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Former Fed chief says U.S. now in recession & Greenspan sees 1st half 2009 U.S. housing recovery & Federal Reserve To Begin Lending To Banks & WRAPUP 2-O/n dlr interbank rates, 2-yr swap spreads fall
Former Fed chief says U.S. now in recession
http://news.yahoo.com/nphotos/Spruce-Meadows-September-5-Former-Fed...
Former Federal Reserve Chairman Paul Volcker addresses business leaders at the Spruce Meadows round table...
Former Federal Reserve Chairman Paul Volcker said on Tuesday the U.S. housing sector faced more losses and the economy was in recession even as authorities moved to stabilize the financial system.
Volcker said the priority for U.S. authorities in the credit crisis was to stabilize the financial system even though that meant heavy government intrusion.
"The first priority is to stabilize the financial system. It is necessary even though the cost involved is heavy government intrusion in markets that should be private," he said in a speech at a seminar in Singapore.
"House prices in the U.S. are still declining. There are still more losses to come there. The economy, I believe, is in recession."
Volcker is chairman of the board of trustees of the Group of 30, an international body composed of central bank governors, leading economists and private financial sector experts.
He is credited for battling double-digit inflation that flared in the 1970s.
He was chairman of the U.S. central bank between 1979 and 1987, before handing the reins over to Alan Greenspan, and oversaw a sharp increase in interest rates to quell the price pressures.
Volcker was asked by a member of the audience if the massive infusion of liquidity by the Federal Reserve could lead to inflation or stagflation.
"It's not going to be a problem in the short run. Inflation doesn't flourish in the face of recession," he said.
"It's something we have to worry about when we get out of this recession."
The United States has announced various measures to combat a credit crisis that emanated from the U.S. housing market and which has spread globally.
U.S. authorities are expected to announce plans later on Tuesday to pump $250 billion into the country's banks following similar concerted measures in Europe to revive money markets and stave off a global recession.
"I have been around for a while. I have seen a lot of crises but I have never seen anything quite like this one," Volcker said.
"This crisis is an exception. I don't think we can escape damage to the real economy."
(Reporting by Vidya Ranganathan and Koh Gui Qing; Editing by Neil Fullick)
http://news.yahoo.com/nphotos/September-25-Carlsbad2C-California/ph...
New homes are shown for sale in Carlsbad, California September 25, 2008. (Mike Blake/Reuters)
Former Federal Reserve chairman Alan Greenspan said the U.S. housing market will begin to recover in the first half of 2009, according to an article he wrote for Emerging Markets magazine published on Friday.
Greenspan wrote that the recent slowing in the rate of decline in U.S. home prices is the first positive note in the year-long trauma and that eventually, frozen credit markets will thaw "as frightened investors take tentative steps toward reengagement with risk."
"More conclusive signs of pending home price stability are likely to become visible in the first half of 2009," he wrote.
Once the housing market finds it footing, markets will be able to tackle the core issues of the credit crisis.
But a big question remains, he said: "How much overall deleveraging is going to be required to induce global investors to again become committed holders, at modest interest rates, of the liabilities of the world's financial intermediaries?"
Beyond that, the amount of additional bank capital required to stabilize the financial system remains in question as well.
Greenspan said one sign that the necessary level of bank capital had been reached will be when the U.S. dollar Libor/OIS spread is restored to its pre-crisis level of 15 basis points or less, down from its current level of around 300 basis points. The spread expresses the expected future three-month premium based on London interbank offered rates (Libor) over anticipated central bank rates, or Overnight Index Swap (OIS) rates -- a key measure of financial market stress.
(Editing by James Dalgleish)
Federal Reserve To Begin Lending To Banks
(UWIRE.com) This story was written by Alyssa Siegele, The Daily Vidette
The Federal Reserve will grant $700 billion of cash loans to banks that are pressed for money in order to temporarily fix the credit crunch and renew spending in our economy.
The current lack of bank-to-bank lending is a main reason why the U.S. economy is failing since borrowers cannot take out loans or pay their employees.
"The lending is called the Troubled Asset Relief Program and they have $700 billion that they can utilize for this," David J. Huber, president of Huber Financial Group Ltd., said. "Basically, the Department of Treasury is buying these troubled assets for cash." Huber said.
In the market now, the mobility of banks to invest and use their money creates substantial risks to their wellbeing. Wall Street took a turn for the worst when Dow Jones Industrial plummeted by 500 points last Monday.
"[Tuesday] it was down over 600, and should reach around 1500 for the week," Huber said. "There's not a lot of liquidity and everyone is cashed squeezed, so the cash bailout will inject more funds into the banking system."
"Businesses and individuals will find relief."
However, the crisis does not only pertain to the flow of money between investments and companies.
"It is a liquidity crisis There's not enough liquid money in the system and a lot of companies are being bogged down by foreclosures and bad debt," Huber said. "This is intended to free up the economy and get it moving in the right direction.
"The Federal Reserve expects that the 700 billion will take awhile to kick in. "Results might take about a month or so," he added. "It is meant to provide stability for the economy."
The process of buying these bad mutual funds and removing the debt is called the Emergency Economic Stabilization Act of 2008.
Although some people believe that the government's bailout for banks is not necessary, financial professionals insist that it is.
"It was necessary and it was not just popular, the government had to do it," Huber said. "Essentially, the entire economy could collapse. It's a global problem. The stock market is down almost 40 percent for the year, and the negativity hits almost everyone."
"Banks don't want to lend money to people that can't pay it back, and this bailout is designed for the government to come in and purchase these impaired assets," Scott Murphy, a certified public accountant, said.
Simply put, the bad assets make companies look bad.
"The buyout makes the financial institutions more solvent, and they look more attractive to banks when they wish to borrow money," Murphy said.
WRAPUP 2-O/n dlr interbank rates, 2-yr swap spreads fall
By Jamie McGeever and Vidya Ranganathan
LONDON/SINGAPORE, Oct 14 - The cost of borrowing interbank overnight dollar funds fell and interest rate swap spreads narrowed on Tuesday, as governments around the world rushed out plans to bolster their banks and money markets.
Risk measures in money markets broadly softened in response to plans by the U.S and European governments to take up stakes in their big banks, although three-month interbank money market rates and spreads remained stickier.
The European Central Bank allotted $98.4 billion in overnight dollar funds at auction at a marginal rate of 0.2 percent -- well below the Federal Reserve's 1.5 percent target -- and two-year dollar swap spreads hit their lowest in three weeks.
A Reuters poll of euro money market traders published late on Monday showed around three quarters of the 27 respondents think the euro interbank rates and spreads over expected policy rates have peaked. See [ID:nLD453851].
A growing number of analysts are cautiously optimistic the worst of the financial market crisis (if not the economic fallout) may be over and that frozen money markets are beginning to thaw.
"It's looking good. Swaps spreads are coming in -- we should see more of that," said Everett Brown, strategist at IDEAglobal in London.
"We have to be a little bit cautious though. There is a bit of a lag in Libor rates. It will be a slow and gradual process back down again."
U.S. markets were closed on Monday but one-day interbank dollar funds were indicated in a range of 1-3 percent in London on Tuesday compared with as high as 6 percent on Monday.
Three-month dollar, euro, and sterling interbank rates, however, were indicated at levels close to where they were on Monday, suggesting so-called 'term' funding costs could take longer to fall. See [ID:nLE665437].
Still, Euribor interest rate fixings were all sharply lower on Tuesday. See [ID:nFAE002578].
Analysts expect the British Bankers Association's fixing of London interbank offered rates on Tuesday to fall too, following three-month euro Libor's steepest fall this year on Tuesday and three-month dollar Libor's biggest fall since March.
"The overall expectation is that LIBOR is coming down," said Joseph Kraft, head of Japan capital markets at Dresdner Kleinwort.
Stock markets across Asia and Europe rallied, spurred by the biggest one-day gain on Wall Street after reports Washington was ready to pump $250 billion into U.S. banks and European governments announced similar massive support for their lenders.
Analysts at Goldman Sachs said the announcement of unlimited swap lines between the Federal Reserve and other major central banks would go a long way in relieving pressures in the dollar funding market, one that has been hardest hit by the credit crisis.
In London on Tuesday, two-year dollar swap spreads narrowed to 120 basis points -- a three-week low -- from around 146 basis points on Friday. Two-year euro swap spreads fell to a one-week low of 105 basis points. See [ID:nLE720404].
In Australia, the one-year spread dropped to 89 basis points from 158 late last week.
China's weighted average seven-day bond repurchase rate , a key funding rate, fell sharply to 3.1536 percent, its lowest level since late September, from Monday's close of 3.3292 percent. (Reporting by Jamie McGeever and Vidya Ranganathan; editing by Chris Pizzey; Reuters Messaging: jamie.mcgeever.reuters.com@reuters.net; +44 207 542 8510))
http://news.yahoo.com/nphotos/Spruce-Meadows-September-5-Former-Fed...
Former Federal Reserve Chairman Paul Volcker addresses business leaders at the Spruce Meadows round table...
Former Federal Reserve Chairman Paul Volcker said on Tuesday the U.S. housing sector faced more losses and the economy was in recession even as authorities moved to stabilize the financial system.
Volcker said the priority for U.S. authorities in the credit crisis was to stabilize the financial system even though that meant heavy government intrusion.
"The first priority is to stabilize the financial system. It is necessary even though the cost involved is heavy government intrusion in markets that should be private," he said in a speech at a seminar in Singapore.
"House prices in the U.S. are still declining. There are still more losses to come there. The economy, I believe, is in recession."
Volcker is chairman of the board of trustees of the Group of 30, an international body composed of central bank governors, leading economists and private financial sector experts.
He is credited for battling double-digit inflation that flared in the 1970s.
He was chairman of the U.S. central bank between 1979 and 1987, before handing the reins over to Alan Greenspan, and oversaw a sharp increase in interest rates to quell the price pressures.
Volcker was asked by a member of the audience if the massive infusion of liquidity by the Federal Reserve could lead to inflation or stagflation.
"It's not going to be a problem in the short run. Inflation doesn't flourish in the face of recession," he said.
"It's something we have to worry about when we get out of this recession."
The United States has announced various measures to combat a credit crisis that emanated from the U.S. housing market and which has spread globally.
U.S. authorities are expected to announce plans later on Tuesday to pump $250 billion into the country's banks following similar concerted measures in Europe to revive money markets and stave off a global recession.
"I have been around for a while. I have seen a lot of crises but I have never seen anything quite like this one," Volcker said.
"This crisis is an exception. I don't think we can escape damage to the real economy."
(Reporting by Vidya Ranganathan and Koh Gui Qing; Editing by Neil Fullick)
http://news.yahoo.com/nphotos/September-25-Carlsbad2C-California/ph...
New homes are shown for sale in Carlsbad, California September 25, 2008. (Mike Blake/Reuters)
Former Federal Reserve chairman Alan Greenspan said the U.S. housing market will begin to recover in the first half of 2009, according to an article he wrote for Emerging Markets magazine published on Friday.
Greenspan wrote that the recent slowing in the rate of decline in U.S. home prices is the first positive note in the year-long trauma and that eventually, frozen credit markets will thaw "as frightened investors take tentative steps toward reengagement with risk."
"More conclusive signs of pending home price stability are likely to become visible in the first half of 2009," he wrote.
Once the housing market finds it footing, markets will be able to tackle the core issues of the credit crisis.
But a big question remains, he said: "How much overall deleveraging is going to be required to induce global investors to again become committed holders, at modest interest rates, of the liabilities of the world's financial intermediaries?"
Beyond that, the amount of additional bank capital required to stabilize the financial system remains in question as well.
Greenspan said one sign that the necessary level of bank capital had been reached will be when the U.S. dollar Libor/OIS spread is restored to its pre-crisis level of 15 basis points or less, down from its current level of around 300 basis points. The spread expresses the expected future three-month premium based on London interbank offered rates (Libor) over anticipated central bank rates, or Overnight Index Swap (OIS) rates -- a key measure of financial market stress.
(Editing by James Dalgleish)
Federal Reserve To Begin Lending To Banks
(UWIRE.com) This story was written by Alyssa Siegele, The Daily Vidette
The Federal Reserve will grant $700 billion of cash loans to banks that are pressed for money in order to temporarily fix the credit crunch and renew spending in our economy.
The current lack of bank-to-bank lending is a main reason why the U.S. economy is failing since borrowers cannot take out loans or pay their employees.
"The lending is called the Troubled Asset Relief Program and they have $700 billion that they can utilize for this," David J. Huber, president of Huber Financial Group Ltd., said. "Basically, the Department of Treasury is buying these troubled assets for cash." Huber said.
In the market now, the mobility of banks to invest and use their money creates substantial risks to their wellbeing. Wall Street took a turn for the worst when Dow Jones Industrial plummeted by 500 points last Monday.
"[Tuesday] it was down over 600, and should reach around 1500 for the week," Huber said. "There's not a lot of liquidity and everyone is cashed squeezed, so the cash bailout will inject more funds into the banking system."
"Businesses and individuals will find relief."
However, the crisis does not only pertain to the flow of money between investments and companies.
"It is a liquidity crisis There's not enough liquid money in the system and a lot of companies are being bogged down by foreclosures and bad debt," Huber said. "This is intended to free up the economy and get it moving in the right direction.
"The Federal Reserve expects that the 700 billion will take awhile to kick in. "Results might take about a month or so," he added. "It is meant to provide stability for the economy."
The process of buying these bad mutual funds and removing the debt is called the Emergency Economic Stabilization Act of 2008.
Although some people believe that the government's bailout for banks is not necessary, financial professionals insist that it is.
"It was necessary and it was not just popular, the government had to do it," Huber said. "Essentially, the entire economy could collapse. It's a global problem. The stock market is down almost 40 percent for the year, and the negativity hits almost everyone."
"Banks don't want to lend money to people that can't pay it back, and this bailout is designed for the government to come in and purchase these impaired assets," Scott Murphy, a certified public accountant, said.
Simply put, the bad assets make companies look bad.
"The buyout makes the financial institutions more solvent, and they look more attractive to banks when they wish to borrow money," Murphy said.
WRAPUP 2-O/n dlr interbank rates, 2-yr swap spreads fall
By Jamie McGeever and Vidya Ranganathan
LONDON/SINGAPORE, Oct 14 - The cost of borrowing interbank overnight dollar funds fell and interest rate swap spreads narrowed on Tuesday, as governments around the world rushed out plans to bolster their banks and money markets.
Risk measures in money markets broadly softened in response to plans by the U.S and European governments to take up stakes in their big banks, although three-month interbank money market rates and spreads remained stickier.
The European Central Bank allotted $98.4 billion in overnight dollar funds at auction at a marginal rate of 0.2 percent -- well below the Federal Reserve's 1.5 percent target -- and two-year dollar swap spreads hit their lowest in three weeks.
A Reuters poll of euro money market traders published late on Monday showed around three quarters of the 27 respondents think the euro interbank rates and spreads over expected policy rates have peaked. See [ID:nLD453851].
A growing number of analysts are cautiously optimistic the worst of the financial market crisis (if not the economic fallout) may be over and that frozen money markets are beginning to thaw.
"It's looking good. Swaps spreads are coming in -- we should see more of that," said Everett Brown, strategist at IDEAglobal in London.
"We have to be a little bit cautious though. There is a bit of a lag in Libor rates. It will be a slow and gradual process back down again."
U.S. markets were closed on Monday but one-day interbank dollar funds were indicated in a range of 1-3 percent in London on Tuesday compared with as high as 6 percent on Monday.
Three-month dollar, euro, and sterling interbank rates, however, were indicated at levels close to where they were on Monday, suggesting so-called 'term' funding costs could take longer to fall. See [ID:nLE665437].
Still, Euribor interest rate fixings were all sharply lower on Tuesday. See [ID:nFAE002578].
Analysts expect the British Bankers Association's fixing of London interbank offered rates on Tuesday to fall too, following three-month euro Libor's steepest fall this year on Tuesday and three-month dollar Libor's biggest fall since March.
"The overall expectation is that LIBOR is coming down," said Joseph Kraft, head of Japan capital markets at Dresdner Kleinwort.
Stock markets across Asia and Europe rallied, spurred by the biggest one-day gain on Wall Street after reports Washington was ready to pump $250 billion into U.S. banks and European governments announced similar massive support for their lenders.
Analysts at Goldman Sachs said the announcement of unlimited swap lines between the Federal Reserve and other major central banks would go a long way in relieving pressures in the dollar funding market, one that has been hardest hit by the credit crisis.
In London on Tuesday, two-year dollar swap spreads narrowed to 120 basis points -- a three-week low -- from around 146 basis points on Friday. Two-year euro swap spreads fell to a one-week low of 105 basis points. See [ID:nLE720404].
In Australia, the one-year spread dropped to 89 basis points from 158 late last week.
China's weighted average seven-day bond repurchase rate , a key funding rate, fell sharply to 3.1536 percent, its lowest level since late September, from Monday's close of 3.3292 percent. (Reporting by Jamie McGeever and Vidya Ranganathan; editing by Chris Pizzey; Reuters Messaging: jamie.mcgeever.reuters.com@reuters.net; +44 207 542 8510))
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