WASHINGTON (Reuters) - The U.S. Federal Reserve led a coordinated round of global official rate cuts on Wednesday, easing by a half percentage-point, as did the European Central Bank, Bank of England and Swiss, Canadian and Swedish central banks. In an attempt to stem unprecedented global market turmoil, the Fed cut its key federal funds lending rate by half a percentage point to 1.5 percent and also lowered its discount rate by the same amount to 1.75 percent.
The ECB also cut by a half-point to 3.75 percent as did the Bank of England, taking its rate to 4.5 percent.
China also joined the effort, cutting its key rate 27 basis points.
The Bank of Japan, with rates at just 0.5 percent, did not ease but the Fed said the BOJ expressed its strong support for the coordinated policy action.
"Incoming economic data suggests that the pace of economic activity has slowed markedly in recent months," the Fed said in a statement.
"Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit."
The Fed said that while inflation has been high, recent declines in energy and other commodity prices had tempered inflation risks.
It said the vote to cut U.S. rates was unanimous and that inflation expectations appeared to be diminishing which could help support price stability.
"The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability," the Fed said.
Showing posts with label Federal. Show all posts
Showing posts with label Federal. Show all posts
Wednesday, October 8, 2008
Fed makes emergency move to lend directly to companies; Bernanke hints at rate cuts soon
WASHINGTON (AP) -- Frantically trying to stop the bleeding on Wall Street, the Federal Reserve took a first-time step Tuesday to get cash directly to businesses and hinted that interest rates could come down soon. Stocks continued their free fall anyway and hit new five-year lows.
The central bank invoked emergency powers to lend money to companies outside the financial sector and buy up mounds of commercial paper, the short-term debt that firms use to pay for everyday expenses like salaries and supplies.
The Fed, which has only loaned money to banks before, made the move as the gravest financial crisis in decades wore on and concern spread around the world.
In a speech to the National Association for Business Economics, Fed Chairman Ben Bernanke delivered a strong signal interest rates may need to be cut. And he warned the country could be stuck in the economic doldrums for some time.
"The outlook for economic growth has worsened," Bernanke said. "The heightened financial turmoil that we have experienced of late may well lengthen the period of weak economic performance."
The gloomy assessment appeared to open the door wider to an interest rate cut on or before the Fed convenes again Oct. 28. The Fed's key interest rate now stands at 2 percent.
Wall Street turned its back. The Dow Jones industrials lost 508 points, more than 5 percent, to close at 9,447, the lowest since Sept. 30, 2003. The Standard & Poor's 500, a broader stock index, closed below 1,000 for the first time since that same day.
The economic crisis was a major focus of a second presidential debate Tuesday night between Sens. John McCain and Barack Obama. During sharp exchanges with Obama, McCain called for a far-reaching program to stem foreclosures by requiring the federal government to renegotiate the mortgages of individual homeowners and make them more affordable.
"It's my proposal. It's not Sen. Obama's proposal," McCain, R-Ariz., said at Belmont University in Nashville, Tenn.
Obama charged that the current crisis was the "final verdict on the failed economic policies of the last eight years" that President Bush pursued and were "supported by Sen. McCain."
He contended that Bush, McCain and others had favored deregulation of the financial industry, predicting that would "let markets run wild and prosperity would rain down on all of us. It didn't happen."
Bush again sought to strike a reassuring tone and said the nation would make it through an economy blighted by job losses, record foreclosures and shriveled retirement savings. Congress' top budget analyst estimated Tuesday that Americans' retirement plans have lost as much as $2 trillion in 15 months.
"Have faith, this economy is going to recover over time," the president said in a speech in Virginia. "I wish I could snap my fingers and make what happened stop. But that's not the way it works."
Bush reached out to European leaders earlier Tuesday to urge coordination on efforts to solve the crisis. The White House said Bush was open to the idea of a summit.
The contagion has spread overseas. Britain's chief financial regulator was readying a statement to make before markets opened Wednesday, and the BBC reported that the British government was poised to announce a rescue package for the banking system there.
Concerns are mounting that a global recession is developing, and pressure is growing on the U.S. government to do something beyond the $700 billion financial bailout package that Bush signed into law Friday.
To that end, the Fed announced it would begin buying companies' short-term debt. The powers were bestowed during the Depression as part of the Federal Reserve Act.
The government's bailout package is aimed at thawing lending by buying bad mortgage-related debt off the books of troubled financial institutions. The idea is that the banks would then be in a better position to lend and get the economy moving.
Commercial paper borrowing usually ranges from overnight to less than a week. But in the current climate of mistrust, the market has dried up considerably.
The action makes the Fed a crucial source of credit for nonfinancial businesses in addition to commercial banks and investment firms -- and also exposes it to risk because so much of the debt would not be backed by collateral.
Credit markets, clenched up for weeks now, relaxed somewhat after the Fed's move.
The Fed said it was creating a new entity to buy two types of short-term debt, known as three-month unsecured and asset-backed commercial paper, directly from eligible companies. It hopes to have the program up and running soon, Fed officials said.
Fed officials said they would buy as much of the debt as necessary to get the market functioning again but refused to say how much that might be. They noted that around $1.3 trillion worth of commercial paper would qualify.
The Treasury Department, which worked with the Fed on the program, said the action was "necessary to prevent substantial disruptions to the financial markets and the economy."
The Treasury will provide money to the Federal Reserve Bank of New York to support the new program, the Fed said. The money would be separate from the $700 billion financial bailout package.
The Fed said it planned to stop buying the short-term debt on April 30 but may extend the program.
There was $1.6 trillion in outstanding commercial paper, seasonally adjusted, on the market as of last week, the most recent data from the Fed. The market has shrunk from $2.2 trillion last summer.
Associated Press writers Madlen Read and Tim Paradis in New York and Ben Feller in Washington contributed to this report.
The central bank invoked emergency powers to lend money to companies outside the financial sector and buy up mounds of commercial paper, the short-term debt that firms use to pay for everyday expenses like salaries and supplies.
The Fed, which has only loaned money to banks before, made the move as the gravest financial crisis in decades wore on and concern spread around the world.
In a speech to the National Association for Business Economics, Fed Chairman Ben Bernanke delivered a strong signal interest rates may need to be cut. And he warned the country could be stuck in the economic doldrums for some time.
"The outlook for economic growth has worsened," Bernanke said. "The heightened financial turmoil that we have experienced of late may well lengthen the period of weak economic performance."
The gloomy assessment appeared to open the door wider to an interest rate cut on or before the Fed convenes again Oct. 28. The Fed's key interest rate now stands at 2 percent.
Wall Street turned its back. The Dow Jones industrials lost 508 points, more than 5 percent, to close at 9,447, the lowest since Sept. 30, 2003. The Standard & Poor's 500, a broader stock index, closed below 1,000 for the first time since that same day.
The economic crisis was a major focus of a second presidential debate Tuesday night between Sens. John McCain and Barack Obama. During sharp exchanges with Obama, McCain called for a far-reaching program to stem foreclosures by requiring the federal government to renegotiate the mortgages of individual homeowners and make them more affordable.
"It's my proposal. It's not Sen. Obama's proposal," McCain, R-Ariz., said at Belmont University in Nashville, Tenn.
Obama charged that the current crisis was the "final verdict on the failed economic policies of the last eight years" that President Bush pursued and were "supported by Sen. McCain."
He contended that Bush, McCain and others had favored deregulation of the financial industry, predicting that would "let markets run wild and prosperity would rain down on all of us. It didn't happen."
Bush again sought to strike a reassuring tone and said the nation would make it through an economy blighted by job losses, record foreclosures and shriveled retirement savings. Congress' top budget analyst estimated Tuesday that Americans' retirement plans have lost as much as $2 trillion in 15 months.
"Have faith, this economy is going to recover over time," the president said in a speech in Virginia. "I wish I could snap my fingers and make what happened stop. But that's not the way it works."
Bush reached out to European leaders earlier Tuesday to urge coordination on efforts to solve the crisis. The White House said Bush was open to the idea of a summit.
The contagion has spread overseas. Britain's chief financial regulator was readying a statement to make before markets opened Wednesday, and the BBC reported that the British government was poised to announce a rescue package for the banking system there.
Concerns are mounting that a global recession is developing, and pressure is growing on the U.S. government to do something beyond the $700 billion financial bailout package that Bush signed into law Friday.
To that end, the Fed announced it would begin buying companies' short-term debt. The powers were bestowed during the Depression as part of the Federal Reserve Act.
The government's bailout package is aimed at thawing lending by buying bad mortgage-related debt off the books of troubled financial institutions. The idea is that the banks would then be in a better position to lend and get the economy moving.
Commercial paper borrowing usually ranges from overnight to less than a week. But in the current climate of mistrust, the market has dried up considerably.
The action makes the Fed a crucial source of credit for nonfinancial businesses in addition to commercial banks and investment firms -- and also exposes it to risk because so much of the debt would not be backed by collateral.
Credit markets, clenched up for weeks now, relaxed somewhat after the Fed's move.
The Fed said it was creating a new entity to buy two types of short-term debt, known as three-month unsecured and asset-backed commercial paper, directly from eligible companies. It hopes to have the program up and running soon, Fed officials said.
Fed officials said they would buy as much of the debt as necessary to get the market functioning again but refused to say how much that might be. They noted that around $1.3 trillion worth of commercial paper would qualify.
The Treasury Department, which worked with the Fed on the program, said the action was "necessary to prevent substantial disruptions to the financial markets and the economy."
The Treasury will provide money to the Federal Reserve Bank of New York to support the new program, the Fed said. The money would be separate from the $700 billion financial bailout package.
The Fed said it planned to stop buying the short-term debt on April 30 but may extend the program.
There was $1.6 trillion in outstanding commercial paper, seasonally adjusted, on the market as of last week, the most recent data from the Fed. The market has shrunk from $2.2 trillion last summer.
Associated Press writers Madlen Read and Tim Paradis in New York and Ben Feller in Washington contributed to this report.
Thursday, September 25, 2008
US Stocks rise on bailout hopes; credit remains tight
NEW YORK (AP) -- Financial markets were mixed Thursday as lawmakers moved closer to hammering out a deal aimed at reviving the crippled financial system. The Dow Jones industrial average rose more than 200 points on optimism about the deal but a credit market squeeze remained as doubts about the proposed plan's effectiveness drove demand for short-term, safe-haven assets.
To help ease credit markets, the Federal Reserve early Thursday issued more than $20 billion in collateral such as Treasury bills in exchange for dollars to help meet demand for safe assets.
Meanwhile, disappointing readings on employment and demand for big-ticket manufactured goods, as well as a sobering forecast from General Electric Co., were underscoring the broad effects of the more than year-old credit crisis.
But stock investors were hopeful that a $700 billion bailout plan would win approval, albeit with some important changes, following two days of testimony on Capitol Hill by the country's top economic leaders. The momentum intensified Thursday as President Bush summoned congressional leaders to a meeting aimed at securing the legislation.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke urged lawmakers on Tuesday and Wednesday to quickly sign off on the plan, which would help prop up the economy by removing billions of dollars in risky mortgage-related assets from financial firms' balance sheets. The president highlighted the urgency in a national address Wednesday night.
White House officials have yielded to a key demand by congressional leaders, agreeing to include widely supported limits on pay packages for executives whose companies benefit. Major elements are still being worked out, including how to phase in the mammoth cost of the package and a plan to let the government take an ownership stake in troubled companies as part of the rescue.
Strained credit markets tightened, suggesting investors are waiting to see the details.
Demand remained high for the 3-month Treasury bill, considered the safest short-term investment, with the yield trading at 0.47 percent, down from 0.49 percent late Wednesday. That means investors are still willing to earn the slimmest of returns in exchange for a safe place to put their money. The yield on the benchmark 10-year Treasury note rose to 3.84 percent from 3.81 late Wednesday.
In another sign of credit market tightness, the benchmark three-month London Interbank Offered Rate, a bank-to-bank lending rate known as LIBOR, jumped 0.29 percentage point to 3.77 percent.
In midmorning trading, the Dow Jones industrial average rose 236.80, or 2.19 percent, to 11,061.97. The Dow fell 563 points, or 4.95 percent, in the first three sessions this week.
Broader stock indicators also rose Thursday. The Standard & Poor's 500 index rose 22.86, or 1.93 percent, to 1,208.73, and the Nasdaq composite index rose 38.32, or 1.78 percent, to 2,194.00.
The dollar was mixed against other major currencies, while gold prices fell slightly.
Light, sweet crude for November delivery fell 6 cents to $105.67 on the New York Mercantile Exchange.
Meanwhile, the Labor Department said the number of people requesting jobless benefits increased by 32,000 to a seasonally adjusted 493,000 last week, the highest level in seven years and much greater than analysts' expectations of 445,000. Hurricanes Ike and Gustav added about 50,000 new claims in Louisiana and Texas, the department said.
The Commerce Department said sales of new homes fell sharply in August to the slowest pace in 17 years. The average sales price also fell by the largest amount on record. New homes sales fell by 11.5 percent in August to a seasonally adjusted annual sales rate of 460,000 units, the slowest sales rate since January 1991.
The department also said orders for manufactured goods sank in August by the largest amount in seven months as demand for both airplanes and cars sank. Durable goods orders fell by 4.5 percent last month, far worse than the 1.6 percent decline that economists expected and the biggest drop since a 4.7 percent fall in January.
GE fell 74 cents, or 3 percent, to $23.85 after lowering its forecast for third-quarter and full-year earnings, citing unprecedented weakness and volatility in the financial services markets.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 103.9 million shares.
The Russell 2000 index of smaller companies rose 5.34, or 0.77 percent, to 703.10.
Overseas, Japan's Nikkei stock average was down 0.90 percent. Britain's FTSE 100 rose 0.27 percent, Germany's DAX index rose 1.31 percent, and France's CAC-40 added 1.60 percent.
To help ease credit markets, the Federal Reserve early Thursday issued more than $20 billion in collateral such as Treasury bills in exchange for dollars to help meet demand for safe assets.
Meanwhile, disappointing readings on employment and demand for big-ticket manufactured goods, as well as a sobering forecast from General Electric Co., were underscoring the broad effects of the more than year-old credit crisis.
But stock investors were hopeful that a $700 billion bailout plan would win approval, albeit with some important changes, following two days of testimony on Capitol Hill by the country's top economic leaders. The momentum intensified Thursday as President Bush summoned congressional leaders to a meeting aimed at securing the legislation.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke urged lawmakers on Tuesday and Wednesday to quickly sign off on the plan, which would help prop up the economy by removing billions of dollars in risky mortgage-related assets from financial firms' balance sheets. The president highlighted the urgency in a national address Wednesday night.
White House officials have yielded to a key demand by congressional leaders, agreeing to include widely supported limits on pay packages for executives whose companies benefit. Major elements are still being worked out, including how to phase in the mammoth cost of the package and a plan to let the government take an ownership stake in troubled companies as part of the rescue.
Strained credit markets tightened, suggesting investors are waiting to see the details.
Demand remained high for the 3-month Treasury bill, considered the safest short-term investment, with the yield trading at 0.47 percent, down from 0.49 percent late Wednesday. That means investors are still willing to earn the slimmest of returns in exchange for a safe place to put their money. The yield on the benchmark 10-year Treasury note rose to 3.84 percent from 3.81 late Wednesday.
In another sign of credit market tightness, the benchmark three-month London Interbank Offered Rate, a bank-to-bank lending rate known as LIBOR, jumped 0.29 percentage point to 3.77 percent.
In midmorning trading, the Dow Jones industrial average rose 236.80, or 2.19 percent, to 11,061.97. The Dow fell 563 points, or 4.95 percent, in the first three sessions this week.
Broader stock indicators also rose Thursday. The Standard & Poor's 500 index rose 22.86, or 1.93 percent, to 1,208.73, and the Nasdaq composite index rose 38.32, or 1.78 percent, to 2,194.00.
The dollar was mixed against other major currencies, while gold prices fell slightly.
Light, sweet crude for November delivery fell 6 cents to $105.67 on the New York Mercantile Exchange.
Meanwhile, the Labor Department said the number of people requesting jobless benefits increased by 32,000 to a seasonally adjusted 493,000 last week, the highest level in seven years and much greater than analysts' expectations of 445,000. Hurricanes Ike and Gustav added about 50,000 new claims in Louisiana and Texas, the department said.
The Commerce Department said sales of new homes fell sharply in August to the slowest pace in 17 years. The average sales price also fell by the largest amount on record. New homes sales fell by 11.5 percent in August to a seasonally adjusted annual sales rate of 460,000 units, the slowest sales rate since January 1991.
The department also said orders for manufactured goods sank in August by the largest amount in seven months as demand for both airplanes and cars sank. Durable goods orders fell by 4.5 percent last month, far worse than the 1.6 percent decline that economists expected and the biggest drop since a 4.7 percent fall in January.
GE fell 74 cents, or 3 percent, to $23.85 after lowering its forecast for third-quarter and full-year earnings, citing unprecedented weakness and volatility in the financial services markets.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 103.9 million shares.
The Russell 2000 index of smaller companies rose 5.34, or 0.77 percent, to 703.10.
Overseas, Japan's Nikkei stock average was down 0.90 percent. Britain's FTSE 100 rose 0.27 percent, Germany's DAX index rose 1.31 percent, and France's CAC-40 added 1.60 percent.
Deal close on $700 billion financial bailout plan
WASHINGTON (AP) -- President Bush is bringing presidential candidates Barack Obama and John McCain into negotiations on a $700 billion rescue of Wall Street as Democrats and Republicans near agreement on a bailout plan with more protections for taxpayers and new help for distressed homeowners.
Senior lawmakers and Bush administration officials have cleared away key obstacles to a deal on the unprecedented rescue, agreeing to include widely supported limits on pay packages for executives whose companies benefit.
They're still wrangling over major elements, including how to phase in the eye-popping cost -- a measure demanded by Democrats and some Republicans who want stronger congressional control over the bailout -- without spooking markets. A plan to let the government take an ownership stake in troubled companies as part of the rescue, rather than just buying bad debt, also was under intense negotiation.
A bipartisan meeting was set for Thursday to begin drafting a compromise, which top Democrats said they hoped could pass within days.
The core of the plan envisions the government buying up sour assets of shaky financial firms in a bid to keep them from going under and to stave off a potentially severe recession.
Bush acknowledged in a prime-time television address Wednesday night that the bailout would be a "tough vote" for lawmakers.
But he said failing to approve it would risk dire consequences for the economy and most Americans.
"Without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold," Bush said as he worked to resurrect the unpopular bailout package. "Our entire economy is in danger."
Bush's warning came soon after he invited Obama and McCain, one of whom will inherit the economic mess in four months, as well as key congressional leaders to a White House meeting Thursday to work on a compromise.
With the administration's original proposal considered dead in Congress, House leaders said they were making progress toward revised legislation that could be approved.
Rep. Barney Frank, D-Mass., who has led negotiations with Treasury Secretary Henry Paulson on the package, said that given the progress of the talks, the White House meeting was a distraction.
"We're going to have to interrupt a negotiating session tomorrow between the Democrats and Republicans on a bill where I think we are getting pretty close, and troop down to the White House for their photo op," said Frank, the House Financial Services Committee chairman. "I wish they'd checked with us."
Paulson and Federal Reserve Chairman Ben Bernanke have been crisscrossing Capitol Hill in recent days, shuttling between public hearings on the proposal and private meetings with lawmakers, to sell the proposal.
Obama and McCain are calling for a bipartisan effort to deal with the crisis, little more than five weeks before national elections in which the economy has emerged as the dominant theme.
"The plan that has been submitted to Congress by the Bush administration is flawed, but the effort to protect the American economy must not fail," they said in a joint statement Wednesday night. "This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe."
Presidential politics intruded, nonetheless, when McCain said earlier Wednesday he intended to return to Washington and was asking Obama to agree to delay their first debate, scheduled for Friday, to deal with the meltdown.
Obama said the debate should go ahead.
Lawmakers in both parties have objected strenuously to the rescue plan over the past two days, Republicans complaining about federal intervention in private business and Democrats pressing to tack on more conditions and help for beleaguered homeowners.
But many in both parties said they were open to legislation, although on different terms than the White House has proposed.
Some partisan sticking points remain.
Democrats are pushing to allow bankruptcy judges to rewrite mortgages to ease the burden on consumers who are facing foreclosure -- a nonstarter for Republicans.
Democrats acknowledge privately that the provision will almost certainly be dropped in the interest of a bipartisan deal. Obama told reporters it's "probably something that we shouldn't try to do in this piece of legislation."
Democrats also want any potential proceeds the government reaps from the bailout to go to a fund designed to pay for housing for poor families. Many Republicans oppose the very existence of the fund, which they say is a backdoor means of funneling money to liberal political groups.
Democratic demands that Congress be given greater authority over the bailout and that the government be required to help homeowners renegotiate their mortgages so they have lower monthly payments already have been accepted in principle.
Under the bailout bill, which will let the government buy huge amounts of toxic mortgage-related assets, "we're now the biggest mortgage holder in town, and we can do serious foreclosure avoidance," Frank said.
Senior lawmakers and Bush administration officials have cleared away key obstacles to a deal on the unprecedented rescue, agreeing to include widely supported limits on pay packages for executives whose companies benefit.
They're still wrangling over major elements, including how to phase in the eye-popping cost -- a measure demanded by Democrats and some Republicans who want stronger congressional control over the bailout -- without spooking markets. A plan to let the government take an ownership stake in troubled companies as part of the rescue, rather than just buying bad debt, also was under intense negotiation.
A bipartisan meeting was set for Thursday to begin drafting a compromise, which top Democrats said they hoped could pass within days.
The core of the plan envisions the government buying up sour assets of shaky financial firms in a bid to keep them from going under and to stave off a potentially severe recession.
Bush acknowledged in a prime-time television address Wednesday night that the bailout would be a "tough vote" for lawmakers.
But he said failing to approve it would risk dire consequences for the economy and most Americans.
"Without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold," Bush said as he worked to resurrect the unpopular bailout package. "Our entire economy is in danger."
Bush's warning came soon after he invited Obama and McCain, one of whom will inherit the economic mess in four months, as well as key congressional leaders to a White House meeting Thursday to work on a compromise.
With the administration's original proposal considered dead in Congress, House leaders said they were making progress toward revised legislation that could be approved.
Rep. Barney Frank, D-Mass., who has led negotiations with Treasury Secretary Henry Paulson on the package, said that given the progress of the talks, the White House meeting was a distraction.
"We're going to have to interrupt a negotiating session tomorrow between the Democrats and Republicans on a bill where I think we are getting pretty close, and troop down to the White House for their photo op," said Frank, the House Financial Services Committee chairman. "I wish they'd checked with us."
Paulson and Federal Reserve Chairman Ben Bernanke have been crisscrossing Capitol Hill in recent days, shuttling between public hearings on the proposal and private meetings with lawmakers, to sell the proposal.
Obama and McCain are calling for a bipartisan effort to deal with the crisis, little more than five weeks before national elections in which the economy has emerged as the dominant theme.
"The plan that has been submitted to Congress by the Bush administration is flawed, but the effort to protect the American economy must not fail," they said in a joint statement Wednesday night. "This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe."
Presidential politics intruded, nonetheless, when McCain said earlier Wednesday he intended to return to Washington and was asking Obama to agree to delay their first debate, scheduled for Friday, to deal with the meltdown.
Obama said the debate should go ahead.
Lawmakers in both parties have objected strenuously to the rescue plan over the past two days, Republicans complaining about federal intervention in private business and Democrats pressing to tack on more conditions and help for beleaguered homeowners.
But many in both parties said they were open to legislation, although on different terms than the White House has proposed.
Some partisan sticking points remain.
Democrats are pushing to allow bankruptcy judges to rewrite mortgages to ease the burden on consumers who are facing foreclosure -- a nonstarter for Republicans.
Democrats acknowledge privately that the provision will almost certainly be dropped in the interest of a bipartisan deal. Obama told reporters it's "probably something that we shouldn't try to do in this piece of legislation."
Democrats also want any potential proceeds the government reaps from the bailout to go to a fund designed to pay for housing for poor families. Many Republicans oppose the very existence of the fund, which they say is a backdoor means of funneling money to liberal political groups.
Democratic demands that Congress be given greater authority over the bailout and that the government be required to help homeowners renegotiate their mortgages so they have lower monthly payments already have been accepted in principle.
Under the bailout bill, which will let the government buy huge amounts of toxic mortgage-related assets, "we're now the biggest mortgage holder in town, and we can do serious foreclosure avoidance," Frank said.
Wednesday, September 24, 2008
US hedge fund Paulson bets big against UK banks
LONDON (Reuters) - World stocks steadied on Wednesday and safe-haven government bonds rose after Warren Buffett's investment in Goldman Sachs failed to calm anxiety over the prospects for Washington's $700 billion bank bailout.
Billionaire investor Buffett's Berkshire Hathaway Inc will invest $5 billion in Goldman, a major boost for the Wall Street bank whose shares fell 50 percent from their 2007 record high in this month's market turmoil.
However, the news failed to significantly boost risky assets after the U.S. government's push for quick congressional approval of its financial rescue plan hit a wall of opposition on Tuesday among senators who said the plan puts taxpayers at risk.
Federal Reserve chairman Ben Bernanke testifies again later, after warning lawmakers on Tuesday that a failure to act could doom the economy to a recession.
"The market is still nervous about the outcome of the proposed U.S. plan as politics seems to be making the deal more complicated," said Ryuji Shimai, market analyst at Shinko Securities in Tokyo.
The FTSEurofirst 300 index erased early gains to stand flat on the day while the MSCI world equity index was broadly steady.
U.S. stock futures were up more than 1 percent, pointing to a stronger start on Wall Street later.
"Buffett's legendary status as a value investor gives the bulls reason for optimism, as some will see his move as a sign to call the bottom of the recent declines," said Chris Hossain, senior sales manager at ODL Securities.
The December bund future rose 30 ticks as jittery investors sought safety in government bonds.
Strains in the interbank money market lingered, with overnight dollar rates rising 195 basis points above the Fed's target rate at one point, before falling to stand around 30 bps above the rate.
The Fed moved for the second time within 24 hours to provide liquidity, acting in concert with Australia and Scandinavia, while the euro zone, Britain, Japan and Australia injected billions of dollars into their banking systems.
Once a byword for safety and liquidity, the short-term lending market where banks lend to each other has repeatedly seized up in the financial crisis because of increasing worries over the creditworthiness of borrowers.
The dollar was steady against a basket of major currencies while the euro stood unchanged on the day at $1.4654 .
Emerging sovereign spreads tightened 3 basis points while emerging stocks rose 0.4 percent on the day.
U.S. light crude rose 1.6 percent following forecasts of a drop in U.S. crude stocks. Gold rose edged lower to $887.80 an ounce.
Billionaire investor Buffett's Berkshire Hathaway Inc will invest $5 billion in Goldman, a major boost for the Wall Street bank whose shares fell 50 percent from their 2007 record high in this month's market turmoil.
However, the news failed to significantly boost risky assets after the U.S. government's push for quick congressional approval of its financial rescue plan hit a wall of opposition on Tuesday among senators who said the plan puts taxpayers at risk.
Federal Reserve chairman Ben Bernanke testifies again later, after warning lawmakers on Tuesday that a failure to act could doom the economy to a recession.
"The market is still nervous about the outcome of the proposed U.S. plan as politics seems to be making the deal more complicated," said Ryuji Shimai, market analyst at Shinko Securities in Tokyo.
The FTSEurofirst 300 index erased early gains to stand flat on the day while the MSCI world equity index was broadly steady.
U.S. stock futures were up more than 1 percent, pointing to a stronger start on Wall Street later.
"Buffett's legendary status as a value investor gives the bulls reason for optimism, as some will see his move as a sign to call the bottom of the recent declines," said Chris Hossain, senior sales manager at ODL Securities.
The December bund future rose 30 ticks as jittery investors sought safety in government bonds.
Strains in the interbank money market lingered, with overnight dollar rates rising 195 basis points above the Fed's target rate at one point, before falling to stand around 30 bps above the rate.
The Fed moved for the second time within 24 hours to provide liquidity, acting in concert with Australia and Scandinavia, while the euro zone, Britain, Japan and Australia injected billions of dollars into their banking systems.
Once a byword for safety and liquidity, the short-term lending market where banks lend to each other has repeatedly seized up in the financial crisis because of increasing worries over the creditworthiness of borrowers.
The dollar was steady against a basket of major currencies while the euro stood unchanged on the day at $1.4654 .
Emerging sovereign spreads tightened 3 basis points while emerging stocks rose 0.4 percent on the day.
U.S. light crude rose 1.6 percent following forecasts of a drop in U.S. crude stocks. Gold rose edged lower to $887.80 an ounce.
SMFG seen eyeing Goldman as Japan shops on Wall
TOKYO (Reuters) - Sumitomo Mitsui Financial Group (Tokyo:8316.T - News), Japan's No. 3 bank, plans to invest in Goldman Sachs Group Inc (NYSE:GS - News), Japanese media said, in what would be the third big Japanese investment this week on Wall Street.
SMFG said the bank had no deal in place at the moment but media said it wanted to join the list of Japanese financial firms using the upheaval in the United States to aggressively expand abroad.
The purchases, including a big stake in Morgan Stanley (NYSE:MS - News) and the Asian and European assets of failed Lehman Brothers (Other OTC:LEHMQ.PK - News), are a major turnaround for Japanese banks that were nearly crushed by bad loans just a few years ago and needed massive injections of public cash to stay afloat.
Late on Tuesday, Warren Buffett's Berkshire Hathaway Inc (NYSE:BRK-A - News; NYSE:BRK-B - News) agreed to invest $5 billion in Goldman Sachs, a big boost for the Wall Street bank from the world's best-known investor, but a Goldman spokesman said he could not confirm the report SMFG would follow suit.
SMFG's investment in Goldman Sachs would total several hundred billion yen, Kyodo news agency said, while the Nikkei business daily said the bank would consider investing up to 100 billion yen ($946 million).
SMFG played down the reports, which both cited unnamed sources.
"At this point, it is not true that we've decided to invest in Goldman Sachs," said SMFG spokeswoman Chika Togawa, who declined to comment further.
In a broader rally of financial stocks, shares of SMFG finished up 1.2 percent at 684,000 yen, compared with a 0.1 percent decline in Tokyo's broad TOPIX share average.
"If they take a big position in Goldman, you can definitely say it would be a positive over the medium- to long-term," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"If they take a big enough position so that they can benefit from Goldman's know-how and human resources, it will be positive."
Once considered too naive and cautious for the high-risk, high-return world of investment banking, cash-rich Japanese firms have largely avoided the huge credit losses of the subprime mortgage crisis, leaving them well-placed to pick up the best assets from the carnage on Wall Street.
Nomura Holdings Inc <8604.
Japan's top bank, Mitsubishi UFJ Financial Group Inc (Tokyo:8306.T - News), has agreed to buy up to 20 percent of Morgan Stanley for as much as $8.5 billion.
Back from a one day market holiday on Tuesday, shares of Nomura rose 5.2 percent to 1,505 yen, and Mitsubishi UFJ gained 4.2 percent to 936 yen. Tokyo's index of bank stocks (-IBNKST - News) rose 1.1 percent.
"Nomura was able to buy Lehman after it filed for bankruptcy so I think investors think that Nomura got Lehman on the cheap," said Nana Otsuki, banking analyst at UBS in Tokyo.
"It kind of seems that MUFG might have been able to get Morgan Stanley cheaper if they had waited a little," she added.
Both Goldman and Morgan Stanley secured approval from the Federal Reserve to become commercial, deposit-taking banks this week, signaling the end of an era for Wall Street's free-wheeling, investment banking model.
Some analysts had previously speculated that Goldman could turn to SMFG for funding, because the two companies have a history of investing in each other.
In 2003, Goldman bought 150 billion yen in convertible preferred shares of SMFG, giving it a much-needed capital injection while in the 1980s, SMFG's predecessor bank helped bail out Goldman.
Sumitomo Mitsui said in June it would pay 500 million pounds ($927 million) to take a 2 percent stake in British bank Barclays Plc (LSE:BARC.L - News).
SMFG's President, Teisuke Kitayama, later told Reuters the two banks would work together on private and commercial banking outside of Japan.
SMFG said the bank had no deal in place at the moment but media said it wanted to join the list of Japanese financial firms using the upheaval in the United States to aggressively expand abroad.
The purchases, including a big stake in Morgan Stanley (NYSE:MS - News) and the Asian and European assets of failed Lehman Brothers (Other OTC:LEHMQ.PK - News), are a major turnaround for Japanese banks that were nearly crushed by bad loans just a few years ago and needed massive injections of public cash to stay afloat.
Late on Tuesday, Warren Buffett's Berkshire Hathaway Inc (NYSE:BRK-A - News; NYSE:BRK-B - News) agreed to invest $5 billion in Goldman Sachs, a big boost for the Wall Street bank from the world's best-known investor, but a Goldman spokesman said he could not confirm the report SMFG would follow suit.
SMFG's investment in Goldman Sachs would total several hundred billion yen, Kyodo news agency said, while the Nikkei business daily said the bank would consider investing up to 100 billion yen ($946 million).
SMFG played down the reports, which both cited unnamed sources.
"At this point, it is not true that we've decided to invest in Goldman Sachs," said SMFG spokeswoman Chika Togawa, who declined to comment further.
In a broader rally of financial stocks, shares of SMFG finished up 1.2 percent at 684,000 yen, compared with a 0.1 percent decline in Tokyo's broad TOPIX share average.
"If they take a big position in Goldman, you can definitely say it would be a positive over the medium- to long-term," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"If they take a big enough position so that they can benefit from Goldman's know-how and human resources, it will be positive."
Once considered too naive and cautious for the high-risk, high-return world of investment banking, cash-rich Japanese firms have largely avoided the huge credit losses of the subprime mortgage crisis, leaving them well-placed to pick up the best assets from the carnage on Wall Street.
Nomura Holdings Inc <8604.
Japan's top bank, Mitsubishi UFJ Financial Group Inc (Tokyo:8306.T - News), has agreed to buy up to 20 percent of Morgan Stanley for as much as $8.5 billion.
Back from a one day market holiday on Tuesday, shares of Nomura rose 5.2 percent to 1,505 yen, and Mitsubishi UFJ gained 4.2 percent to 936 yen. Tokyo's index of bank stocks (-IBNKST - News) rose 1.1 percent.
"Nomura was able to buy Lehman after it filed for bankruptcy so I think investors think that Nomura got Lehman on the cheap," said Nana Otsuki, banking analyst at UBS in Tokyo.
"It kind of seems that MUFG might have been able to get Morgan Stanley cheaper if they had waited a little," she added.
Both Goldman and Morgan Stanley secured approval from the Federal Reserve to become commercial, deposit-taking banks this week, signaling the end of an era for Wall Street's free-wheeling, investment banking model.
Some analysts had previously speculated that Goldman could turn to SMFG for funding, because the two companies have a history of investing in each other.
In 2003, Goldman bought 150 billion yen in convertible preferred shares of SMFG, giving it a much-needed capital injection while in the 1980s, SMFG's predecessor bank helped bail out Goldman.
Sumitomo Mitsui said in June it would pay 500 million pounds ($927 million) to take a 2 percent stake in British bank Barclays Plc (LSE:BARC.L - News).
SMFG's President, Teisuke Kitayama, later told Reuters the two banks would work together on private and commercial banking outside of Japan.
Tuesday, September 23, 2008
Congress, Bush team agree on some bailout terms
WASHINGTON (AP) -- Scrambling for a swift deal on the $700 billion bailout for failing financial firms, key Democrats and Bush administration officials agreed Monday to include mortgage help for beleaguered homeowners but wrangled over other issues, including "golden parachutes" for executives who benefit from the unprecedented rescue.
Democrats demanded that the measure limit pay packages for executives of companies helped by the biggest financial rescue since the Great Depression. The administration was balking at that, and also at a proposal by Democrats to let judges rewrite mortgages to lower bankrupt homeowners' monthly payments.
President Bush prodded Congress during the day to pass the rescue plan quickly, declaring, "The whole world is watching."
Rep. Barney Frank, the House Financial Services Committee chairman, said the administration essentially had forced Congress to the negotiating table by creating an expectation in financial markets that a massive bailout was on the way.
"By the declaration that they made, by sending this proposal, I think we have to recognize the reality that we don't have a choice now of debating whether this is a good or a bad thing," said Frank, D-Mass, who was leading negotiations with Treasury Secretary Henry Paulson.
"We have gotten closer," Frank said, but "We're not there yet."
Congressional aides said the House could act on a bailout bill as early as Wednesday, but leaders emerged from a closed-door meeting late Monday with no firm timetable for action.
House Speaker Nancy Pelosi, D-Calif., said only that leaders were working to give the markets confidence that "this legislation will pass, and it will pass soon."
However, Wall Street wasn't comforted by the progress of the talks. The Dow Jones industrials plummeted 372 points, oil prices soared $25 a barrel at one point and gold prices surged anew as investors searched for a safe place to park their money. And despite encouraging talk on Capitol Hill, lawmakers on both the right and left were already assailing the deal-in-progress.
The emergency legislation would give the government broad power to buy up devalued assets from troubled financial firms in a bid to unlock the flow of credit and stabilize badly shaken markets in the United States and around the globe.
In one expansion of its original proposal, the administration is asking for broad power to buy up virtually any kind of bad asset -- including credit card debt or car loans -- from any financial institution in the U.S. or abroad in order to stabilize markets.
Sen. Chris Dodd, D-Conn., the Banking Committee chairman, has proposed granting that request; Frank said he was working to limit the bailout to mortgage-related investments.
Differences remained with the administration on Democrats' proposal that the government take an ownership stake in the troubled companies it bails out so that taxpayers could benefit from future profits. Frank said Paulson had accepted the idea in principle, but several staff aides at work on the plan said there was no agreement yet on how the concept would work.
Frank said he and Paulson had agreed to create a congressional oversight board as part of the bailout and to mandate that the government come up with a plan to avoid foreclosures on any mortgages it acquires in the rescue. A government official with knowledge of the talks confirmed the administration backs those provisions.
As for tottering financial firms, there still were divisions on which would be helped and what kind of assets the government could buy as part of the bailout.
And in a fresh sign of a challenging road ahead, Sen. Richard C. Shelby of Alabama, the top Banking Committee Republican, blasted the emerging plan as "neither workable nor comprehensive."
"In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted and may actually cause the government to revert to an inadequate strategy of ad hoc bailouts," Shelby said.
Lawmakers on both extremes of the political spectrum assailed the plan as a massive, poorly conceived bailout. Conservative House Republicans and liberal House Democrats both and huddled privately to express their concerns.
A partisan battle was brewing over the bankruptcy provision for homeowners' mortgage payments, a key Democratic demand.
"We'll see how hard they fight -- it's something we care about," Frank said.
Lawmakers in both parties appeared to be coalescing around the idea that executive compensation limits should be part of the bailout, although Paulson is said to be concerned that such curbs would discourage companies from participating.
"Some element of that has to be in this package," said Sen. Mel Martinez, R-Fla.
Investors were uncertain just how successful the administration's plan would be in unfreezing credit markets, which many businesses depend on to fund day-to-day operations, and for propping up the still-weak housing market.
Bush said, "Obviously, there will be differences over some details, and we will have to work through them. That is an understandable part of the policymaking process." But he also said, "It would not be understandable if members of Congress sought to use this emergency legislation to pass unrelated provisions, or to insist on provisions that would undermine the effectiveness of the plan."
Treasury spokeswoman Brookly McLaughlin said, "We are confident that we can get a bill done this week."
The fast-moving negotiations between the administration and Congress unfolded a day after the government approved a request by investment houses Goldman Sachs and Morgan Stanley to change their status to bank holding companies.
That change will allow the two venerable institutions to set up commercial banks that will be able to take deposits, significantly bolstering the resources of both institutions. It will also grant them permanent access to emergency loans supplied by the Fed rather than the temporary loan status they have had since last March when the Fed moved to prop up investment banks following the forced sale of Bear Stearns.
Democrats demanded that the measure limit pay packages for executives of companies helped by the biggest financial rescue since the Great Depression. The administration was balking at that, and also at a proposal by Democrats to let judges rewrite mortgages to lower bankrupt homeowners' monthly payments.
President Bush prodded Congress during the day to pass the rescue plan quickly, declaring, "The whole world is watching."
Rep. Barney Frank, the House Financial Services Committee chairman, said the administration essentially had forced Congress to the negotiating table by creating an expectation in financial markets that a massive bailout was on the way.
"By the declaration that they made, by sending this proposal, I think we have to recognize the reality that we don't have a choice now of debating whether this is a good or a bad thing," said Frank, D-Mass, who was leading negotiations with Treasury Secretary Henry Paulson.
"We have gotten closer," Frank said, but "We're not there yet."
Congressional aides said the House could act on a bailout bill as early as Wednesday, but leaders emerged from a closed-door meeting late Monday with no firm timetable for action.
House Speaker Nancy Pelosi, D-Calif., said only that leaders were working to give the markets confidence that "this legislation will pass, and it will pass soon."
However, Wall Street wasn't comforted by the progress of the talks. The Dow Jones industrials plummeted 372 points, oil prices soared $25 a barrel at one point and gold prices surged anew as investors searched for a safe place to park their money. And despite encouraging talk on Capitol Hill, lawmakers on both the right and left were already assailing the deal-in-progress.
The emergency legislation would give the government broad power to buy up devalued assets from troubled financial firms in a bid to unlock the flow of credit and stabilize badly shaken markets in the United States and around the globe.
In one expansion of its original proposal, the administration is asking for broad power to buy up virtually any kind of bad asset -- including credit card debt or car loans -- from any financial institution in the U.S. or abroad in order to stabilize markets.
Sen. Chris Dodd, D-Conn., the Banking Committee chairman, has proposed granting that request; Frank said he was working to limit the bailout to mortgage-related investments.
Differences remained with the administration on Democrats' proposal that the government take an ownership stake in the troubled companies it bails out so that taxpayers could benefit from future profits. Frank said Paulson had accepted the idea in principle, but several staff aides at work on the plan said there was no agreement yet on how the concept would work.
Frank said he and Paulson had agreed to create a congressional oversight board as part of the bailout and to mandate that the government come up with a plan to avoid foreclosures on any mortgages it acquires in the rescue. A government official with knowledge of the talks confirmed the administration backs those provisions.
As for tottering financial firms, there still were divisions on which would be helped and what kind of assets the government could buy as part of the bailout.
And in a fresh sign of a challenging road ahead, Sen. Richard C. Shelby of Alabama, the top Banking Committee Republican, blasted the emerging plan as "neither workable nor comprehensive."
"In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted and may actually cause the government to revert to an inadequate strategy of ad hoc bailouts," Shelby said.
Lawmakers on both extremes of the political spectrum assailed the plan as a massive, poorly conceived bailout. Conservative House Republicans and liberal House Democrats both and huddled privately to express their concerns.
A partisan battle was brewing over the bankruptcy provision for homeowners' mortgage payments, a key Democratic demand.
"We'll see how hard they fight -- it's something we care about," Frank said.
Lawmakers in both parties appeared to be coalescing around the idea that executive compensation limits should be part of the bailout, although Paulson is said to be concerned that such curbs would discourage companies from participating.
"Some element of that has to be in this package," said Sen. Mel Martinez, R-Fla.
Investors were uncertain just how successful the administration's plan would be in unfreezing credit markets, which many businesses depend on to fund day-to-day operations, and for propping up the still-weak housing market.
Bush said, "Obviously, there will be differences over some details, and we will have to work through them. That is an understandable part of the policymaking process." But he also said, "It would not be understandable if members of Congress sought to use this emergency legislation to pass unrelated provisions, or to insist on provisions that would undermine the effectiveness of the plan."
Treasury spokeswoman Brookly McLaughlin said, "We are confident that we can get a bill done this week."
The fast-moving negotiations between the administration and Congress unfolded a day after the government approved a request by investment houses Goldman Sachs and Morgan Stanley to change their status to bank holding companies.
That change will allow the two venerable institutions to set up commercial banks that will be able to take deposits, significantly bolstering the resources of both institutions. It will also grant them permanent access to emergency loans supplied by the Fed rather than the temporary loan status they have had since last March when the Fed moved to prop up investment banks following the forced sale of Bear Stearns.
Oil prices make biggest single-day price jump ever on bailout unease, contract expiration
NEW YORK (AP) -- Oil prices briefly spiked more than $25 a barrel Monday, shattering the record for the biggest one-day gain as unease about the government's $700 billion bailout plan pummeled the dollar and spurred investors to buy safe-haven assets. An expiring crude contract added fuel to the frenzied rally.
Light, sweet crude for October delivery jumped as much as $25.45 to $130 a barrel on the New York Mercantile Exchange before falling back to settle at $120.92, up $16.37. The contract expired at the end of the day, adding to the volatility as traders rushed to cover positions; the October price began accelerating sharply in the last hour of regular trading, a common occurrence when a contract is about to go off the board.
Still, the rally, which shattered crude's previous one-day price jump of $10.75, set June 6, showed the intensity of emotion in the market. The Nymex temporarily halted electronic crude oil trading after prices breached the $10 daily trading limit. Trading resumed seconds later after the daily limit was increased.
The November crude contract, which became the front-month contract at the end of Monday's session, settled at $109.37, up $6.62, still a very sharp gain.
The severity of the price move shocked veteran market participants and prompted the U.S. Commodity Futures Trading Commission to launch an investigation into whether illegal manipulation was to blame.
Acting CFTC Chairman Walter Lukken said the agency's surveillance and enforcement staff was analyzing the price spike "to ensure that no one is taking advantage of the current stresses facing our financial marketplace for their own manipulative gain."
Phil Flynn, analyst and oil trader with Alaron Trading Corp. in Chicago, said the late-session surge in oil appeared to be the result of a large investment fund scrambling to cover their short positions, or bets that prices would fall.
"When people sense that someone is short, it's like blood on the streets. It just accelerates the rally," Flynn said.
In other trading, gold prices shot up more than $44.30 to settle at $909 an ounce, and other safe-haven commodities also rallied, underscoring investors' uncertainly about the direction of the economy and their fear of more turmoil ahead.
"We're off to the races again," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. "There's a renewed scramble for commodities because of a general weakness in the dollar."
Crude has gained about $30 in a dramatic four-day rally that has at least temporarily halted oil's steep two-month slide below $100. At this rate, crude is within striking distance of its all-time record of $147.27, reached in July.
The rally came as energy traders grappled with the implications of the government's proposed initiative to stem the U.S. financial crisis by absorbing billions of dollars of banks' bad mortgage-related securities. Anxiety over the plan also sent stocks sharply lower Monday; the credit markets were calmer than they were last week, but still showing the effects of investors' nervousness.
Investors fear that the government will have to dramatically ramp up borrowing to pay for the mammoth rescue effort, an inflationary move that could further devalue the dollar and trigger another wave of safe-haven buying in investments like commodities.
"They're going to have to continue auctioning off a whole lot of Treasurys to finance these projects, so the dollar is going to suffer," said Matt Zeman, head trader at LaSalle Futures in Chicago. "Right now it's fear and anxiety driving people who want tangible assets."
The 15-nation euro rose to $1.4796 in afternoon trading, up from the $1.4470 on Friday. A weak greenback was a catalyst for the commodities boom of the past year, and analysts said large investment funds were expected to pour money back into the sector.
"That trade was very successful in past so if the dollar keeps weakening, a lot people are going to want to own hard assets like crude," said Andrew Lebow, senior vice president and broker at MF Global in New York.
Crude's resurgence could halt steadily sliding pump prices. A gallon a regular shed 1.8 cents overnight to a new national average of $3.739, according to auto club AAA, the Oil Price Information Service and Wright Express.
But there is still much uncertainty about what impact the U.S. rescue plan will have on energy demand. Oil's run-up near $150 a barrel in July and a weak U.S. economy has forced Americans to cut back on their driving and led business to scale down operations. Though pump prices have eased from record levels above $4 a gallon, they remain expensive, and more softening in the economy would likely further curtail energy use in the world's thirstiest consumer.
Given the dire economic outlook, some analysts questioned whether oil prices would keep rising.
"We've already seen that the world can't afford oil at these prices. If it keeps going up, demand will drop off again," Flynn said.
However, he cautioned that oil's future direction hinged on the outcome of the government bailout plan and its effect on the U.S. economy.
"If the dollar keeps getting whacked and everybody panics, then we are going up again," he said.
U.S. congressional leaders endorsed the plan's main thrust, saying passage might occur in a matter of days. But they also want independent oversight, protections for homeowners and constraints on excessive executive compensation, House Speaker Nancy Pelosi said Sunday.
Treasury Secretary Henry Paulson pushed lawmakers, who received the package on Saturday, to approve the proposal as soon as possible.
The Federal Reserve also announced late Sunday it granted a request by investment banks Goldman Sachs and Morgan Stanley to change their status to bank holding companies, a move that will allow the two institutions to open commercial banking subsidiaries, greatly bolstering their resources.
In other Nymex trading, heating oil futures rose 14.52 cents to settle at $3.043 a gallon, while gasoline futures rose 10.41 cents to settle at $2.7038 a gallon. Natural gas futures rose 9.5 cents to settle at $7.943 per 1,000 cubic feet.
In London, November Brent crude rose $6.43 to settle at $106.04 a barrel on the ICE Futures exchange.
Light, sweet crude for October delivery jumped as much as $25.45 to $130 a barrel on the New York Mercantile Exchange before falling back to settle at $120.92, up $16.37. The contract expired at the end of the day, adding to the volatility as traders rushed to cover positions; the October price began accelerating sharply in the last hour of regular trading, a common occurrence when a contract is about to go off the board.
Still, the rally, which shattered crude's previous one-day price jump of $10.75, set June 6, showed the intensity of emotion in the market. The Nymex temporarily halted electronic crude oil trading after prices breached the $10 daily trading limit. Trading resumed seconds later after the daily limit was increased.
The November crude contract, which became the front-month contract at the end of Monday's session, settled at $109.37, up $6.62, still a very sharp gain.
The severity of the price move shocked veteran market participants and prompted the U.S. Commodity Futures Trading Commission to launch an investigation into whether illegal manipulation was to blame.
Acting CFTC Chairman Walter Lukken said the agency's surveillance and enforcement staff was analyzing the price spike "to ensure that no one is taking advantage of the current stresses facing our financial marketplace for their own manipulative gain."
Phil Flynn, analyst and oil trader with Alaron Trading Corp. in Chicago, said the late-session surge in oil appeared to be the result of a large investment fund scrambling to cover their short positions, or bets that prices would fall.
"When people sense that someone is short, it's like blood on the streets. It just accelerates the rally," Flynn said.
In other trading, gold prices shot up more than $44.30 to settle at $909 an ounce, and other safe-haven commodities also rallied, underscoring investors' uncertainly about the direction of the economy and their fear of more turmoil ahead.
"We're off to the races again," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. "There's a renewed scramble for commodities because of a general weakness in the dollar."
Crude has gained about $30 in a dramatic four-day rally that has at least temporarily halted oil's steep two-month slide below $100. At this rate, crude is within striking distance of its all-time record of $147.27, reached in July.
The rally came as energy traders grappled with the implications of the government's proposed initiative to stem the U.S. financial crisis by absorbing billions of dollars of banks' bad mortgage-related securities. Anxiety over the plan also sent stocks sharply lower Monday; the credit markets were calmer than they were last week, but still showing the effects of investors' nervousness.
Investors fear that the government will have to dramatically ramp up borrowing to pay for the mammoth rescue effort, an inflationary move that could further devalue the dollar and trigger another wave of safe-haven buying in investments like commodities.
"They're going to have to continue auctioning off a whole lot of Treasurys to finance these projects, so the dollar is going to suffer," said Matt Zeman, head trader at LaSalle Futures in Chicago. "Right now it's fear and anxiety driving people who want tangible assets."
The 15-nation euro rose to $1.4796 in afternoon trading, up from the $1.4470 on Friday. A weak greenback was a catalyst for the commodities boom of the past year, and analysts said large investment funds were expected to pour money back into the sector.
"That trade was very successful in past so if the dollar keeps weakening, a lot people are going to want to own hard assets like crude," said Andrew Lebow, senior vice president and broker at MF Global in New York.
Crude's resurgence could halt steadily sliding pump prices. A gallon a regular shed 1.8 cents overnight to a new national average of $3.739, according to auto club AAA, the Oil Price Information Service and Wright Express.
But there is still much uncertainty about what impact the U.S. rescue plan will have on energy demand. Oil's run-up near $150 a barrel in July and a weak U.S. economy has forced Americans to cut back on their driving and led business to scale down operations. Though pump prices have eased from record levels above $4 a gallon, they remain expensive, and more softening in the economy would likely further curtail energy use in the world's thirstiest consumer.
Given the dire economic outlook, some analysts questioned whether oil prices would keep rising.
"We've already seen that the world can't afford oil at these prices. If it keeps going up, demand will drop off again," Flynn said.
However, he cautioned that oil's future direction hinged on the outcome of the government bailout plan and its effect on the U.S. economy.
"If the dollar keeps getting whacked and everybody panics, then we are going up again," he said.
U.S. congressional leaders endorsed the plan's main thrust, saying passage might occur in a matter of days. But they also want independent oversight, protections for homeowners and constraints on excessive executive compensation, House Speaker Nancy Pelosi said Sunday.
Treasury Secretary Henry Paulson pushed lawmakers, who received the package on Saturday, to approve the proposal as soon as possible.
The Federal Reserve also announced late Sunday it granted a request by investment banks Goldman Sachs and Morgan Stanley to change their status to bank holding companies, a move that will allow the two institutions to open commercial banking subsidiaries, greatly bolstering their resources.
In other Nymex trading, heating oil futures rose 14.52 cents to settle at $3.043 a gallon, while gasoline futures rose 10.41 cents to settle at $2.7038 a gallon. Natural gas futures rose 9.5 cents to settle at $7.943 per 1,000 cubic feet.
In London, November Brent crude rose $6.43 to settle at $106.04 a barrel on the ICE Futures exchange.
Monday, September 22, 2008
Federal Reserve changes status of Goldman Sachs and Morgan Stanley to bank holding companies
WASHINGTON (AP) -- The Federal Reserve said Sunday it had granted a request by the country's last two major investment banks -- Goldman Sachs and Morgan Stanley -- to change their status to bank holding companies.
The Fed announced that it had approved the request of the two investment banks. The change in status will allow them to create commercial banks that will be able to take deposits, bolstering the resources of both institutions.
The change continued the biggest restructuring on Wall Street since the Great Depression.
The request for the change to bank holding companies was granted by a unanimous vote of the Fed's board of governors during a late Sunday meeting in Washington.
The change of status means both companies will come under the direct regulation of the Federal Reserve, which regulates the nation's bank holding companies. The banking subsidiaries of the two institutions will face the stricter regulations that commercial banks are required to meet. Previously, the primary regulator for Goldman and Morgan Stanley was the Securities and Exchange Commission.
Shares of both institutions had come under pressure ever since the bankruptcy filing last week by investment bank Lehman Brothers and the forced sale of investment bank Merrill Lynch to Bank of America.
Investors feared that the last remaining independent investment banks would not be able to survive in their current form. There had been speculation that both institutions would be acquired by commercial banks, whose ability to take deposits would give them a stable source of funding.
The decision by the two giants of finance to get approval from the Fed to change their own status represented another dramatic development in one of the most turbulent periods in Wall Street history.
In the surprise announcement late Sunday, the central bank said that to provide increase funding support to the two institutions during the transition period, they would be allowed to get short-term loans from the Federal Reserve Bank of New York against various types of collateral.
The Fed said its action would take final effect after a five-day waiting period required under law.
The decision means that the Goldman and Morgan Stanley will be able not only to set up commercial bank subsidiaries to take deposits, giving them a major resource base, but they will also have the same access as other commercial banks to the Fed's emergency loan program.
After the collapse of Bear Stearns and its forced sale to JP Morgan Chase last March, the Fed used powers it had been granted during the Great Depression to extend its emergency loans to investment banks as well as commercial banks. However, that extension was granted on a temporary basis.
But as commercial banks, Goldman Sachs and Morgan Stanley will have permanent access to emergency loans from the Fed, the same privilege that other commercial banks enjoy.
The action by the Fed's board of governors in Washington came on a day when the Bush administration continued to campaign for quick congressional approval of its request for authority to use $700 billion to purchase a mountain of bad mortgage debt held by financial companies. The effort represented the boldest action yet aimed at stabilizing chaotic financial markets.
Democrats in Congress said they would demand provisions in the bailout measure to protect people in danger of losing their homes as well as seeking to cap executive compensation at firms who get to unload their bad mortgages debt onto the government. But the proposal was expected to win quick congressional passage because both parties are concerned about the adverse reaction in financial markets should the measure look like it was being delayed.
The Fed announced that it had approved the request of the two investment banks. The change in status will allow them to create commercial banks that will be able to take deposits, bolstering the resources of both institutions.
The change continued the biggest restructuring on Wall Street since the Great Depression.
The request for the change to bank holding companies was granted by a unanimous vote of the Fed's board of governors during a late Sunday meeting in Washington.
The change of status means both companies will come under the direct regulation of the Federal Reserve, which regulates the nation's bank holding companies. The banking subsidiaries of the two institutions will face the stricter regulations that commercial banks are required to meet. Previously, the primary regulator for Goldman and Morgan Stanley was the Securities and Exchange Commission.
Shares of both institutions had come under pressure ever since the bankruptcy filing last week by investment bank Lehman Brothers and the forced sale of investment bank Merrill Lynch to Bank of America.
Investors feared that the last remaining independent investment banks would not be able to survive in their current form. There had been speculation that both institutions would be acquired by commercial banks, whose ability to take deposits would give them a stable source of funding.
The decision by the two giants of finance to get approval from the Fed to change their own status represented another dramatic development in one of the most turbulent periods in Wall Street history.
In the surprise announcement late Sunday, the central bank said that to provide increase funding support to the two institutions during the transition period, they would be allowed to get short-term loans from the Federal Reserve Bank of New York against various types of collateral.
The Fed said its action would take final effect after a five-day waiting period required under law.
The decision means that the Goldman and Morgan Stanley will be able not only to set up commercial bank subsidiaries to take deposits, giving them a major resource base, but they will also have the same access as other commercial banks to the Fed's emergency loan program.
After the collapse of Bear Stearns and its forced sale to JP Morgan Chase last March, the Fed used powers it had been granted during the Great Depression to extend its emergency loans to investment banks as well as commercial banks. However, that extension was granted on a temporary basis.
But as commercial banks, Goldman Sachs and Morgan Stanley will have permanent access to emergency loans from the Fed, the same privilege that other commercial banks enjoy.
The action by the Fed's board of governors in Washington came on a day when the Bush administration continued to campaign for quick congressional approval of its request for authority to use $700 billion to purchase a mountain of bad mortgage debt held by financial companies. The effort represented the boldest action yet aimed at stabilizing chaotic financial markets.
Democrats in Congress said they would demand provisions in the bailout measure to protect people in danger of losing their homes as well as seeking to cap executive compensation at firms who get to unload their bad mortgages debt onto the government. But the proposal was expected to win quick congressional passage because both parties are concerned about the adverse reaction in financial markets should the measure look like it was being delayed.
Thursday, September 18, 2008
Morgan Stanley seeks deal with Wachovia
NEW YORK (AP) -- Morgan Stanley's stock price plunged again Thursday as the investment bank scrambled to strike a major deal or raise more cash that will assuage investors and prevent more damage to its free-falling shares.
John Mack, the No. 2 U.S. investment bank's chief executive, has reached out to China's Citic Group overnight about a possible investment, according to a person familiar with the talks. Morgan Stanley is also considering a combination with retail bank Wachovia Corp. and an investment from Singapore Investment Corp., one of the world's biggest sovereign wealth funds, said the person, who spoke on the condition of anonymity because the discussions were still ongoing,
Morgan Stanley shares have fallen 38 percent in the past week amid unprecedented turmoil in the global banking system. Investors remain anxious after Lehman Brothers filed for bankruptcy protection, Merrill Lynch & Co. was forced into a sale to Bank of America Corp. and the federal government bailed out insurer American International Group.
Mack made telephone calls late Wednesday to Wachovia executives and also to Citigroup Inc. CEO Vikram Pandit, exploring all options to help restore confidence in the investment house, the person said. Citigroup was not interested in a tie-up, but talks remain ongoing with Wachovia, he said.
Wachovia declined to comment about a potential deal, while Citigroup confirmed that Mack and Pandit spoke.
Spokesmen for GIC and Citic could not immediately be reached for comment.
Mack isn't the only CEO looking to strike some kind of a deal or capital infusion. Washington Mutual Inc., which has lost billions and seen its shares plummet due to subprime mortgage exposure, is selling itself or looking for a deep-pocketed investor.
And overnight in London, Britain's Lloyds TSB Lloyds TSB announced a $21.85-billion deal to take over struggling HBOS PLC, Britain's biggest mortgage lender.
The U.S. government, which helped organize an $85 billion bailout of insurer AIG on Tuesday, also sought to break the grip of worsening global credit crisis by pumping billions into financial markets in a concerted action with central banks of other countries. The Federal Reserve Bank of New York, in two operations, injected $55 billion into temporary reserves in the United States, a move aimed to help ease a strained financial system in danger of freezing up.
The move helped steady Wall Street after the previous session's massive rout. However, market participants still moved into safe assets such as gold and Treasury bills, a sign that they remain skittish during the most troubling period for the world's financial system in most investors' memory.
AP Economics Writer Jeannine Aversa in Washington and AP Business Writer Tim Paradis in New York contributed to this report.
John Mack, the No. 2 U.S. investment bank's chief executive, has reached out to China's Citic Group overnight about a possible investment, according to a person familiar with the talks. Morgan Stanley is also considering a combination with retail bank Wachovia Corp. and an investment from Singapore Investment Corp., one of the world's biggest sovereign wealth funds, said the person, who spoke on the condition of anonymity because the discussions were still ongoing,
Morgan Stanley shares have fallen 38 percent in the past week amid unprecedented turmoil in the global banking system. Investors remain anxious after Lehman Brothers filed for bankruptcy protection, Merrill Lynch & Co. was forced into a sale to Bank of America Corp. and the federal government bailed out insurer American International Group.
Mack made telephone calls late Wednesday to Wachovia executives and also to Citigroup Inc. CEO Vikram Pandit, exploring all options to help restore confidence in the investment house, the person said. Citigroup was not interested in a tie-up, but talks remain ongoing with Wachovia, he said.
Wachovia declined to comment about a potential deal, while Citigroup confirmed that Mack and Pandit spoke.
Spokesmen for GIC and Citic could not immediately be reached for comment.
Mack isn't the only CEO looking to strike some kind of a deal or capital infusion. Washington Mutual Inc., which has lost billions and seen its shares plummet due to subprime mortgage exposure, is selling itself or looking for a deep-pocketed investor.
And overnight in London, Britain's Lloyds TSB Lloyds TSB announced a $21.85-billion deal to take over struggling HBOS PLC, Britain's biggest mortgage lender.
The U.S. government, which helped organize an $85 billion bailout of insurer AIG on Tuesday, also sought to break the grip of worsening global credit crisis by pumping billions into financial markets in a concerted action with central banks of other countries. The Federal Reserve Bank of New York, in two operations, injected $55 billion into temporary reserves in the United States, a move aimed to help ease a strained financial system in danger of freezing up.
The move helped steady Wall Street after the previous session's massive rout. However, market participants still moved into safe assets such as gold and Treasury bills, a sign that they remain skittish during the most troubling period for the world's financial system in most investors' memory.
AP Economics Writer Jeannine Aversa in Washington and AP Business Writer Tim Paradis in New York contributed to this report.
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