meeny's Blog

Federal Reserve chairman, Ben S. Bernanke, offered a sober assessment of the national economy and prospects for recovery on Tuesday to Congress, reports of plunging housing prices and consumer confidence reinforced by Grim Outlook.
Mr. Bernanke told the Senate banking committee that the Federal Reserve was would do everything to unlock credit markets and encourage lending and borrowing. However, a potential recovery of at least a year away, he said, and that is if everything goes according to plan.
“If the measures taken by the administration, Congress and the Federal Reserve is successful in restoring some measure of financial stability - and only where appropriate, in my view - there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a recovery year, “said Mr Bernanke.
While he lingered over the seriousness of the financial crisis enveloping the country, buoyed investors Fed chairman, saying his resistance to any nationalization of big banks. The prospect of taking the government up to 40 percent stake in Citigroup in exchange for more support idea pushed to the fore.

“We do not need a majority of property to work with banks,” he said, arguing that federal agencies have oversight enough power to support the banks back into full health. Taking more formally banks would unnecessarily “finish franchise value” of the institutions, he said.

As required, Mr Bernanke addressed the Fed to double mandate maximum prices stable employment rate in the first twice-yearly report to each house of Congress. Former Fed of mission have been largely met, with prices more or less where they were a year ago, and inflation expected to creep under 1 percent this year.

But the job market continues to deteriorate. Unemployment, which rose from 7.6 percent in January, will arrive, probably 8.5 - 8.8 percent, year-end, according to Mr Bernanke Congressional report. Gross domestic product, which fell from an annual rate of 3-8 percent in the last quarter of 2008, will contract by 0.5 to 1.25 percent this year.

Two barometers of the economy of the housing market and consumer attitudes, has turned somber reading in the morning the president appeared on Capitol Hill.

Home prices in the United States fell to the fastest pace on record in December, according to Standard & Poor’s Case-Shiller home price index. The value of single family houses in 20 major metropolitan areas was 18.5 percent lower than in December of the previous year.

According to a report by the private Conference Board, consumers described their current situation and the situation expected in six months, in harsh terms. Group index of consumer confidence fell to a new low of 25 in February from 37.4 a month earlier. That was the lowest since it began tracking consumer sentiment in 1967.

Mr. Bernanke acknowledged there was a risk that the economy would become even worse than is currently forecast Fed.

Nature of lower global economy and a “so-called negative feedback loop” - the idea that economic and financial conditions become mutual - threatens to delay recovery, he said.

He asked for support for significant - and sometimes unpopular - fiscal and monetary interventions being made by the government.

Some senators, such as Evan Bayh, a Democrat from Indiana, questioned whether it was correct or even wise for the government to continue bailing the financial institutions and houses that have behaved irresponsibly.

In response, Mr. Bernanke government compared to a situation in which a neighbor smoked in bed and accidentally caught his house on fire. You could punish his neighbor for irresponsibility is not required by the fire department, Mr. Bernanke said. But when the neighbor learned the lesson of the entire neighborhood would be burned down.

He said policy makers should look to their task as two pronged. The first objective is to prevent the worsening economy in the near term. The second design is substantial, longer-term reform of the financial regulatory system to prevent future irresponsibility.

Mr. Bernanke argued repeatedly revamping federal oversight of financial institutions, which are now overseen by a patchwork of federal agencies that monitor various functions, he said, never get a full picture of a global financial health .

The Fed, he suggested, should look to smaller companies under the umbrella of a bank holding company so that the various risks a financial institution does not “out of line visibility regulations.”

In a joint program with other federal regulatory agencies, the Fed announced Monday that the nation’s 20 banks would be the biggest to undergo a “stress test” to determine their viability. The test will be used to measure whether banks have enough capital to survive a worsening downturn.

For Mr. Bernanke’s main objective of shoring up the economy, the Fed took extraordinary steps in recent months to increase the flow of credit to businesses and households.

When it comes to setting interest rates, which has almost exhausted its options. In December, the Federal Open Market Committee reduced the key interest rate to almost zero, to encourage lending.

The Fed has also been buying mortgage bonds which were guaranteed by the federal government.

It has expanded operations to lending banks. In a new program, it aims to fund consumer loans, recently announcing that it would extend the effort both in size and scope. Through a commercial paper program is to provide business loans instead of short-term iou’s.

Mr. Bernanke said these actions have contributed to improve short term and in the markets for financing commercial paper market and the reduction of tariffs in accordance mortgages - loans that meet Fannie Mae and Freddie Mac guidelines - and the reference rate, known as Libor, the costs of borrowing for consumers and businesses are often based.

Obama administration will begin to take a hard look at the financial situation of the country’s 20 largest banks this week to judge whether they could withstand even worse if further lowering of policy makers expect already.
These reviews of banks’ books, known as “stress tests” are heightening aids dilemma about how Obama should be honest about the health of banks like Citigroup and Bank of America. Tests are expected to take several weeks.
Bank shares were pummeled last week, in part because of rumors that the government could nationalize some banks. Officials believe many of the top 20 banks “too big to fail.”
Tests Friday as anxiety is building among investors and industry analysts on a Treasury Department plan to shore wider banking system. People familiar with the plan, which has been criticized by analysts and executives as vague, they say crucial details may not be ready for another few weeks.

In another sign of distress for banks, Citigroup officials were active in discussions with federal regulators on Sunday night about the government taking a larger ownership stake in the bank, according to a person close to the discussions.

Citigroup approached with a regulator that would allow you to convert a large amount of government of 45 billion U.S. dollars of preferred shares, which is treated as debt in the joint, this person said.

Conversion of preferred shares while also issuing more shares of Citigroup would be closer to the mix of capital, the government is likely to ask when it rolls out new stress test. But that would seriously dilute the value of shares held by existing shareholders Citigroup.

However, the big banks say they remain relatively healthy and that the time and support from the government, they will regain their footing. But many economists, Wall Street analysts and even some bank executives say some banks are already effectively insolvent.

Even if banks have reported billions of dollars in losses from bad loans, these critics say, the most important still wear trillion dollars in assets are more toxic and too damaged to resume normal lending.

This camp says it would be best to nationalize some of them now - with the government wiping the shareholders of the takeover and operation of institutions, at least temporarily - rather than to draw while the economy spirals further into down.

Stress tests will use computer-Run “What if” situations to predict what will happen to each bank in conditions like depression, with unemployment surging to 10 or 12 percent, for example, or home prices dropping 20 percent more, the Treasury and Federal Reserve officials said.

Fed officials have stressed that the hypothetical events were “very unlikely” to occur.

Top advisers to President Obama, including the Treasury secretary, Timothy F. Geithner, have insisted repeatedly that they will keep the major banks in “hands on” and have not intention of nationalizing them. But for tests that involve nightmarish economic conditions, the test results are likely to strengthen and where some of the most important banks need more capital. This would increase the likelihood that the government might increase its stake and dilute or even annihilate the shares held by private investors.

Friday, Treasury and Fed officials put the message that the stress test itself should not be regarded as a cause for anxiety. Tests, officials said, would simply make it clear, if a bank needs more capital now or might need more in the future, if conditions become worse.

Involvement was that federal regulators were not about to impose strict numerical rules to decide whether a bank had “good” or “failed” stress test. Federal officials are expected to disclose publicly the specific findings of any bank, even if they are expected to provide at least one idea from us, they are asking questions.

Some officials argued that the tests could provide reassurance about the strength of many banks. Indeed, Treasury and Fed officials said they had consulted with industry executives in developing the tests.

Bank executives reached over the weekend said that the tests may not produce information that is very different from what regulators already know about the banks. Federal Reserve already has hundreds of review on the website of the largest banks, monitor their business.

Meanwhile, the revelation that more new Treasury bank rescue plan may not come for several weeks allow banks and their shareholders to stew in uncertainty.

“These stress tests are only going to raise more questions and add to uncertainty,” said Bert Ely, a banking analyst in Alexandria, Va. “The only thing that is likely to calm down is if the administration flatly states that has not won over banks.”

Administration officials have tried to do this, but they have stopped short of making absolute statements - probably because many industry analysts say that some banks are “too big to not” might well be too weak to stand on their own.

President Obama’s chief spokesman, Robert Gibbs, said Friday that the administration “continues to believe strongly that there has been a private banking system was” in a fair go. ”

But on Friday, and for much of last week, investors acted as if they were betting on government bank takeovers dumping actions and response. Shares in Citigroup, for example, fell 44 percent, while Bank of America stock dropped 32 percent.

Indeed, investors appeared to be a challenge government statements exactly as they did last summer, when Bush called the bluff on the financial needs of Fannie Mae and Freddie Mac, government-sponsored mortgage-finance companies, which eventually had to be taken.

Because a government takeover could annihilate or at least dilute the value of existing common shares, investors sold bank shares at a furious pace last week.

Rumors about a government takeover of one or more major banks accelerated sharply last week after Alan Greenspan, former Fed chairman, said Wednesday that the government could be forced to temporarily nationalize some banks.

When Senator Christopher J. Dodd of Connecticut, chairman of the Senate Banking Committee, Mr. Greenspan alluded to the remarks and reluctantly he agreed in an interview on Friday, investors hammered bank shares once again.

lawyers from Paris to factory workers in China and Colombia in the body, among the unemployed are swelling rapidly around the world.
The world loss of jobs in the recession that began in the United States in December 2007 could hit a staggering 50 million by the end of 2009, according to International Labor Organization, an agency of the United Nations. Slow already claimed 3.6 million U.S. jobs.
High unemployment rates, especially among young workers, have led to protests in countries in various situations, such as Latvia, Chile, Greece, Bulgaria and Iceland and contributed to strikes in Britain and France.
Last month, the Government of Iceland, whose economy is expected to contract 10 percent this year, has collapsed and the Prime Minister moved the national elections, following weeks of protests by angry Icelanders soaring unemployment and higher prices.

Just last week, the new director of U.S. national Dennis C. Blair, told Congress that the instability caused by global economic crisis has become the biggest security threat facing the United States, outpacing terrorism.

“Almost everyone was caught by surprise at the speed in which unemployment is rising, and are groping for an answer,” said Nicolas VERON, a fellow at Bruegel, a research center in Brussels, which focuses the role of Europe in the global economy.

In emerging economies such as Eastern Europe, there are fears it could encourage an increase in joblessness move away from free-market, pro-Western policies, while in developed countries, unemployment could bolster efforts to protect local industries, to the detriment of world trade.

Indeed, some European stimulus package, and a past Friday in the United States, to include protections for the national courts, increasing the likelihood of protectionist trade battles.

Protectionist measures were a matter of intense discussion as finance ministers from the Group of 7 economies met this weekend in Rome.

While the number of jobs in the United States declined at the end of 2007, the pace of layoffs in Europe, Asia and developing countries has caught only recently that companies that resisted deep cuts in the past to be led by peers their American counterparts.

International Monetary Fund expects that by the end of this year, economic growth globally will reach its lowest since Depression, according to Charles Collyns, deputy director of the department’s research fund. Fund said that growth came to a virtual halt, with developed economies expected to shrink by 2 percent in 2009.

“This is the worst we’ve had since 1929,” said Laurent Wauquiez, France’s minister of employment. “What is new is that it is global and we always talk about it. It is in every country, and it makes all the difference.”

In Asia, any smugness at having escaped losses on U.S. sub-debt was erased growing despair over a plunge in sales among major exporters. Thursday, Pioneer Japan has said it will waive the flat screen television business and cut 10,000 jobs worldwide in response to sagging demand for home electronics.

Millions of migrant workers in China are in search of jobs, but found that the factory closes. Although not as large as in Greece or disturbance in the Baltics, have been dozens of protests at individual factories in China and Indonesia, where workers have been laid off with little or no notice.

The extent of the problem is also becoming apparent in Taiwan, where exports were 42.9 percent last month compared with a year ago, the steepest plunge in Asia.

Chang Yung-Yun, a 57-year-old restaurant kitchen worker, has been established beyond, when the employer closed in mid November. Her son, an engineer, was put on unpaid leave for weeks, a tactic that became common in Taiwan.

“The biggest fear for our people is to lose jobs,” President of Taiwan, Ma Ying-jeou, said in an interview.

Calls for protectionism have resonated among a public fricos. In the UK, refinery and power plant employees worked on the job last month to protest the use of workers from Italy and Portugal, a project construction on the coast. Some held up signs showing Prime Minister Gordon Brown has promised more than “British British jobs for workers.”

Unemployment in Britain is expected to increase to 9.5 percent by mid-2010, from 6.3 percent currently, according to Peter Dixon, economist with Commerzbank in London. Germany jobless rate could increase from 10.5 percent vs. 7.8 percent, he added.

In France last week, President Nicolas Sarkozy have agreed to provide low interest loans of 3 billion euros, or 3.86 billion dollars, each PSA Peugeot Citroen and Renault, in return for an agreement not to put out French workers .

To greater extent than in past downturns European highly trained white-collar workers are pounding the pavement, too. Naomi Runquist-Ohayon, a trademark lawyer, was looking for work in Paris at the beginning of the year, after losing her job in December.

“This is a fresh experience for me,” said Mrs. Runquist-Ohayon, 39, a Swedish native who has lived in Paris and London and speaks fluent English, French, Swedish and Italian. In London, I never had to show it. Recruiters or headhunters would call me or I call them. It’s so easy now. ”

A half a world away, in Colombia, Jaime Galeano, 40, is in a similar predicament. As a bodyguard in a country notorious for drug-related violence and kidnapping, Mr. Galeano profession thought was immune to him and he lost the job last year.

“The conditions for finding a job is terrible,” he said. What is more, his age is an impediment now, with a ministry of information you only candidates under the age of 32 would be considered for new positions.

“After turning 35, a person is worth nothing,” said Mr. Galeano.

Even India, whose sensational rise to the forefront of the global economy has been described in the hit film “Slumdog millionaire” hit a wall. About 500,000 people have lost their jobs between October and December 2008, according to a recent analysis.

In New Delhi, Tarun Lamba lost first real job has ever had about a month ago, when he was put down as a director of sales. Mr. Lamba, 24, said he knew bad news, because it was the wine has been weeks since he’s a truck loan. If he has to, he could join his father’s business, selling clothes. But he hopes that it will not reach it.

“Cycle to keep running,” he said. “We had a boom period a year ago, now we are in a recession and after a certain period of boom will come again.”

Many new workers, especially those countries that moved from communism to capitalism in the 1990s, have known only boom times since then. For them, the passage is particularly jarring, a main reason why violence has exploded recently in countries like Latvia, former Soviet republic.

“For the young generation, aged 20-24, this is the first time I had it,” said Valdis Zatlers, President of Latvia.

Ripples of the slowdown in Europe, North America and Asia are also being felt in Africa as migrant workers abroad lose jobs and are unable to send money home.

Since last temporary job as a metalworker in Paris, ended three months ago, Abdul-Ignace stopped monthly payments of 200 euro was sent to his wife and three children back to Senegal. “Between 2004 and 2008, I worked non-stop,” Mr. Abdul, 30, said in an interview in a bleak Paris unemployment office. “Right now, there is nothing.”

Although the loss of jobs accelerated last month, the United States has not yet hit bottom.
In a bleak report on Friday, the Labor Department said that about 600,000 jobs have disappeared and that in January a total of 3.6 million jobs were lost from the beginning of the recession in December 2007. Unemployment, meanwhile, rose to 7.6 percent from 7.2 percent a month earlier.
Lost more than half a million jobs in each of the last three months, the country is caught in a swirl of plunging consumer demand, rising joblessness and a deepening crisis in the banking system.
The contraction in jobs is Steeper than any recession since at least early 1980. But economists warn that many more shoes are going to fall.
The first is the increasingly severe global recession, which has already begun to choke off exports from the United States. Economic growth slowed in China for a fraction of its usual brisk pace, leading to brutal downturns in South Korea, Japan and other Asian Nations. Much of Europe has slipped into a recession as well.

A second shoe is the worker came from the United States. One apparent bright spot for employment in recent reports, including a Friday, was that every hour in wages and weekly earnings kept upward girth. But economists say that, but the tendency is to reverse soon and cause some more on consumers. Consumer spending, which represents one third of economic activity has slowed drastically as many workers lose their jobs and others worry about their security jobs.

The third big shoe is the banking system, which ultimately is expected to report to 1 billion U.S. dollars to 3 billion more dollars in losses related to the real estate market.

In conclusion, economists say, is that the United States will face increasing unemployment, at least for the remainder of this year, even if Congress passes a bill larger economic stimulus this week.

In its report last month, the Labor Department estimated 598,000 jobs were cut in January and revised it upwards of loss for the previous month to 577,000. In addition, the department revised estimates for the last 12 months to show that employers shed 400,000 jobs more than originally calculated, pushing the total closer to four million euros.

Meanwhile, the unemployment rate rose from 7.6 percent in January, the highest since 1992. But that underestimated the number of weakness in employment for hundreds of thousands of people dropped out of the labor force during the last year. On top of that, 3.1 million additional people were working part time because they could not find jobs, full-time.

“Businesses have panicked and fighting for survival and slashing their payrolls,” said Mark Zande, chief economist at Moody’s Economy.com. “I think we are caught in a very adverse, self-reinforcing cycle. Decline is increasing, likely to intensify further unless policymakers respond aggressively.”

Economists found almost no encouraging news in the report, saying each component of the economy, from consumers to employers to creditors, was held back by fear or necessity, and therefore, pulling others down.

“This is a show we watch with horror,” said Lawrence Mishel, president of the Economic Policy Institute, an economic research organization in Washington.

As in previous months, employers in nearly every industry slashed their payrolls, health care, with an exception. Manufacturers eliminated 207,000 jobs, more than in any year since 1982. The construction industry eliminated 111,000 jobs. And retailers, who were wrapping up their worst holiday shopping season in years, eliminated 45,000 jobs.

“The sweep of the losses, the degree of speed and they are depressionlike, and I want to say that the 1930s,” said Allen Sinai, chief economist at Decision Economics, an economic forecasting firm in Lexington, Mass

Even if the recession proved similar to recent downturns and the economy began to return again soon, probably would take the unemployment climbing for several months. That is because employers are usually willing to lay off workers at the beginning of a discount and also willing to commit back to the beginning of a recovery.

Many economists predict that the United States will lose at least two million more jobs, even if they still hold hope for a sick expansion to take hold in the second half of this year. January C. Shepherdson, economist at High Frequency Economics in Valhalla, NY, predicted that the labor market would continue to dwindle by mid 2010.

There is little hope of an immediate response. Consumer spending usually managed to increase during recessions, but declined drastically in the last six months and shows no sign of a rebound. Indeed, Federal Reserve reported Friday that consumer credit fell 3.1 percent, or 6.6 billion dollars in December. That followed a plunge of 11 billion U.S. dollars in November.

Consumers, it seems, are more cautious about growth in lending. But banks are also less willing to provide, in accordance with the latest Federal Reserve survey of loan officers.

Adding to Grim Outlook is the global economy, with both Asia and Europe during their downturns.

“Just look around the world, demand is collapsing,” said Nigel Gault, Managing Director at IHS Global Insight in Waltham, Mass Chinese growth fell to two-digit rates to around 6 percent. South Korea gross domestic product fell 5.5 percent between the third and fourth quarters of 2008 - an annualized decline of 21 percent. “This recession is another order of magnitude,” said Mr. Gault. “I had a crisis, this is global in nature.”

A modest exception to the Labor Department’s report generally dismal job was in workers salaries. Hourly earnings edged up 0.3 percent in January and were 3.9 percent in recent years. Weekly earnings ticked up as well and was 2-7 percent higher than a year ago.

But analysts said that trend was an anomaly.

The employment report puts added pressure on Congress to reach agreement on a package of economic recovery, and Senate Democrats fought furiously Friday to develop a combination of tax cuts and spending that would total approximately 800 billion dollars and earn enough Republican support to pass.

Many economists said an economic stimulus bill was crucial, whatever the details, because government spending has become almost the only way to break the vicious cycle between demand and sinking sinking investment.

But also, many cautioned that the added tax cuts and spending may not be enough, and could not work past the theory suggests. “We remain firmly of the opinion that the package now in Congress is the bare minimum necessary,” wrote Mr. Shepherdson of High Frequency Economics, in a note to clients. But, he predicted, “ultimately will prove too small.”

Mr. Sinai of Decision Economics, warned that the downturn was so different from most others that it was difficult to be sure about how the economy would respond to government money.

“My model says that it will generate three to four million jobs, but I’m not sure I believe that my own models,” said Mr. Sinai. “We are in uncharted waters here.”

Sina Corporation of China is one of the largest Internet portals, said Monday it will acquire a large piece of Focus Media, one of the leading advertising and digital media companies in China, for approximately $ 1 billion in stock .
Business, which was announced late Monday in Shanghai, push Sina, which controls Sina.com, business and outdoors-shop for advertising on the liquid-crystal display screens, a huge diversification that has evolved as a kind of Chinese version of Yahoo, with news, blogs and online entertainment.
It also breaks for business or substantially alter Focus Media, a company based in Shanghai, that just over a year ago was one of China high-flying advertising companies, then valued at more than $ 7 billion euro after a successful listing on Nasdaq a few years earlier.
Both companies are now struggle to deal with fierce competition from China and an advertising slowdown that is expected to accelerate further in 2009.

Shares of the two companies, both of which trade on Nasdaq, fell sharply on the news Monday, it seems that worries over Sina was paid a high price for the assets that Focus Media was going to focus on change because of the sale.

Shares of Sina, were 17 percent down to $ 24.25, months later. And shares of Focus Media, which has fallen from around 60 U.S. dollars a year ago were 16 percent lower in late Monday trading at $ 9.20.

The companies said that the Boards of both companies have already approved the sale of assets and that it was not necessary vote of shareholders. Sina will issue approximately 47 million shares to shareholders of Focus Media to acquire goods.

Depending on the business, Sina is expected to get most of the holdings basic Focus media, including out-of-home advertising network, to LCD network and in-store network, which together would amount to more than 100,000 advertising screens in the country.

These assets represented about 52 percent of Focus Media revenue and 73 percent of profits through the first nine months of this year, the company said.

Focus Media, which is expected to have about $ 800 million in revenues this year, said it would maintain its rapid growth of online advertising assets, the movie its advertising network, its location and commercial networks traditional billboard business .

Sina, whose revenues are estimated to be close to $ 360 million this year, called the deal a merger of large properties.

“The transaction is intended to combine the forces of the two most powerful new-media advertising platforms in China,” Charles Chao, Sina of CEO, said in a statement.

Administrative Sina from Focus Media and are familiar with each other. Since 2005, Mr. Chao of Sina-served on the board of Focus Media, along with the company’s chairman and founder, Jason Jiang.

While Sina.com compete fiercely against other strong Chinese Internet companies such as Baidu, Sohu and Tencent, analysts have considered Focus Media an innovative company that has grown rapidly, mainly by acquiring competitors and monitor the implementation of the shops, residential buildings and even on the busy commercial street in China, in some larger cities, including Shanghai.
Recycling monitors short television advertising spots produced by a wide variety of brands, including global companies like Nike and Apple.
Focus Media was founded in Shanghai, Mr. Jiang, who was listed by Forbes for many years as one of China’s wealthiest entrepreneurs.