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After rate cuts: The Fed's new ball game

After rate cuts: The Fed's new ball game

With rate cuts doing little to help boost the economy, the Fed has begun to print money to finance its liquidity programs. But that could spell disaster down the road.

By David Goldman, CNNMoney.com staff writer

Last Updated: December 15, 2008: 5:08 PM ET

NEW YORK (CNNMoney.com) -- After what is likely to be the last in a long series of interest rate cuts Tuesday, the Federal Reserve is expected to continue its new, perhaps more effective monetary strategy: printing lots of money.

The Fed traditionally uses its rate-cutting tool to encourage lending and boost the economy. But despite a staggering 4.25 percentage points of cuts since September 2007, the economy has not improved - in fact, it has gotten worse, drifting in to a recession last December.

Economists expect the Fed to produce one more cut to its benchmark funds rate at the conclusion of its Federal Open Market Committee meeting Tuesday, trimming the rate to 0.5%, the lowest level on record. Whether one last rate cut will help stimulate economic growth remains to be seen.

At any rate, the Fed will likely continue to use its new favorite tool, quantitative easing, "Fed-speak" for pouring new money into the economy.

In addition to lowering rates, the Fed has increased its lending to financial institutions and foreign central banks throughout the year to ease the credit crunch. But when the financial markets exploded into crisis-mode in mid-September, the Fed's reserve of Treasurys to support its lending began to run low. As a result, the central bank began firing up the printing presses, financing drastically increased lending to banks, purchases of corporate debt and bailouts of troubled institutions like AIG (AIG, Fortune 500).

As a result, the Federal Reserve's balance sheet has exploded since mid-September, more than doubling to $2.3 trillion from less than $1 trillion before Lehman Brothers' collapse ignited the lending crisis.

The huge increase in Fed lending has helped to ease credit, encouraging private institutions to lend on their own. Perhaps the best example of this trend can be seen in the commercial paper market, which is short-term corporate debt that companies sell to investors. That key market dried up after Lehman's bankruptcy, but the Fed was able to restore it to health by purchasing more than $300 billion of paper. Private investors have followed, outpacing the Fed's weekly purchases for three weeks in a row.

The Fed may look to quantitative easing as a way of boosting the housing market. By buying up 10-year Treasurys in large volume - essentially the government buying up its own long-term debt - the Fed could help to lower mortgage rates for prospective homebuyers.

Thirty-year fixed rate mortgages, which have historically moved in step with the 10-year note, currently hover around 5.5% despite 10-year Treasury yields of about 2.5%. Before the credit crunch, the rates were more typically within a range of 1.5 to 2 percentage points from one another. Economists say printing more money to help lower mortgage rates may get at the crux of the problem facing the economy.

"The combination of low home prices and low mortgage rates will make home affordability so much higher," said Bernard Baumohl, chief economist for the Economic Outlook Group. "Ultimately, housing is the epicenter that's holding back the banks and the economy from growing."

Buying up droves of Treasurys may also help encourage banks to lend, as government yields dip even lower into already historic lows. Gaining little return on those investments, banks may be forced to return to their traditional money-maker, issuing loans.

The downside: inflation

But there is a dark side to quantitative easing: inflation. The government has backed all of this new debt by selling Treasurys, which have been the golden asset of the credit crisis. They have been the only liquid security of late, reaching historic highs as their yields have hit all-time lows.

But there will come a time when the stock market bounces back and investors will no longer be satisfied with such low returns on their investments.

"Everybody and their brother knows this has to come down some time," said Kim Rupert, fixed income analyst with Action Economics. "It's tough to continue to buy Treasurys at these unsustainable levels."

That would mean huge amounts of government debt with little demand left to buy it, resulting in a devaluing of the dollar.

"The end result of all of this could be the next major problem: the crisis of confidence in the dollar," said Baumohl. "At some point, foreign investors are not going to come to the table to buy U.S. debt, leading to a dollar decline."

The dollar has held up very well throughout the credit crisis despite very low interest rates. But with countries like China and Middle Eastern countries with export-based economies facing a crisis of their own, those huge purchasers of U.S. government debt may start to ask for more return on their investment before they look elsewhere.

"That won't happen until about 2010," Baumohl said. "Right now, people are just so nervous about the credit markets, they'll continue to buy Treasurys even with rates at ridiculously low levels."

Bonds rise, rates fall

Treasurys continued to rise Monday as industrial production slid again, a sign that the economy will not rebound from the recession any time soon.

The benchmark 10-year Treasury was up 19/32 to 110 27/32 and its yield dipped to 2.51% from 2.57% from late Friday. Bond prices and yields move in opposite directions.

The 30-year rose 2 5/32 to 130 9/32 and its yield dipped to 2.95% from 3.05%, dropping below 3% for the first time in its history.

The 2-year note rose 1/32 to 100 31/32 and its yield dipped to 0.75% from 0.77%.

The yield on the 3-month note was 0.02%, and has been hovering around 0% for days. Yields near the zero mark on short-term bills are an indication that investors are completely risk-averse, putting safety at a priority above profit.

The Treasury Department said its auction of $27 billion of 6-month notes Monday was well-received, with $73 billion in open interest. The median yield for the notes was 0.17%, and the yield traded at 0.2% later in the afternoon.

Meanwhile, lending rates between banks continued to sustain record low levels. The overnight Libor rate held 0.12%, and the 3-month Libor rate fell to 1.87% from 1.92% late Thursday, according to Bloomberg.com.

Libor, the London Interbank Offered Rate, is a daily average of what 16 different banks charge other banks to lend money in London, and is used to calculate adjustable-rate mortgages. More than $350 trillion in assets are tied to Libor.

Two market gauges showed confidence edging higher.

The "TED spread" narrowed to 1.85 percentage points from 1.89 percentage points Thursday. The TED spread measures the difference between the 3-month Libor and the 3-month Treasury bill, and is a key indicator of risk. The higher the spread, the more unwilling investors are to take risks.

Another indicator, the Libor-OIS spread, narrowed to 1.55 percentage points from 1.62 percentage points. The Libor-OIS spread measures how much cash is available for lending between banks, and is used for determining lending rates. The bigger the spread, the less cash is available for lending.

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Alabastor LeSerpe > movies and games are the velvet upon which my marriage is acrylicly painted

Fannie, Freddie execs turned aside warnings

Fannie, Freddie execs turned aside warnings
Dec 9, 11:58 AM (ET)

By ALAN ZIBEL

WASHINGTON (AP) - Top executives at mortgage finance companies Fannie Mae and Freddie Mac ignored warnings that they were taking on too many risky loans long before the housing market plunged, according to documents released Tuesday by a House committee.

E-mails and other internal documents released by the House Oversight and Government Reform Committee show that former Fannie CEO Daniel Mudd and former Freddie Mac CEO Richard Syron disregarded recommendations that they stay away from riskier types of loans.

"Their own risk managers raised warning after warning about the dangers of investing heavily in the subprime and alternative mortgage market. But these warnings were ignored" by the two chief executives, said Rep. Henry Waxman, D-Calif., the committee's chairman. "Their irresponsible decisions are now costing the taxpayers billions of dollars."

The two companies were seized by government regulators in September. A month later, Freddie Mac asked for an injection of $13.8 billion in government aid after posting a massive quarterly loss. Fannie Mae has yet to request any government aid but has warned it may need to do so soon.

Lawmakers questioned Mudd about an internal Fannie Mae presentation from June 2005 that showed the company at a "strategic crossroads," at which it could either delve into riskier loans or focus on more secure ones.

Questioned about the presentation, Mudd defended his company's effort to compete against Wall Street banks that were pouring money into subprime and other exotic loans.

"We couldn't afford to make the bet that the changes were not going to be permanent," Mudd said.

Mudd and three other former executives of the two companies defended their stewardship in a hearing held by the House committee.

"It's important to remember that Freddie and its sister institution, Fannie Mae, did not create the subprime market," said Richard Syron, Freddie Mac's former CEO.

But Rep. Darrell Issa, R. Calif., blasted Syron and Mudd, along with former Fannie Mae CEO Franklin Raines, and former Freddie Mac CEO Leland Brendsel.

"All four of you seem to be in complete denial that Freddie and Fannie are in any way responsible for this. Your whole excuse for going to risky and unreasonable loans that are defaulting at an incredibly high rate is that everyone is doing it. If we don't do it, we'll be left out."

Fannie and Freddie own or guarantee around half the $11.5 trillion in U.S. outstanding home loan debt. The two companies are the engines behind a complex process of buying, bundling and selling mortgages as investments.

They traditionally backed the safest loans, 30-year fixed rate mortgages that required a down payment of at least 20 percent. But in recent years, they lowered their standards, matching a decline fueled by Wall Street banks that backed the now-defunct subprime lending industry.

Republicans blame Fannie and Freddie, and homeownership policies of the Clinton administration for sowing the seeds of the financial meltdown. Democrats defend the companies' role in encouraging homeownership and stress that Wall Street banks - not Fannie and Freddie - led the dramatic decline in lending standards.

For years the two companies flexed their lobbying muscle in Washington to thwart efforts to impose tighter regulation.

Internal Freddie Mac budget records obtained by The Associated Press show $11.7 million was paid to 52 outside lobbyists and consultants in 2006. Power brokers such as former House Speaker Newt Gingrich and former Sen. Alfonse D'Amato of New York were recruited with six-figure contracts.

The more difficult questions, however, will come next year, when lawmakers weigh what role, if any, the two companies play should play in the mortgage market.

Options include taking the companies private, morphing them into a public utility or a federal agency, or leaving them as government-sponsored entities that have private shareholders and profits, with tougher regulations.

‘Big 3′ auto CEOs flew private jets to ask for taxpayer money

‘Big 3′ auto CEOs flew private jets to ask for taxpayer money

Posted: 04:19 PM ET

By Josh Levs
CNN
(CNN) — Some lawmakers lashed out at the CEOs of the “Big 3″ auto companies Wednesday for flying private jets to Washington to request taxpayer bailout money.

“There is a delicious irony in seeing private luxury jets flying into Washington, D.C., and people coming off of them with tin cups in their hand saying that they’re going to be trimming down and streamlining their businesses,” Rep. Gary Ackerman, D-New York, said to the CEOs of Ford, Chrysler, and General Motors at a hearing of the House Financial Services Committee. “It’s almost like seeing a guy show up at the soup kitchen in high hat and tuxedo. It kind of makes you a little bit suspicious.”

He added, “Couldn’t you all have downgraded to first class or jet-pooled or something to get here? It would have at least sent a message that you do get it.”

No bonus this year for Goldman Sachs CEO Blankfein

No bonus this year for Goldman Sachs CEO Blankfein
Nov 16, 8:35 PM (ET)

By MADLEN READ

NEW YORK (AP) - Goldman Sachs Group Inc. CEO Lloyd Blankfein and six other top executives at the bank will not be receiving cash or stock bonuses for 2008, a spokesman said Sunday.

The decision was made by the seven executives themselves, said spokesman Lucas Van Praag, and approved Sunday by the Wall Street firm's compensation committee. The executives made the decision "because they think it's the right thing to do," Van Praag said.

The seven executives include Blankfein; Presidents and Co-Chief Operating Officers Jon Winkelried and Gary Cohn; Vice Chairmen John Weinberg, J. Michael Evans and Michael Sherwood; and Chief Financial Officer David Viniar.

They will receive no cash bonuses, no stock, and no options for 2008 - just their salaries, the spokesman said. Companies typically release compensation figures for top executives in the spring as part of their annual proxy statements.

Last year, Blankfein received total compensation of $54.0 million, according to calculations by The Associated Press - making him the 6th highest paid CEO at a Standard & Poor's 500 company in 2007. His salary that year was $600,000.

Goldman Sachs, like other financial institutions, has been struggling this year with the soaring mortgage defaults and the seize-up of the credit markets.

Goldman and Morgan Stanley were the only major U.S. investment banks left standing after the buyout of Bear Stearns Cos. by JPMorgan Chase & Co., the bankruptcy of Lehman Brothers Holdings Inc. and Merrill Lynch & Co.'s sale to Bank of America Corp.

Shortly after Lehman's collapse, Goldman and Morgan Stanley became bank holding companies - a move that subjects them to more oversight from the Federal Reserve, but that also gives them permanent and wider access to the central bank's lending programs.

Goldman's shares closed Friday at $66.73, down $3.26, and are down 69 percent since the start of the year. The firm is in the midst of cutting about 3,200 employees, or about 10 percent, of its staff worldwide.

In Italia? Victoria detta condizioni

In Italia? Victoria detta condizioni

Adams paga 1000 euro ora di pattinaggio

Victoria Adams non si fida del marito, il calciatore David Beckham. Così, secondo il Metropolitan Post, intende seguirlo in Italia. Ma si sposterà solo a certe condizioni: un elicottero privato disponibile 24 ore su 24, per raggiungere David agli allenamenti, una piscina di 100 mq e una pista di pattinaggio sul ghiaccio per i suoi figli. La ex Spice è disposta a pagare più di mille euro all'ora per avere lezioni private da un campione mondiale.

La Posh Spice, temendo le voci sull'intensa vita mondana dei calciatori italiani e magari osservando le loro immagini sorridenti a fianco delle bellezze nostrane, avrebbe deciso di venire in Italia con il marito. Ma, per il suo "trasloco" avrebbe richiesto una serie di "servizi": elicottero privato disponibile 24 ore su 24, con frigobar all'interno, per raggiungere David durante gli allenamenti e spostarsi lungo la penisola senza dover ricorrere ai voli di linea. Una piscina di cento mq con zona termale e idromassaggio, un fitness center con beauty saloon, uno staff di coiffeur e l'hair stylist personale disponibili sette giorni su sette.

Secondo indiscrezioni di amici della coppia, Victoria avrebbe anche chiesto di far progettare una pista di pattinaggio sul ghiaccio per i suoi figli e sarebbe disposta a pagare più di mille euro all'ora per avere lezioni private da un campione mondiale. Si parla di Jeffrey Buttle, Evgeni Plushenko, Sasha Cohen e Carolina Kostner.

Il Los Angeles Times parla poi di una carta di credito illimitata chiesta dalla mondanissima Victoria per poter far spese nel quadrilatero della moda, che, durante le sue uscite, dovrebbe essere blindato con venti guardie del corpo per evitare code e imprevisti.

Victoria non si fida poi della cucina italiana e pretende uno chef esperto di macrobiotica affiancato da uno staff di cuochi giapponesi allievi di Jiro Ono, lo chef più anziano del mondo che lo scorso anno ha ricevuto tre stelle Michelin.

What should Congress do for U.S. automakers?

Quick Vote
What should Congress do for U.S. automakers?

a. Lend them money
b. Do nothing
c. Lend them money but kick out current execs

I say FIRE them! And take all those fat bonuses away from them!
Big bunch of incompetent idiots!
Do you think that after they get the $Bs they can turn things around? I think not...

"In recent months, General Motors has been burning through about $3.1 million an hour, or $52,000 - the price of a well-equipped Chevy Tahoe SUV - every minute."

Bailout Lacks Oversight Despite Billions Pledged

Bailout Lacks Oversight Despite Billions Pledged
Watchdog Panel Is Empty; Report Is Unfinished

By Amit R. Paley
Washington Post Staff Writer
Thursday, November 13, 2008; A01

In the six weeks since lawmakers approved the Treasury's massive bailout of financial firms, the government has poured money into the country's largest banks, recruited smaller banks into the program and repeatedly widened its scope to cover yet other types of businesses, from insurers to consumer lenders.

Rest of the article

Dr. Paul on the Global Financial Summitt

"I Got a Crush...On Obama" By Obama Girl

Mr. Mister - Broken Wings

Late to the Game: Microsoft Office Online

Friday, Oct. 31, 2008
Late to the Game: Microsoft Office Online
By Anita Hamilton
(From TIME online)

If you're one of the two million or so people who use the free, Web-based word processor or other apps from Google or Zoho, it may seem odd to you that Microsoft is still charging $500 for the full version of its desktop Office suite — and that hundreds of millions of people still pay for it. In fact, last year Microsoft brought in about $19 billion, or just under a third of its total revenue, from the business unit that sells Office. And increased sales of Office, in particular, are credited with helping the Redmond, Wash.-based firm beat analyst estimates for first-quarter earnings on Oct. 24.

Goldman Sachs analyst Susan Friar recently called Microsoft a "laggard" in moving to browser-based software. But, in reality, it's not even a player. Although Microsoft announced on Oct. 27 that it will roll out "lightweight" Web versions of Word, Excel, PowerPoint and OneNote as part of its next release of Office, that release isn't expected until 2010. Meanwhile, Zoho, which is based in Pleasanton, Calif. and has 500 employees, has been offering its free, Web-based word processor, Zoho Writer, since 2005. Google Docs, which is ad-supported, has been around since 2006.

"I think it's about time the Office suite is free," says Zoho's tech evangelist Raju Vegesna. "We paid $500 for an Office suite when the price of the hardware was $5,000. Now the price of the hardware has come down to $500, and it doesn't really make any sense for a piece of software to cost $500."

The main reason most people still use Microsoft Office, even though they don't really need it, is because it's all they know. Rather than risk the potential frustration of figuring out a new application, both companies and individuals continue to shell out for a bunch of familiar programs that, frankly, most of us barely scratch the surface of. (When was the last time, for example, you inserted a formula or recorded a macro in Word)?

To its credit, Microsoft has done a swell job of keeping us hooked with offers like a free 60-day trial and discounted versions of Office that sell for as low as $80 online. For most users, however, free Web apps are really all you need.

And they're getting better all the time. Zoho has spreadsheet, word-processing, presentation and organizing programs, and lets you work both online and off; it even has an iPhone app. Google Docs, which focuses on collaboration, lets you upload and edit existing Word and PowerPoint files, then chat in real time as you work on presentations and reports with colleagues. Because the applications reside on the Web, developers can quickly eliminate bugs and add bells and whistles, like the ability to insert headers, footers and pagination (all of which were recently added to Zoho Writer). The programs still feel simple to use, so you'll never feel overwhelmed, and you can edit worry-free, since auto-saving features ensure that you won't lose any work you haven't saved.

So here's what I suggest. Before you pay even the lowest price for Microsoft Office, give Zoho or Google Docs a try. They aren't confusing, and they won't make you feel stupid. To make absolutely sure, I became my own guinea pig. I typed this story in Zoho Writer, even though I had never even tried it until this week. So far, so good. Here's hoping my editor feels the same.

from YouTube

Obama's prime-time ad skips over budget realities

Oct 29, 9:18 PM (ET)

By CALVIN WOODWARD

WASHINGTON (AP) - Democratic presidential candidate Barack Obama was less than upfront in his half-hour commercial Wednesday night about the costs of his programs and the crushing budget pressures he would face in office.

Obama's assertion that "I've offered spending cuts above and beyond" the expense of his promises is accepted only by his partisans. His vow to save money by "eliminating programs that don't work" masks his failure throughout the campaign to specify what those programs are - beyond the withdrawal of troops from Iraq.

A sampling of what voters heard in the ad, and what he didn't tell them:

THE SPIN: "That's why my health care plan includes improving information technology, requires coverage for preventive care and pre-existing conditions and lowers health care costs for the typical family by $2,500 a year."

THE FACTS: His plan does not lower premiums by $2,500, or any set amount. Obama hopes that by spending $50 billion over five years on electronic medical records and by improving access to proven disease management programs, among other steps, consumers will end up saving money. He uses an optimistic analysis to suggest cost reductions in national health care spending could amount to the equivalent of $2,500 for a family of four. Many economists are skeptical those savings can be achieved, but even if they are, it's not a certainty that every dollar would be passed on to consumers in the form of lower premiums.

---

THE SPIN: "I also believe every American has a right to affordable health care."

THE FACTS: That belief should not be confused with a guarantee of health coverage for all. He makes no such promise. Obama hinted as much in the ad when he said about the problem of the uninsured: "I want to start doing something about it." He would mandate coverage for children but not adults. His program is aimed at making insurance more affordable by offering the choice of government-subsidized coverage similar to that in a plan for federal employees and other steps, including requiring larger employers to share costs of insuring workers.

---

THE SPIN: "I've offered spending cuts above and beyond their cost."

THE FACTS: Independent analysts say both Obama and Republican John McCain would deepen the deficit. The nonpartisan Committee for a Responsible Federal Budget estimates Obama's policy proposals would add a net $428 billion to the deficit over four years - and that analysis accepts the savings he claims from spending cuts. The nonpartisan Tax Policy Center, whose other findings have been quoted approvingly by the Obama campaign, says: "Both John McCain and Barack Obama have proposed tax plans that would substantially increase the national debt over the next 10 years." The analysis goes on to say: "Neither candidate's plan would significantly increase economic growth unless offset by spending cuts or tax increases that the campaigns have not specified."

---

THE SPIN: "Here's what I'll do. Cut taxes for every working family making less than $200,000 a year. Give businesses a tax credit for every new employee that they hire right here in the U.S. over the next two years and eliminate tax breaks for companies that ship jobs overseas. Help homeowners who are making a good faith effort to pay their mortgages, by freezing foreclosures for 90 days. And just like after 9-11, we'll provide low-cost loans to help small businesses pay their workers and keep their doors open. "

THE FACTS: His proposals - the tax cuts, the low-cost loans, the $15 billion a year he promises for alternative energy, and more - cost money, and the country could be facing a record $1 trillion deficit next year. Indeed, Obama recently acknowledged - although not in his commercial - that: "The next president will have to scale back his agenda and some of his proposals."

SNL - Update Thursday: Bush Endorsement

Flash's quirky 'two-second' bug still requires manual uninstall

Flash's quirky 'two-second' bug still requires manual uninstall
By Scott M. Fulton, III, BetaNews
October 20, 2008, 4:27 PM

How many times, the old Ronco TV spokesperson used to ask, has this happened to you? You're playing a Flash video in Firefox for Windows, and for a moment, you think it's actually going to start up.

You see the first two seconds of video, and you may even hear a little sound. And then nothing. You know the control still works because you see it's still pre-loading and caching content, but it just won't play.

BetaNews has noticed Flash's tendency to adopt this bizarre state for over two years; and with the latest refresh to Flash Player 10, we noticed it again. The cause, experts have said, is a set of System Registry settings that aren't in sync with one another, but what it is that got them "out of sync" is a mystery. And despite countless suggestions, we've discovered that few Registry tweaks seem to work for longer than the duration of the session; once we reboot, we're in trouble again.

If you find yourself in the same boat, then our recommendation for now is to use this uninstallation utility from Adobe, which is a command line tool that works specifically for Flash. This was released for other purposes, but we often find it necessary to uninstall and re-install Flash, and this seems to be the fastest way to go about it for now. Use the utility as directed, uninstall Flash, and then go back and reinstall it again.

This should result in a fully-working Flash, at least for the time being. We've seen some other suggestions, including this from Ars Technica which actually involves the use of the game music composition app Garage Band. Since that game does indeed use Flash, the fact that the game did lead to a solution for one user suggests that it's capable of tweaking that mystery set of Registry entries.

Missing Persons - Destination Unknown 1982