Nouriel Roubini, the New York University professor who anticipated the financial crisis, said the U.S. growth outlook remains “very dismal” and White House economic adviser Lawrence Summers said the economy is still mired in a “human recession.”

Speaking at the World Economic Forum’s annual meeting in Davos, Switzerland, after the U.S. reported the fastest growth in six years, their comments underscored concern that that emergency measures to rescue banks and fight the recession may be withdrawn too soon.

“The headline number will look large and big, but actually when you dissect it, it’s very dismal and poor,” Roubini said in a Jan. 30 Bloomberg Television interview following a U.S. Commerce Department report that showed economic expansion of 5.7 percent in the fourth quarter. “I think we are in trouble.”

Source/Full Story: Bloomberg.com

The House passed legislation Friday aimed at preventing the next big financial crisis, ushering in the most sweeping set of changes to the banking regulatory system since the New Deal.

The bill, which passed 223-202, imposes more oversight and stronger capital cushions for the largest banks and Wall Street firms. It forces them to pay a total of as much as $150 billion into an emergency fund that could be tapped when a troubled company needs to be taken over and broken up.

The legislation also calls for the regulation of some derivatives and creates a new Consumer Financial Protection Agency to regulate products such as credit cards and mortgages.

“We are sending a clear message to Wall Street, the party is over. Never again will reckless behavior on the part of the few threaten the fiscal stability of our people,” said House Speaker Nancy Pelosi during a press conference after the bill passed. “The legislation will finally protect Main Street from the worst of Wall Street.”

On the Senate side of Capitol Hill, the bill is moving much more slowly and final passage is likely months away.

Source/Full Story: money.cnn.com

Gold is at a new high this morning, @ 1,165.96

Visitors to America might have noticed the television ads urging us to buy gold. One such “spokesman”, formerly in charge of managing the government’s hoard of the yellow stuff, including the ingots buried at Fort Knox, points out that the value of gold has never fallen to zero. Why investors are expected to find such a modest claim reassuring I can’t imagine. But something is persuading people to buy gold, driving the price to and past $1,100 per ounce, from about $270 at the beginning of this decade, and around $700 when the financial crisis first hit.

This is not mere panic buying by a herd of small investors trying to benefit from what is called a momentum play. John Paulson (no relation to Hank), the investor who made $20 billion for his hedge fund between 2007 and 2009 by betting on a collapse of the financial and housing markets, is betting on gold in a big way. Paulson & Co already holds $3 billion in gold-related investments (including AngloGold Ashanti and Kinross Gold), and Paulson has just seeded a new gold-related fund with some $250m of his own funds. His modest objective: appreciation at a rate higher than the increase in the price of gold itself.

All of this means that investors do not believe that President Barack Obama will respond to the enormous pressure put on him during his visit to Beijing and take steps to strengthen the dollar. The president and Treasury secretary Timothy Geithner might talk the talk of a strong dollar but they walk the walk of a declining one. A weak dollar should lift exports and cut imports, which in White House terms means jobs for American workers. And it is jobs that the president asks his aides about first thing every morning. With reason.

Should the unemployment rate remain in double digits when elections roll round a year from now, Republicans would gain congressional seats by making the plausible claim that the Democrats’ deficit spending served only to create a debt burden that will weigh down the living standards of our children and grandchildren.

Source/Full Story: Times Online
Technorati Tags: Gold

The Big Mac, a symbol of globalization, is pulling out of Iceland – a victim of this tiny island nation’s overexposure to the world financial crisis.

All three of Iceland’s McDonald’s restaurants – all in the capital Reykjavik – will close next weekend because the collapse of the Icelandic krona has pushed up the cost of imported ingredients.

“The economic situation has just made it too expensive for us,” Magnus Ogmundsson, managing director of Lyst Hr., McDonald’s franchise holder in Iceland, said yesterday. McDonald’s requires the franchisee to import all the goods required for its restaurants – from Germany – and costs have doubled over the last year.

A Big Mac in Reykjavik retails for 650 krona ($5.29). But the 20 percent increase needed to make a decent profit would have pushed that to 780 krona ($6.36), he said. That would have made the Icelandic version of the burger the most expensive in the world.

Source/Full Story: Philadelphia Inquirer

President Barack Obama wants smaller community banks to have greater access to the government’s $700 billion financial rescue fund as the administration refocuses the bailout money on small businesses and homeowners and winds down programs aimed at big banks.

Obama on Wednesday plans to announce a package of initiatives designed to increase lending, including a request that Congress increase caps for existing Small Business Administration loans, the administration said.

The new effort comes as the administration is under pressure from liberals to shift the massive bailout fund’s spending away from big financial institutions and toward reducing foreclosures and creating jobs. But it also comes as Republicans press Obama to end the rescue program and use bank repayments to reduce the national debt.

An administration official said the Treasury Department intends wind down and terminate bailout programs launched at the height of the financial crisis to stabilize Wall Street and aid the struggling auto industry.

The official, speaking on the condition of anonymity because the details had not yet been made public, said the $218 billion Capital Purchase Program would effectively conclude at the end of the year. The program has been a central element of the bailout program, infusing banks with government money in exchange for preferred stock.

The administration also plans to cap two programs at levels below initial projections. One program designed to rid big banks of their bad assets will spend $30 billion instead of $75 billion, and another that supports a Federal Reserve effort to ease bank credit will top off at $30 billion instead of $80 billion. An initiative aimed at banks — the Capital Assistance Program — had no applicants and will also end, the official said.

Source/Full Story: FOXNews.com

Ben Bernanke said on Monday that it was “extraordinarily urgent” that the US and Asia adopt policies that prevent a revival of global economic imbalances as the financial crisis ebbs.

The Federal Reserve chairman warned that global imbalances – the big gaps between national saving, consumption and investment rates reflected in large trade deficits and surpluses – had helped cause the crisis and needed to be corrected.

Mr Bernanke said the US must establish “a sustainable fiscal trajectory anchored by a clear commitment to substantially reduce federal deficits over time”.

He said the US faced a “difficult fiscal situation” but insisted that US policymakers “recognise that we need to develop a fiscal exit strategy” that would put the US on a sustainable long-term fiscal path.

Linking the fiscal situation to the fate of the dollar, which slid further on Monday, he said the development of such a plan was “critically important to maintain confidence in our economy and confidence in our currency”.

Speaking at a conference on Asia and the world economy hosted by the San Francisco Fed, Mr Bernanke urged Asian nations not to slip back into export-led growth and called on them to build up domestic consumption instead.

He said that Asia, which is leading the rebound, risked seeing asset bubbles fuelled by capital inflows. He said one way to mitigate this risk would be “through some greater exchange rate flexibility” offset by fiscal consolidation.

“As the global economy recovers and trade volumes rebound . . . global imbalances may reassert themselves,” the Fed chief warned. “Policymakers around the world must guard against this outcome.”

Source/Full Story: FT.com
Technorati Tags: Bernanke

The wrenching financial crisis of the past two years will provide the catalyst for a profound change in the global economy – which, according to the man running the World Bank, will see China and India become established centres of power, the dollar eclipsed as the sole reserve currency, and Latin America, south-east Asia and Africa emerge as new sources of growth.

But as he surveys the wreckage caused by what the bank and its sister organisation, the International Monetary Fund, agree is the most severe crisis since the devastation caused by the second world war, Robert Zoellick is surprisingly upbeat about the future.

Asked by the Observer how he envisages the global economy in 20 years’ time, Zoellick says: “There will certainly be a larger role for the emerging powers, there will be multipolar sources of growth, there will be more south-south trade between developing countries.

“The crisis gives us the opportunity to hasten this process. If we are concerned about the past reliance for growth on the US consumer, we have to make sure consumers in developing countries have enough finance to buy.”

Zoellick says that, while this does not mean the end of the US as a big player on the world stage, it has brought the curtain down on the unipolar world that followed the collapse of communism 20 years ago.

Source/Full Story: The Observer
Technorati Tags: Robert Zoellick

The federal government is engaged in a massive mortgage modification program that’s on track to send billions in tax dollars to many of the very companies that judges or regulators have cited in recent years for abusive mortgage practices.

The firms, called mortgage servicers, have been cited for badgering, manipulating or lying to their customers; sticking them with bogus fees, or improperly foreclosing on them.

Mortgage servicers are the middlemen between homeowners and the investors that hold their mortgages, collecting homeowners’ checks and disbursing payments for the mortgages, property tax and insurance. They’re a necessary player for any modification.

The reliance on such companies points to an ironic paradox for federal regulators: Cleaning up the nation’s financial crisis often rewards the firms that helped create the mess. Those Wall Street banks and mortgage servicing companies argue that they’re best positioned to repair the damage they’ve helped cause. In the case of the mortgage program, the firms getting the taxpayers’ money are, after all, the firms that control the troubled mortgages.

To make matters worse, the Government Accountability Office, Congress’ watchdog, has said that the Treasury Department hasn’t done enough to oversee the companies participating in what’s known as the Home Affordable Modification Program, which emerged from the bank bailout bill Congress passed last fall.

The modification program has been slow to get off the ground. Since it began this spring, only 12 percent of a potential 3 million delinquent mortgages have begun the process of being reworked, or put into “a trial modification,” according to Treasury Department data through August, the most recent available.

“We’ve consistently been behind this problem,” said Mark Pearce, North Carolina’s chief deputy commissioner of banks, who works with a state-level group of attorneys general from across the country. “Two years ago, maybe some were caught by surprise. But we still haven’t gotten to a point where the servicers have demonstrated an ability to handle the problem.”

Housing advocates say homeowners still face “reluctant lenders,” said Irwin Trauss, an attorney who represents low-income homeowners for Philadelphia Legal Assistance. He recently testified at a hearing of the Congressional Oversight Panel, the watchdog that monitors the Treasury’s Troubled Asset Relief Program, better known as TARP, or the bank bailout bill.

Trauss said that Bank of America, at least through July, told homeowners that they couldn’t participate in the program when they should’ve been allowed to do so, and he alleges that Saxon Mortgage forced one of his clients into bankruptcy without providing a valid reason for turning down her modification request. Trauss’ comments were echoed by other housing advocates, who’ve found mortgage servicers slow to respond and confused about modification rules.

“Servicers look for reasons to avoid making the modifications when they are most needed, rather than for opportunities to make them,” Trauss said.

Source/Full Story: McClatchy
Technorati Tags: mortgage servicers, Home Affordable Modification Program, TARP

Only 12 percent of U.S. homeowners eligible for loan modifications under the Obama administration’s housing rescue plan have had their mortgages reworked, and millions more foreclosures are coming, the Treasury Department said on Wednesday.

A Treasury report showed 360,165 people had their monthly payments reduced through August, up from 235,247 through July, but a senior Treasury official conceded much more must be done to soften the impact of a severe and prolonged housing crisis.

“The recent crisis in the housing sector has devastated families and communities across the country and is at the center of our financial crisis and economic downturn,” Michael Barr, assistant Treasury secretary for financial institutions, told a House Financial Services subcommittee.

Treasury has begun releasing monthly reports on the loan modification program, called the Home Affordable Modification Program, or HAMP, that it launched in February. At the time, it was suggested that millions of Americans might be able to get some relief through negotiations with their mortgage lenders.

But the program, which pays cash incentives to mortgage servicers to reduce monthly payments to 31 percent of a borrower’s income, is off to a relatively slow start.

In July, Treasury said that just 9 percent of the estimated number of homeowners eligible had had their payments reduced, so August’s 12 percent total represents only modest progress.

Barr said that Treasury was on track to achieve 500,000 trial modifications by November 1. The modification becomes permanent once a borrower makes three reduced monthly payments.

Barr said that “even if HAMP is a total success, we should still expect millions of foreclosures” as administration and industry efforts continue to stabilize a crisis-stricken housing sector.

Source/Full Story @: Reuters
Technorati Tags: mortgages, HAMP,

Germany’s economics ministry is drawing up a raft of special measures with the Bundesbank to head off a fresh financial crisis, fearing that a loan squeeze by struggling banks will set off a serious credit crunch early next year.

“The most difficult phase for financing is going to be in the first and second quarter of 2010,” said Hartmut Schauerte, the economic state secretary.

“We are working as a government to create instruments that can offset a feared credit crunch or any credit squeeze in sectors of the economy,” he said.

Mr Schauerte said firms with weak balance sheets may struggle to roll over loans as they come due in coming months. Negotiations with banks could prove “very difficult”.

State support is likely to be concentrated on boosting the capital base of German firms and providing credit insurance for exporters, perhaps to the tune of €250bn to €300bn (£256bn). “If this service fails, we are going to see dozens of credit collapses,” he said.

Axel Weber, Bundesbank chief and a key figure at the European Central Bank, said over the weekend that the economy remained fragile and fundamental problems in the credit system had not been resolved.

“I must warn that it is too early to talk about the end of the financial crisis. Unemployment is going to rise as ‘Kurzarbeit’ expires, and that could hurt consumption,” he said, referring to the state scheme that subsidises firms to keep idle workers on their books.

Source/Full Story: Telegraph

Two of America’s biggest banks, Morgan Stanley and Wells Fargo, on Wednesday threw into sharp relief the mounting woes of the US commercial property market when they reported large losses and surging bad loans.

The disappointing second-quarter results for two of the largest lenders and investors in office, retail and industrial property across the US confirmed investors’ fears that commercial real estate would be the next front in the financial crisis after the collapse of the housing market.

The failing health of the $6,700bn commercial property market, which accounts for more than 10 per cent of US gross domestic product, could be a significant hurdle on the road to recovery.

Source/Full Story:: FT.com
Technorati Tags: Morgan Stanley, Wells Fargo, commercial property market

The dollar’s status as the top global reserve currency is unlikely to be mentioned explicitly in the final communique at next week’s Group of Eight summit, a European G8 source involved in preparations for the meeting said on Friday.

“It is expected to be mentioned and discussed remotely. But the discussions have not yet reached the level of putting it in writing in the communiques,” the source, who asked not to be identified, told Reuters.

G8 sources said earlier this week that China had asked for discussion of proposals for a new global reserve currency at next week’s G8 meeting in Italy.

One source said Beijing made the request during preparatory talks about a joint statement to be issued on the second day of the summit in L’Aquila by the G8 plus the G5 (Brazil, India, China, Mexico and South Africa) and also Egypt.

This forum, the so-called “G14,” meets on July 9 to discuss the financial crisis, trade and climate change and for the first time a G8 summit will also produce a joint G14 statement.

Source/Full Story: Reuters

Chancellor Merkel’s cabinet on Wednesday approved a draft budget plan which calls for 310 billion euros of new debt in the next four years. In 2010, Berlin is expected to set a post-war record for deficit spending.

In the early years of Chancellor Angela Merkel’s term in office, her finance minister, Peer Steinbrück, made a name for himself as being tight-fisted, debt averse and committed to balancing Germany’s budget. That, though, was before the financial crisis hit.

Now, Steinbrück is struggling to find ways to pay for Berlin’s suddenly profligate spending as it tries to buy its way out of the crisis.

On Wednesday, Merkel’s cabinet adopted a plan presented by Steinbrück which provides the framework for the next four years of German fiscal planning. In total, it calls for €310 billion ($436 billion) in fresh debt from 2010 to 2013, including a whopping €86.1 billion ($121.2 billion) for 2010, far and away the largest single-year budgetary hole in the history of post-war Germany.

The 2010 total could even top €100 billion depending on the development of expenses related to Germany’s economic stimulus packages (worth a total of €82 billion) and its bank bailout fund (worth €500 billion). Germany’s previous record for fresh debt in a single fiscal year was the €40 billion borrowed in 1996. Steinbrück’s new plan calls for new debt to begin falling after 2010, with €71.1 billion necessary in 2011, €58.7 billion in 2012 and €45.9 billion in 2013.

Source/Full Story: SPIEGEL ONLINE

The best protection for anyone in these matters is to avoid debt entirely.  Debt is a curse.  Debt is bondage…slavery.  There is no protection once you are enslaved by the Corporate State.

President Barack Obama said a new agency he proposed this week as part of an overhaul of U.S. financial regulations will protect consumers from deceptive lending practices.

The Consumer Financial Protection Agency would oversee products from mortgages to credit cards and require companies to plainly state the terms of financial products while banning “the most unfair practices,” Obama said in his weekly address on the radio and Internet.

“We’re going to level the playing field for consumers,” he said.

Obama proposed on June 17 changes to government oversight of the financial industry that he said would correct a “cascade of mistakes” that helped cause the first global recession since World War II.

The changes, much of which must be approved by Congress, would add an additional layer of regulation for the biggest financial firms. Obama’s plan would make the Federal Reserve the overseer of companies deemed too big to fail and bring hedge and private equity funds under federal scrutiny.

“This crisis may have started on Wall Street,” Obama said in his radio address. “But its impacts have been felt by ordinary Americans who rely on credit cards, home loans, and other financial instruments.”

Obama said some consumers bear responsibility for the financial crisis by taking on too much debt and loans they could not afford. More people, though, were misled by financial companies, he said.

Source/Full Story: Bloomberg.com

World economic recovery will be slow and rising unemployment could bring the threat of social crisis and protectionism, World Bank President Robert Zoellick said in an interview with Spanish Sunday newspaper El Pais.

“What began as a great financial crisis and became a great economic crisis is now becoming a great crisis of unemployment, and if we don’t take measures there is a risk of a great human and social crisis, with major political implications,” he said.

“That’s a good breeding ground for populist, protectionist policies,” he added.

“The finance ministers of the G7 and the G20 are displaying a certain relief because the contraction has slowed. Although we could still have low or negative growth, the situation is less bad,” he said.

“But economists and industrialists are conscious that the recovery will be slow coming and weaker than expected.”

Source/Full Story:   World Bank