet,” said the envoy, Kelsang Gyaltsen.
“However (our) Chinese counterparts felt the dialogue we had begun in 2002 has been useful for both sides to understand each other better,” he told reporters at the European Parliament in Brussels.

EURO – STRONGER THAN DOLLAR BUTÃ¢â‚¬Â¦.European recession looms as Spain crumbles

By Ambrose Evans-Pritchard

The eurozone is tipping into a deeper downturn than America itself despite the tremors in the US mortgage industry, and may already be in full recession for the first time since the launch of the single currency.

IHT: JAPAN; Business Sentiment ‘Worsening,’ Japan Finds

The Japanese government said Monday that business sentiment was “worsening” and in a monthly report reiterated caution on the outlook for the economy in the face of a spike in crude oil and a U.S. slowdown.The report added to growing concerns that the Japanese economy may be slipping into a downturn as the corporate sector – a crucial driver of growth – shows signs of losing steam with higher costs eating into profit margins.The government kept its overall assessment unchanged from last month, saying that while Japan’s economic recovery appears to be pausing, weak movements have been seen recently.

THE REAL NEWS NETWORK – SOCIALISM FOR THE RICH

INTRIGUING: ELLEN BROWN: BEHIND THE BEAR STEARNS BAILOUT

The News Dissector