Federal Reserve Chairman Ben Bernanke gave Wall Street a double dose of reassurance. Now it's President Barack Obama's turn.
Bernanke told Congress on Tuesday the recession might end this year, and that regulators aren't planning to nationalize banks. The news alleviated some of investors' worries about the economy and the banking industry, and lifted the Dow Jones industrial average and Standard & Poor's 500 index off their lowest levels since 1997.
And investors are hopeful that Tuesday night, Obama will provide specifics about his plans to stabilize the financial system and further stimulate the economy. Anticipation of his remarks helped drive beaten-down financial shares up sharply.
"There's growing optimism that Obama can deliver the details that the market is so desperately looking for in his speech," said Ryan Larson, senior equity trader at Voyageur Asset Management. If it gets those details, Larson added, the market's upward momentum could continue.
Stocks remain on shaky ground, however. Bernanke may have helped stem the market's slide Tuesday, but the market also found stability from temporary technical factors: bargain-hunting, the unwinding of short bets, and selling exhaustion after six straight down days for the S&P 500.
And though it appears the government is trying to quash the notion of bank nationalization, the Obama administration still has not demonstrated how exactly it will repair the banking system. The nation's financial system remains "zombie-like," said Nick Kalivas, vice president of financial research at the brokerage MF Global.
"We had an up day today, but nothing has really changed on that front," Kalivas said. "If nothing is articulated on that tonight, we're moving to the downside again."
The continued focus on the stability of the financial system comes a day after the government moved closer to dramatically expanding its ownership stakes in the nation's banks, including Citigroup Inc. The Treasury Department, the Fed and other banking regulators said Monday they could convert the government's stock in the banks from preferred shares to common shares.
The Dow rose 236.16, or 3.3 percent, to 7,350.94. On Monday, the major indexes tumbled more than 3 percent, including the Dow, which fell 251 points and hit its lowest close since May 7, 1997.
Broader stock indicators also rebounded Tuesday. The S&P 500 index rose 29.81, or 4 percent, to 773.14. On Monday, it logged its lowest finish since April 11, 1997.
The Nasdaq composite index rose 54.11, or 3.9 percent, Tuesday to 1,441.83, while the Russell 2000 index of smaller companies rose 17.90, or 4.5 percent, to 412.48.
Advancing issues outnumbered decliners by about 6 to 1 on the New York Stock Exchange, where consolidated volume came to 7.09 billion shares, compared with Monday's 6.35 billion.
In his semiannual report to the Senate Banking Committee, Bernanke predicted the economy is likely to keep contracting in the first six months of 2009, but that "there is a reasonable prospect" the recession will end this year.
He warned that a recovery will require getting credit and financial markets to operate normally, and that the government must continue working with ailing banks to bring them back to profitability. To the market's relief, though, the Fed chief said formally nationalizing the banks "just isn't necessary."
Traders were encouraged that the S&P 500 index has so far managed to stayed above its Nov. 21 trading low of 741.02. Investors searching for a recovery look for signs that market can test its lows from the worst of the credit crisis and then bounce higher.
Still, many analysts expect the market to remain volatile for the foreseeable future.
Rich Hughes, co-president of Portfolio Management Consultants in Los Angeles, said the market's rallies are likely to be based on hope or on rebounds from selloffs. He contends Wall Street still hasn't seen the wrenching decline that is often needed to scare investors from the market and set the ground for a lasting recovery.
"The underlying fundamentals just aren't there to support anything that's sustainable right now," Hughes said. "We haven't seen the capitulation that you'd want to see before you'd get thoroughly enthused."
The market's slide has been tough on long-term investors. A person who in 1997 put $50,000 in a fund that tracks the S&P 500 would now only have about $46,256.
Bond prices fell Tuesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.80 percent from 2.76 percent late Monday. The yield on the three-month T-bill, considered one of the safest investments, was unchanged at 0.29 percent.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude rose $1.52 to $39.96 per barrel on the New York Mercantile Exchange.
Home Depot posted a loss but the nation's largest home improvement retailer's results topped expectations when excluding costs for shutting four home-improvement brands. The stock rose $1.96, or 10.5 percent, to $20.67.
Target Corp. and Macy's Inc. said fiscal fourth-quarter earnings fell sharply as shoppers cut back on purchases. Office Depot Inc. posted a loss for the quarter. Target fell 60 cents to $27.83, while Macy's rose 89 cents, or 12 percent, to $8.29.
Two big drags on the Dow this year -- Citigroup and Bank of America Corp. -- regained ground Tuesday. Citigroup rose 46 cents, or 22 percent, to $2.60, and BofA rose 82 cents, or 21 percent, to $4.73.
Another bank in the Dow, JPMorgan Chase & Co., rose $1.51, or 7.74 percent, to $21.02 after announcing late Monday it would slash its quarterly dividend to 5 cents from 38 cents in a move to save $5 billion a year.
The only loser in the Dow Tuesday was Microsoft Corp., which dipped 4 cents to $17.17 after it reiterated its belief that the economic crisis will persist at least into the second half of 2009.
Stocks fell in Asia and Europe following Monday's drop on Wall Street. Japan's Nikkei stock average fell 1.5 percent, Britain's FTSE 100 fell 0.78 percent, Germany's DAX index fell 0.73 percent, and France's CAC-40 fell 0.73 percent.
Showing posts with label U S Fed. Show all posts
Showing posts with label U S Fed. Show all posts
Wednesday, February 25, 2009
Wednesday, October 8, 2008
Fed leads global coordinated rate cut, eases by half point
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.
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.
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.
Wednesday, September 24, 2008
Ahead of the US Bell: Bernanke briefing
WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke is scheduled to return to Capitol Hill Wednesday to provide lawmakers an up-to-date assessment of the economy, and again make the case for Congress to speedily enact the $700 billion financial bailout package.
Bernanke's first stop will be Congress' Joint Economic Committee, where he'll discuss the economy, which has been badly bruised by the housing and credit debacles. That hearing is slated to begin at 10 a.m. EDT.
Unemployment has climbed to a five-year high of 6.1 percent as nervous employers cut jobs, and consumers are hunkering down as the bracing tonic of the government's tax rebates disappears.
Oil prices are up about $15 in the past week, momentarily halting a precipitous two-month slide from the all-time high of $147.27 a barrel reached in mid July.
Appearing Tuesday before the Senate Banking Committee, Bernanke warned that the economy could face grave consequences if credit problems persist because Congress doesn't step in and enact the financial bailout. More jobs would be lost, more homes would fall into foreclosure and the economy will contract, he said.
The plan would let the government buy bad mortgages and other troubled assets held by banks and other financial institutions. Getting those debts off their books, should make them more inclined to lend, breaking through the credit jam and reviving the economy. Congressional leaders predict passage but want significant changes to better protect taxpayers.
Later on Wednesday, Bernanke is scheduled to appear before the House Financial Services Committee, along with Treasury Secretary Henry Paulson, to talk about the state of financial markets and make a fresh pitch for the Bush administration's bailout package. That hearing is slated to begin at noon EDT.
Bernanke's first stop will be Congress' Joint Economic Committee, where he'll discuss the economy, which has been badly bruised by the housing and credit debacles. That hearing is slated to begin at 10 a.m. EDT.
Unemployment has climbed to a five-year high of 6.1 percent as nervous employers cut jobs, and consumers are hunkering down as the bracing tonic of the government's tax rebates disappears.
Oil prices are up about $15 in the past week, momentarily halting a precipitous two-month slide from the all-time high of $147.27 a barrel reached in mid July.
Appearing Tuesday before the Senate Banking Committee, Bernanke warned that the economy could face grave consequences if credit problems persist because Congress doesn't step in and enact the financial bailout. More jobs would be lost, more homes would fall into foreclosure and the economy will contract, he said.
The plan would let the government buy bad mortgages and other troubled assets held by banks and other financial institutions. Getting those debts off their books, should make them more inclined to lend, breaking through the credit jam and reviving the economy. Congressional leaders predict passage but want significant changes to better protect taxpayers.
Later on Wednesday, Bernanke is scheduled to appear before the House Financial Services Committee, along with Treasury Secretary Henry Paulson, to talk about the state of financial markets and make a fresh pitch for the Bush administration's bailout package. That hearing is slated to begin at noon EDT.
AIG signs "definitive" $85-bln deal with U.S. Fed
American International Group Inc said late on Tuesday it signed a "definitive" agreement for up to $85 billion in borrowings from the U.S. Federal Reserve, the main part of a rescue by the central bank that will see it take a 79.9 percent stake in the giant insurer.
AIG Chief Executive Edward Liddy said in a statement the facility was "the company's best alternative" in the current market environment.
Under the terms of the agreement, AIG has to pay back the loan from, among other things, asset sales and new debt or share issues. In the statement, AIG made it clear how onerous the terms of the two-year loan will be.
Not only will it pay 8.50 percentage points over 3-month LIBOR, putting the current rate at well over 11 percent, but it will also pay commitment fees.
There will be an initial gross commitment of 2 percent of the total loan facility, and subsequently a fee on undrawn amounts of 8.5 percent a year. The interest and the fees will be added to the balance outstanding, the company said.
"We are pleased to have finalized the terms of the facility, and are already developing a plan to sell assets, repay the facility and emerge as a smaller but profitable company," Liddy said in the statement.
It wasn't immediately clear whether the signing of the agreement will derail efforts by a large investor group that is working to thwart a government takeover of the company.
A lawyer for the investors -- which represent more than a third of all AIG stockholders and have the backing of former CEO Maurice "Hank" Greenberg -- said representatives of the group were to be briefed by the company on its financial position.
The rescue plan was unveiled Sept. 16 amid the most tumultuous week in financial markets in recent memory.
AIG Chief Executive Edward Liddy said in a statement the facility was "the company's best alternative" in the current market environment.
Under the terms of the agreement, AIG has to pay back the loan from, among other things, asset sales and new debt or share issues. In the statement, AIG made it clear how onerous the terms of the two-year loan will be.
Not only will it pay 8.50 percentage points over 3-month LIBOR, putting the current rate at well over 11 percent, but it will also pay commitment fees.
There will be an initial gross commitment of 2 percent of the total loan facility, and subsequently a fee on undrawn amounts of 8.5 percent a year. The interest and the fees will be added to the balance outstanding, the company said.
"We are pleased to have finalized the terms of the facility, and are already developing a plan to sell assets, repay the facility and emerge as a smaller but profitable company," Liddy said in the statement.
It wasn't immediately clear whether the signing of the agreement will derail efforts by a large investor group that is working to thwart a government takeover of the company.
A lawyer for the investors -- which represent more than a third of all AIG stockholders and have the backing of former CEO Maurice "Hank" Greenberg -- said representatives of the group were to be briefed by the company on its financial position.
The rescue plan was unveiled Sept. 16 amid the most tumultuous week in financial markets in recent memory.
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