Wall Street Braces for biggest overhaul since Great Depression.

The following is an excerpt from this article at BusinessWeek.com today:

“While Wall Street faces the biggest overhaul of its regulatory structure since the Great Depression (and since the often decried Sarbanes-Oxley Act of 2002 -these parenthese added by blogger, not original to article), analysts are already wondering if the plan to be announced by Treasury Secretary Henry Paulson on Monday would help prevent the kind of risky investments that led to the near-collapse of Bear Stearns Cos.

The plan maps out a course for broader oversight of the nation’s financial markets by consolidating power into the Federal Reserve. It will eliminate overlapping state and federal regulators and give the central bank an expanded role in looking at the books of investment banks and brokerages.

What remains unclear is exactly how much the Fed would be able to control Wall Street’s freewheeling investment banks — the banks including Bear Stearns that have lost billions of dollars over the past six months from buying risky mortgage-backed securities. While the proposal will for the first time impose regulation of hedge funds and private equity firms, some say it is lacking the kind of muscle to curb the Street’s appetite for risk.

“This is a good start for the basis of discussion,” said Peter Morici, a business professor at the University of Maryland and former chief economist of the U.S. Trade Commission. “But, this is bank reform written by an investment banker. … There’s nothing so far to improve the conduct of business on Wall Street to avoid another crisis.”

footnote: from Wikipedia: “Sarbox” (Sarbanes-Oxley); is a United States federal law enacted on July 30, 2002 in response to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. These scandals, which cost investors billions of dollars when the share prices of the affected companies collapsed, shook public confidence in the nation’s securities markets. Named after sponsors Senator Paul Sarbanes (DMD) and Representative Michael G. Oxley (ROH), the Act was approved by the House by a vote of 423-3 and by the Senate 99-0. President George W. Bush signed it into law, stating it included “the most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt.”[1]

Jim Rogers says U.S. Should Abolish the Federal Reserve Bank on CNBC, 3/12/08

New home sales have tumbled 29.8 percent in the past 12 months, inventory is highest since the 1980’s.

The following is an excerpt from http://afp.google.com/article/ALeqM5jOHEUanF4jOnzmVuKbYJJ1l4XBQQ, published on 3/26/08:

“New home sales have tumbled a dramatic 29.8 percent in the past 12 months as a multiyear slump continues to deflate the American residential property market despite sustained Federal Reserve interest rate cuts.

The Fed has slashed US rates since September, partly in a bid to revitalize the ailing home market.

Although sales fell, prices increased in February from a month earlier suggesting that recent price declines might be luring new home buyers back into the market.

“There are still too many houses sitting out there but progress is being made. Interestingly, the median price rose in February though it is down almost three percent over the year,” said Joel Naroff, president of Naroff Economic Advisors.

The median price of a new home increased 8.2 percent from a month earlier to 244,100 dollars while the average sales price climbed 4.9 percent for the month to 296,400 dollars.

The ongoing drop in sales continues to pressure builders’ inventories of unsold new homes.

The government survey showed that the new home market has a 9.8 month supply of homes at the current sales clip, meaning it would take that time to clear the unsold volume of new properties languishing on the market.

The glut of homes on the market has swelled to heights not seen since the early 1980s and has risen markedly in the past year as the property slump has worsened.

The US central bank has trimmed its key short term interest rate to 2.25 percent in a bid to shore up home sales and wider economic momentum. Fed policymakers have slashed the federal funds rate from 5.25 percent since September as a credit squeeze has deepened the economic malaise.”

“We’re in Challenging times.” -President George W. Bush after hearing about Bear Stearns bail out.

Excerpt from original article (click to read.) by

Tuesday, March 18, 2008:

“The extraordinary unraveling of securities giant Bear Stearns Cos., one of the pillars of the Wall Street establishment, has taken the anxiety gripping the nation’s financial markets to a whole new level, threatening to deepen the agony of an economy that already is on its knees.

Over the past six months, a crisis that began when home loans to high-risk borrowers started to sour has cascaded into a near-panic in which the downfall of a big securities firm threatens the stability of the nation’s financial system.

“This is a once- or twice-in-a-century event, and no one knows the downside,” said Ian Morris, chief U.S. economist at the British bank HSBC.

If U.S. credit markets were to seize up, Main Street businesses and ordinary households would be all-but-unable to borrow, which would have a dire effect on spending, investment and jobs. That’s why the Fed is jumping in, economists stress.

“It’s not that the Fed cares about one particular firm. It’s more that the failure of one firm has an effect on the entire financial system,” Morris said. “Other players hoard cash out of a fear of lending to each other. The system freezes up and produces domino effects.”

Bear Stearns is the most prominent casualty to date of what was once called the subprime mortgage crisis but has long since transformed into an economy-wide credit chill.

The storied 85-year-old brokerage, known as one of the powerhouses of the bond market, came to the brink of failure after losses on mortgage-related holdings scared other investment firms away from dealing with it. Its failure might have touched off a panic in which banks and brokerages stopped lending each other money, bringing the financial system to a near meltdown with incalculable consequences for the broader economy, market watchers say.

The Federal Reserve, fearing the fallout from the collapse of one of the securities industry’s biggest players, took a series of unprecedented measures to shore up the financial system over the weekend. After arranging the forced marriage of Bear Stearns to rival JPMorgan Chase & Co., the nation’s central bank took steps Sunday to make itself both the ultimate guarantor of a wide range of debt and the lender ready to step in when other creditors are racing for the exits.

On Monday morning, President Bush huddled with his economic advisers and said afterward: “We’re in challenging times.””

Dollar sets record low against the euro after Carlyle Group fund defaults on $16.6 billion of debt; Gold hits record high as investors seek shelter.

Published in original form on March 13 by Bloomberg.com (see entire article by clicking here):

“– The dollar fell below 100 yen earlier today for the first time since 1995 and set a record low against the euro after a Carlyle Group fund defaulted on about $16.6 billion of debt, adding to turmoil in financial markets.

The dollar fell to almost one-for-one with the Swiss franc and slumped against the British pound. The drop came as Carlyle said lenders will seize the assets of its mortgage-bond fund, a day after Drake Management LLC said it may shut its largest hedge fund, spurring concern that losses will widen. The tumble in the world’s reserve currency drove gold to a record above $1,000 an ounce as investors sought shelter in the metal.

“The weakening, in reality, is a reflection on how the world is measuring the U.S.,” said Thomas Sowanick, who helps manage $10 billion as chief investment officer of Clearbrook Financial LLC in Princeton, New Jersey. “Until there is a unified central bank effort to support the dollar, the path of least resistance will be down.”

The dollar fell to 99.77 yen, the lowest since October 1995, before trading at 100.68 at 4:20 p.m. in New York, from 101.79 yesterday. The dollar touched $1.5626 per euro, the weakest since the European currency’s debut in 1999, and was at $1.5622, from $1.5551. It slid to a record 1.0045 Swiss francs. Japan’s currency advanced to 157.27 per euro, from 158.30.

The U.S. currency fell against a basket of six major trading partners to the lowest since the index began in 1973. The Dollar Index traded on ICE Futures in New York declined as low as 71.795. The dollar dropped to $2.0320 per pound from $2.0270, touching the weakest since December.

`So Many Holes’

The dollar pared its losses as stocks reversed a decline, after Standard & Poor’s said the end of subprime-related losses is “in sight” for large financial institutions. The S&P 500 index rose 0.5 percent, after earlier losing as much as 2 percent.

“The dollar is trying to find a floor here,” said Alan Kabbani, a senior currency trader at Wachovia Corp. in Charlotte, North Carolina. “The boat has so many holes that it takes a while to fix it.”

Treasury Secretary Henry Paulson reiterated support today for a “strong dollar” that reflects economic fundamentals, after President George W. Bush yesterday said the U.S. currency’s drop was not “good tidings.”

Person George W. Bush
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Americans’ home debt greater than equity for first time since 1945; home prices plunging 8.9% in the final quarter of 2007 compared with a year ago, steepest decline in the 20-year history of the Case-Shiller index.

Excerpt of article published at Tampa Bay’s 10 dot com (click to read whole article): WASHINGTON (AP) — “In a troubling report, the Federal Reserve said Americans’ equity in their homes has fallen below 50% for the first time since 1945.

Home equity is the percentage of a home’s market value minus mortgage-related debt.

The Fed’s flow of funds report shows home equity slipped to a revised 49.6% in the second quarter 2007 and fell further, to 47.9%, in the fourth quarter. It marks the first time homeowners’ debt on their houses exceeds their equity since the Fed started tracking the data in 1945.

The total value of equity also fell for a third straight quarter to $9.65 trillion from a downwardly revised $9.93 trillion in the third quarter.

Home equity has steadily declined even as home prices jumped earlier this decade due to a surge in cash-out refinances, home equity loans, lines of credit and an increase in 100% or more home financing.

Economists expect equity to drop even further as declining home prices eat into the value of most Americans’ largest asset.

Moody’s Economy.com estimates that 8.8 million homeowners, or about 10.3% of homes, will have zero or negative equity by the end of the month. Even more disturbing, about 13.8 million households, or 15.9%, will be “upside down” if prices fall 20% from their peak. That is, they will owe more than the home’s current market value.

The latest Standard & Poor’s/Case-Shiller index showed U.S. home prices plunging 8.9% in the final quarter of 2007 compared with a year ago, steepest decline in the 20-year history of the index.”

US reports Largest total monthly job loss in 5 years.

the great depressionExcerpt from original CNNMoney.com article by Chris Isidore:

NEW YORK (CNNMoney.com) — “Employers made their deepest cut in staffing in almost five years in February, according to a closely watched government report that showed the labor market to be far weaker than expected.

The weak report fueled already mounting recession fears and is likely to influence the Federal Reserve’s decision on interest rates later this month.

There was a net loss of 63,000 jobs, according to the Labor Department, which is the biggest decline since March 2003 and weaker than the revised 22,000 jobs lost in January. Economists surveyed by Briefing.com had forecast a gain of 25,000 jobs in the most recent reading.

“These poor jobs data are the strongest evidence yet that the economy has slipped into a recession of uncertain depth and duration,” University of Maryland Professor Peter Morici said.

Job losses were widespread, reaching beyond the battered construction sector, which lost 39,000 and manufacturing, where job losses hit 52,000. Retailers cut 34,000 jobs, while business and professional services cut 20,000 jobs.

Temporary staffing firms cut nearly 28,000 from their payrolls, another warning sign of employers pulling back, and hotels cut about 4,000 jobs, a sign that discretionary consumer spending could be on the wane.

Overall the private sector cut 101,000 jobs, with only a gain in government employment limiting losses.”