Even though financial stocks have rallied nearly 70 percent since the end of March, the Federal Deposit Insurance Corp. issued another grim quarterly report Thursday on the health of the nation’s banks.
The agency reported that the banking industry lost $3.7 billion in the second quarter amid a surge in bad loans made to home builders, commercial real estate developers and small and midsize businesses. Its deposit insurance fund dropped 20 percent, to $10.4 billion, its lowest level in nearly 16 years. And the number of "problem banks" increased to 416, from 305 in the first quarter, and is expected to remain high.
Indeed, federal officials warned that while the economy and financial markets were showing signs of improvement, the banking sector was unlikely to rebound soon.
"These credit problems will at least outlast the recession by a couple of quarters," said Sheila Bair, the FDIC chairwoman. "Cleaning up balance sheets is a painful process that does take time, but it is absolutely necessary to the industry’s sustained profitability."
The dismal report shows how the industry’s problems have spread. A handful of the biggest banks were among the first to suffer big losses nearly two years ago from complex mortgage assets and other securities, but have posted strong profits from trading over the last two quarters.
Still most of the nation’s 8,195 banks primarily make their money from lending to consumers and businesses. They are now facing increased pressure from soaring loan losses and higher deposit insurance costs as the FDIC seeks to shore up the industry fund. Analysts say a recovery will not be in sight until the job market and broader economy stabilize.
So far, 81 banks have failed this year, including 45 in the second quarter. That, in turn, has put enormous stress on the government’s deposit insurance fund, which is supported by fees charged to the banks regulated by the FDIC. Its second-quarter reserve of $10.4 billion compares with $45.2 billion a year earlier.
The bulk of the decline comes from additional money that the agency has set aside to cover the cost of bank failures, and Bair said the fund had ample resources to make sure insured depositors would not lose money. But the levels are so low that FDIC officials said Thursday that they would consider imposing a special assessment on the banks, on top of elevated insurance fees, toward the end of the third quarter.
Through similar actions, it added about $9.1 billion to the fund in the second quarter.
Bair said she did not anticipate having to immediately tap an emergency credit line run by the Treasury Department, although she did not rule it out. "I never say never," she said. The FDIC quarterly report came after a similar release by the Office of Thrift Supervision on Wednesday that showed savings and loan associations eked out a $4 million profit, the first time the sector posted positive results since the fall of 2007. Still, the number of "problem thrifts" rose to 40, up from 17 a year earlier.
The savings and loan industry "is not out of the woods yet," said John Bowman, the acting director of the Office of Thrift Supervision. "Despite some encouraging signs, the industry’s performance remained uneven."
Federal banking regulators are bracing for hundreds of small and medium-size banks to collapse in the coming months even though the economy has shown early signs of a recovery. Banks are burdened with billions of dollars of bad loans made over the last few years and are continuing to set aside more money to cover losses. In fact, credit loss rates reached a record high in the second quarter.
Is the new cop on the U.S. securities beat armed with a pea shooter? The size of the penalties meted out by boss Mary Schapiro’s team at the Securities and Exchange Commission makes it appear so.
Schapiro should be applauded for cranking up the agency’s notoriously lax enforcement efforts. But letting companies off the hook so easily could undermine her new get-tough policy.
At first glance the penalties appear impressive. General Electric agreed to a $50 million settlement. Former American International Group (AIG, Fortune 500) head Hank Greenberg has to pay $15 million. And Bank of America has to pony up $33 million.
But these amounts are trivial when compared with the resources of those charged. BofA (BAC, Fortune 500) is the country’s largest bank by assets. Greenberg is a billionaire. And GE, even today, remains a $150 billion company. The SEC didn’t even get the defendants to admit guilt.
Perversely, the puny size of the penalties could provide an incentive for managers to stretch the rules. Take GE (GE, Fortune 500). The SEC alleged that it massaged its 2002 results so that it could continue its eight-year stretch of meeting consensus earnings estimates. The regulator says, absent GE’s accounting fiddles, it would have missed by about 1.5 cents a share 500 fast cash.
When GE missed estimates in the first quarter of 2008, its stock slid some 13%, wiping over $40 billion off its market cap. Using that percentage decline as a rough guide, GE’s moves back in 2002 saved shareholders — and managers with chunks of stock — nearly $33 billion.
The comparison isn’t entirely fair. GE missed by a greater margin in 2008, during a worsening financial crisis and a month after boss Jeff Immelt had promised to meet expectations.
But applying even a third of the 2008 percentage drop to GE’s early 2003 market value — more in line with the average decline by S&P 500 companies that miss estimates — would mean the conglomerate still saved investors some 220 times the cost of the SEC’s fine. That’s easily enough to turn the temptation to tweak the rules into a no-brainer.
Of course, such calculations are not clear cut. There’s the "name and shame" aspect, the legal costs and the loss of investor confidence to consider. Nonetheless, for the watchdog’s crackdown to have a real deterrent effect, its bite needs to better match its bark.
Trust in business has rebounded from 10-year lows in the United States, but the majority of Americans still do not count on corporate America to do what is right, according to a survey released Thursday.
The Edelman Trust Barometer found that 48% of U.S. respondents trust businesses to do the right thing, up from 36% who said that in January, but still below 59% at the beginning of 2008.
The survey also found upticks in business’ reputation in France, India and Germany, with declines in the United Kingdom and China.
"Trust in business is on the way back, but we’re still in the middle of the game," said Richard Edelman, president and chief executive of Edelman, a public relations company cash advance no faxing.
The survey, conducted from May 26 through July 3, was based on telephone surveys of 1,675 adults aged 25 to 64 in six countries. Respondents were screened to be college educated, have a household income in the top quartile for their country and to follow the news.
Jose Castro had several needs when he began looking for a second career in 2006. After spending about 20 years selling insurance, often in small towns around Missouri, Castro tired of traditional 9-to-5 hours and the exhausting, long car trips. He also wanted a job he could share with his companion, Mary Deacon, and one with a relatively low start-up cost.
That’s the short version of how an agricultural adviser from Peru eventually wound up running a crepes restaurant in downtown St. Louis.
Castro modeled the restaurant after his favorite spots in Peru. The restaurant features long tables to encourage strangers to interact, as well as a large mural and other art — all designed to create a welcoming, international feel. Castro also talks proudly about how servers in Peru are more like performers. He tries to bring a similar sense of showmanship to the restaurant, from the way he brings water to a table to how the crepes are prepared in plain view of customers.
Most of the restaurant’s food, of course, is not Peruvian. But Castro said he quickly learned while selling insurance how expressive American consumers are when it comes to embracing or rejecting products.
Castro said it’s one of the things he likes best about America. It’s also why he was confident about opening a new restaurant in the midst of an economic downturn.
So when you started looking to get out of selling insurance, how did you eventually decide on a crepe restaurant?
You don’t need a big investment to do the crepes. You just need the little (electric griddle). … If you want to do burgers, yeah you need a grill, but now you need a (range) hood. And that can be very expensive. … You just plug (the grill) in and it can go anywhere.
Also, the fact that there are not too many places doing crepes in the area. We thought we can just combine so many flavors here. That’s the other part, every culture has some kind of food you put in a wrap. You call it a tortilla, you call it wrap. And this is the crepe. You can put whatever inside … and most people like it.
How has starting this business gone?
We started the business in a most difficult time. (Previously, he ran his crepe business out of the office services and coffee bar Washington Ave. Post). I mean, we started in October and two weeks later President Bush announced that we’re in a recession. So all that bad news was mounting. When the loan was approved, we had to think hard about if we were going to take it, because who wants to open in a terrible time?
I felt I had no choice. … If you’re pushing hard and that’s all you know how to do at that point, to back up after all this time — to do what? It’s not me, you know? I was so involved with it and it was my dream, that I felt, if I do this, people are going to come. If we present something nice and different, people are going to come.
What drew you to St. Louis from Peru?
I was about to get married (to a St no fax payday loans. Louis native) at the time, and we made the choice to (live in) Peru. But in between, terrorism started and it was of the worst kind. Very, very violent. …
I was an agricultural adviser. I worked for a large farming company and also I researched land pollution from mining companies. So I had to be on those lonely roads all the time. And it was like, can’t do that anymore. People with machine guns were attacking. I didn’t want to be in my own car and have them take it or who knows what — ransom or kidnap me or whatever.
At that time, it was not that bad, but I had to make a decision, I had to look into the future and ask, "Are things going to get better?" My assessment was it would not, and I was right. I only knew that later. It got really bad, not only on those lonely roads, but in Lima (the capital). It would’ve been easier for me to adapt to this situation (in America) than for her to adapt to that situation.
So you see yourself and your servers as performers?
Oh, they are. They’ve got to be. … Every time there is an exchange — it could be that they dropped a fork and you bring another one — don’t just put it there. Make that connection. Allow for appreciation. See if (the customer) likes that. It’s part of the experience. You’re doing your job when you allow for that person to say, "Thank you."
When you put a plate down, you’re always looking at the person. It’s always that eye contact. We all are in a show. It’s got to be a show.
Any of my employees can tell you I say, "Have you ever seen or heard that Mickey Mouse was in a bad mood? Do you think it would be all right if Cinderella was angry that day? Probably not. So why here? What’s the difference? People don’t care about your personal problems." That’s one thing I learned by practicing and working at Lucas Park Grille.
How have you enjoyed performing everyday?
I liked it. One of the owners at Lucas Park Grille told me once because of the good comments from the clientele, "You’re one of the features here."
For me, maybe it was natural. I’ve got to be that way. The excellence of service I was getting in Peru, it goes well in that environment, but it’s much more formal. Here, people want to engage with you. In the very first week here in the United States, one of the things that came to my attention was people would be talking in the line at the grocery, and they would be engaging the cashier.
In Peru, its strictly formal. I’m the employee and you’re the client and show a lot of respect and formality. But the thing about social or economic class is not brought up all the time. Here, you don’t know with whom you’re talking.
The Federal Reserve will emphasize that the U.S. economy remains fragile in a policy statement later on Wednesday, as it talks down expectations for a rate hike this year and holds fire on expanding asset purchases.
The statement is due after 2:15 p.m. EDT at the conclusion of a regular two-day policy meeting.
Analysts widely expect that the U.S. central bank will hold the benchmark overnight federal funds rate between zero and 0.25 percent, while emphasizing it will remain in this range for some time.
“With ‘core’ inflation beginning to moderate again, and legitimate threats to recovery still in evidence, officials have scant reason to turn hawkish,” Morgan Stanley economist Richard Berner wrote in a note to clients.
U.S. core inflation, which excludes volatile food and energy costs, slowed to 1.8 percent year-on-year in May compared with 1.9 percent in April.
Fed officials have indicated that they would like to keep inflation close to, but under, 2 percent.
In addition, the U.S. economy is widely expected to have contracted further in the second quarter, albeit at a sharply slower rate of decline than the 5.7 percent annualized drop seen in the first three months of the year.
But some recent economic data has been better than expected, helping to harden speculation in futures markets that the Fed would hike rates to 0.5 percent by the end of the year, although these bets have eased in the past week.
The Fed is expected to push back against the idea of a rate hike this year in the statement it will issue at the meeting’s end california health insurance. Economists are focused on how the central bank’s language could be tweaked to accomplish this tricky communication.
Economists at Goldman Sachs said one option would be for the Fed to say something along the lines of “conditions are likely to warrant a federal funds rate in the current range for an extended period,” ruling out modest hikes to 1 percent.
At the Fed’s last meeting on April 28-29, it said “conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
The Goldman economists said their suggestion would offer a clearer signal.
Either way, officials may be wary of offering too explicit a commitment. In 2003-04, they vowed to hold rates low for a “considerable period,” and kept rates at a 1 percent for a year — a stretch which many economists say helped inflate the housing bubble.
“We’re not calling for an exact repeat of the ‘considerable period’ … but we wouldn’t be surprised to see the Fed use a similar phrase that becomes part of the financial lexicon for the balance of 2009 and the first half of 2010,” said Michael Darda, chief economist at MKM Partners.
The Fed is not expected to ramp up asset purchases above an existing promise to buy $300 billion of longer-dated U.S. government bonds and $1.45 trillion of mortgage debt, although it might make some minor changes.
Stocks cut losses Monday, ending mixed, as investors scooped up bank and consumer shares and kept an eye on Treasury bond yields, the dollar and commodity prices.
After the close, the Supreme Court granted a stay in the sale of Chrysler’s assets to Italian automaker Fiat, at the behest of a group of shareholders. The move delays Chrysler’s exit from bankruptcy, which had been expected to occur as soon as Monday.
The Dow Jones industrial average (INDU) ended just above unchanged and the S&P 500 (SPX) index ended just below unchanged. The Nasdaq composite (COMP) lost 7 points or 0.4%.
All three major indexes had slumped through the session, before turning higher near the close and ultimately ending mixed.
The late-session turnaround was positive, but deceptive, in that the market breadth numbers remained negative, said Donald Selkin, chief market strategist at National Securities. He was referring to the fact that more shares fell than gained, on both the Nasdaq and New York Stock Exchange.
He said that going forward, it’s going to be difficult for the major indexes to push much higher.
"We saw some resiliency today, but I think the market is going to be laboring under the perception that the Federal Reserve is going to be forced to raise rates," Selkin said.
That’s partly because Treasury yields have been rising, with the 2-year note yield now more than a full percentage point above the fed funds rate, which has been near zero since December.
Meanwhile, the 10-year note is edging closer to 4%, a level not seen since October. The spike has raised worries about the recovery hitting roadblocks before it’s barely begun.
Some optimism about the bank sector Monday helped to counter worries about inflation, the dollar and the spike in Treasury bond yields, said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.
"The banks are up because the rumor is that there are going to be nine banks that they allow to pay back TARP funds," Rovelli said.
The government will let the banks know this week, perhaps as soon as Tuesday morning, which ones they deem to be sufficiently capitalized to pay back the TARP funds received last fall.
Monday is the deadline for plans to be submitted by banks that need to raise additional cash as a result of the government’s stress tests.
Stalling after the rally: Stocks were weaker through most of Monday’s session as investors showed caution after a rally that has propelled the Dow off of 12-year lows hit in early March. The Dow has risen in 11 of the last 13 weeks, climbing 32.2% as of Friday’s close. That’s the blue-chip average’s best 13-week run in 26 years.
The other major indexes have also rocketed since March 9. Since hitting a more than 12-year low, the S&P has gained 39% as of Friday’s close. The Nasdaq has rallied 45.8% as of Friday’s close, since bouncing off of a 6-year low health insurance companies.
Pacing a typical post-rally retreat is the start of a shift in investor perception, said Jeffrey Kleintop, chief market strategist at LPL Financial.
He said the spate of not-as-bad economic news, punctuated by last Friday’s milder than expected job-loss report, has raised questions about whether the economy is healing faster than expected. If so, how will all the stimulus spending impact growth, and how will the government respond?
"The focus has switched to ‘yes, things are turning around, but maybe more rapidly than expected, and what does that mean for inflation?’" he said.
Financials: Banks were in focus Monday. The 10 banks that were required to raise a collective $75 billion as a result of the government "stress tests" have to submit detailed plans by Monday.
Bank of America (BAC, Fortune 500), Morgan Stanley (MS, Fortune 500) and PNC Financial Services (PNC, Fortune 500) are among the companies that have already met or exceeded requirements.
In addition, the government is expected to announce which banks can pay back the TARP funds.
Most major bank stocks were higher, boosting the KBW Bank sector index by 1.3%.
Apple: On Monday afternoon, the tech behemoth introduced a faster version of its iPhone, lowered the price on its existing phone and offered details on its revamped operating system. Apple (AAPL, Fortune 500) shares ended modestly lower.
Company news: Fidelity and private-equity firm KKR are teaming up to give customers of the mutual fund company access to initial public offerings of KKR companies.
The global airline industry is likely to lose $9 billion this year due to weaker demand and the impact of the recession, according to trade group the International Air Transport Association.
Among stock movers, consumer shares advanced, including Dow components’ Home Depot (HD, Fortune 500) and Walt Disney (DIS, Fortune 500).
McDonald’s shares dipped after the company reported May sales at stores open a year or more rose 5.1%, versus a rise of 6.9% in April.
Market breadth was negative. On the New York Stock Exchange, losers beat winners three to two on volume of 1.08 billion shares. On the Nasdaq, decliners topped winners eight to five on volume of just under 2 billion shares.
Other markets: In global trading, Asian markets ended mixed and European markets ended lower.
In currency trading, the dollar gained versus the euro and fell against the yen.
U.S. light crude oil for July delivery fell 35 cents to settle at $68.09 a barrel on the New York Mercantile Exchange.
COMEX gold for August delivery fell $10.10 to settle at $952.50 an ounce.
The Senate on Tuesday voted 90-5 to approve a bill that will make it tougher for credit card issuers to raise fees and interest rates starting early next year.
The bill includes an unrelated measure that would allow people to carry concealed weapons into national parks.
The bill now goes to the House, which is expected to take it up on Wednesday and pass it before the weekend. The bill would get to President Obama’s desk before Memorial Day, as he called for.
"To have the industry reaching and be as abusive to consumers, it needed to stop and it needed to change," said Sen. Chris Dodd, D-Conn., a bill sponsor.
The legislation is moderately tougher on card issuers than are new Federal Reserve rules that take effect in July 2010.
The Senate’s bill would take effect in nine months and make it harder for people under age 21 to get credit cards. It would also ban rate hikes unless a consumer is more than 60 days late - and then restore the previous rate after six months if minimum payments are made.
The banking industry decried the bill, saying it would exacerbate the credit crisis and force banks to drop some risky credit card holders.
"We are concerned that the Senate bill will have a dramatic impact on the ability of consumers, students, and small businesses to obtain and use credit cards," said American Bankers Association president Edward Yingling
The credit card legislation has been a long work in progress. The House passed a bill in 2008 and again earlier this year. The legislation, which stalled in past years, was propelled by public outrage and pressure by President Obama.
"I’m very glad to have these reforms within reach at long last," said the bill’s House sponsor, Rep business cards template. Carolyn Maloney, D-N.Y. "To Sen. Dodd’s credit, he has enhanced my bill in a few areas - especially in extending from 30 to 60 days before penalty rate hikes can kick in on existing balances."
Maloney added she thought it "unfortunate," that the measure to allow concealed weapons in national parks remained on the credit card bill, especially since Memorial Day kicks off the summer season at national parks. She planned to vote against the gun provision but said it shouldn’t block the bill’s final passage.
In recent few months, credit card companies have been raising fees and interest rates. From November 2008 to February 2009, rates increased from an average to 13.08% from 12.02%, according to a Federal Reserve Board report.
At the same time, more people are not able to make their credit cards payments and are walking away from the debt, according to a Federal Reserve report.
However, Treasury Secretary Tim Geithner said Monday he was not concerned about a consumer debt "bubble."
"Americans are going to be reducing how much they borrow, improving their balance sheets, saving more," he said. "Banks are still going to have losses they’re going to have to adjust to. And that’s what’s going to make the process of repair here longer. . .But that’s a necessary, healthy process of adjustment for us to go through."
OTTAWA – The world will pay a stiff price in future years for current massive government spending aimed to avert an even greater economic disaster, TD Bank's chief economist Don Drummond says.
Testifying before the parliamentary finance committee this morning, the former finance department official estimated it will take many years for the economy to return to what many would consider normal.
"I think there's going to be a lot of difficulties. I think there is going to be a slight recovery in 2010, 2011 and then, after that, I think there's going to be a very protracted period over several years to address the problems that are arising now," he said.
Drummond, who recently projected the Canadian government's deficit would hit $82 billion over the next two years – about $18 billion more than Finance Minister Jim Flaherty projects in the budget – said he sees the economy limping along with meagre growth of between two and 2.5 per cent until 2015.
Still, Drummond said government interventions in the economy likely averted an even greater disaster.
"If they had done nothing and we had the policy response we had in the Great Depression, that's what exactly what we would have had, another Great Depression," he said.
"I still think there's a lot of risk still out there, but we're putting the pieces in place to see it recover by 2010."
The price of ramped up government spending around the world could trigger runaway inflation once economies rebound.
To prevent this, central banks will be left with no choice but to ramp up interest rates thereby causing a second problem, dampening economic growth, Drummond said.
And governments will have to drastically cut down on spending. Ottawa may need to cut program expenditure increases from the pre-recession norm of about six per cent a year to about two per cent.
"I don't think they necessarily have to do what Paul Martin did in 1995 and 1996 and actually cut the level (of spending), but they are going to have ramp it down to about two per cent and the provinces will have to do that sort of thing too, and we're not used to that sort of discipline and making tough decisions," Drummond said.
The problem will be even more acute in the United States, which Conference Board economist Glen Hodgson told the committee has already poured about US$10 trillion into their economy, far more than Canada on a comparison basis.
Wednesday's committee testimony on the economy from parliamentary budget officer Kevin Page – along with today's analysts from the TD Bank, C.D. Howe Institute, the Conference Board of Canada and the Canadian Federation of Independent Business – provided a sobering re-assessment of the assumptions of January's federal budget.
Although there were some variations – Drummond was more pessimistic than Page on the economy and deficit, and the Conference Board's Hodgson more rosy – there was uniformity in the view that the two-month old federal budget was already out of date paydayloans.
A consensus has formed that the economy will fall about twice as far as the budget predicts for this year and will grow much slower in the outgoing years, causing the deficit projections to be billions of dollars off target.
"You might as well throw them in the garbage," said Liberal finance critic John McCallum of the budget projections.
McCallum accused Tory MPs of hiding from the truth and punishing the parliamentary budget officer by cutting his budget simply for being the messenger of bad news.
"I think this is a vengeful government that is punishing Mr. Page because he is embarrassing them by telling Canadians the truth," he said.
In Wednesday's hearings, several Tory MPs suggested Page should be more even handed and also talk about the good things happening in the economy.
Drummond, although he appeared unaware of the context, defended the bringers of bad tidings.
"Cheerleading can maybe influence behaviour in the economy for a month or two, but when it works out differently it just comes crashing down," he said.
While every finance minister wants to spread the good news, Drummond cautioned that, when the situation turns they wind up "looking foolish."
The witnesses agreed that a key to restoring growth lies with improving the availability of credit to businesses.
Canada has not had to bail out the banks, but has injected credit through the Bank of Canada and by buying up mortgages. In the budget, Ottawa said it will create a $12 billion facility help auto leasing and loans.
The program was praised by Finn Poschmann of the C.D. Howe Institute, but he said it will likely have to be expanded. He also said it's critical that it be implemented quickly, by June at the latest, to spur vehicle sales.
The witnesses said the extraordinary programs haven't as yet restored normalcy to credit markets, but added they believed they will work given sufficient time.
"We're frankly in a grand experiment right now, none of us have ever seen this before," said Hodgson.
"What I see the U.S. government is doing is almost experimenting, they try something and if it doesn't work, they move on. I think we're on the right path as governments learn by doing, but we really don't know what the end station is."
Drummond said if the latest US$1-trillion plan to buy up toxic assets from the U.S. banks works, it will restore confidence and growth.
But if it doesn't, "We're going to be in trouble for a long time."
A $1.3 billion package of securities backed by Nissan Motor Co. auto loans became the first small piece of what Federal Reserve officials say may grow into a $1 trillion effort to unfreeze business and consumer lending.
Nissan’s planned bond sale marks the debut of the Fed’s Term Asset-Backed Securities Loan Facility, or TALF. The securities will likely price tomorrow, the deadline for investors to apply to the Fed for loans to buy the debt, according to a person familiar with the sale who declined to be identified because terms aren’t set.
The Obama administration is counting on the TALF plan to help end the credit crunch and recession, thawing the market for asset-backed securities so lenders can make new loans to consumers. The program, first announced in November, was hampered by delays as investors, dealers and issuers worked on details.
“A number of people were concerned that some glitches might not have been ironed out this week” in time to meet the first deadline for investors to apply for the Fed loans, said Malcolm Dorris, a senior partner in the securitization group at law firm Dechert LLP in New York. “Getting a deal done in March is good for the program. We are still in the wait-and-see stage.”
Investors have shunned debt backed by consumer loans as unemployment has climbed in the worst financial crisis since the Great Depression. Sales of the bonds plunged 40 percent last year to $106 billion, according to data compiled by Bloomberg, choking off funding to lenders.
Market Decline
About $2.3 billion of debt backed by auto loans has been sold this year, compared with more than $9.6 billion in the same period of 2008, according to data from JPMorgan Chase & Co.
The offering doesn’t require investors to use the TALF. It remains to be seen how many actually use TALF loans, as opposed to cash, to purchase the Nissan debt. The New York Fed’s application window opened yesterday and closes at 5 p.m. tomorrow.
Central bankers and Treasury haven’t been able to meet Fed Chairman Ben S. Bernanke’s goal of reducing consumer interest rates along with the borrowing costs paid by banks. The difference between rates on 30-year fixed mortgages and 10-year Treasuries was 2.1 percentage points as of yesterday, Bloomberg data show. That’s up from an average of 1 faxless payday loan.75 percentage points in the decade before the subprime mortgage market collapsed.
“Now we need to keep it rolling,” former Fed governor Lyle Gramley said, referring to the TALF’s start. “What is at stake is that if we don’t get the credit markets unthawed, we’re not going to have a recovery.”
Spreads Soar
The extra yield relative to benchmark interest rates that investors demand to own debt backed by consumer loans has soared amid concern that defaults will climb. Top-rated bonds backed by auto loans are trading at about 300 basis points more than the one-month London interbank offered rate compared with 65 basis points in January 2008, JPMorgan data show. One-month Libor, a borrowing benchmark, is currently 0.56 percent.
The first phase of the TALF will finance the purchase of as much as $200 billion of AAA rated securities containing loans for autos, education, credit cards and small businesses. Officials eventually plan to include other assets, including commercial mortgage-backed securities.
The Fed originally planned to start the TALF in February, then delayed the debut to ensure “all our legal and procedural steps had been taken,” Bernanke said in congressional testimony Feb. 25. On March 3, the Fed and Treasury said applications for the first deals would be due in two weeks, with loans disbursed on March 25.
Nissan Sale
The largest AAA portion of the Nissan sale maturing in 1.98 years may price to yield between about 185 basis points and 200 basis points more than benchmark interest rates, the person said. JPMorgan and Bank of America Corp. are underwriting the bonds.
Tokyo-based Nissan sold more than $3 billion of debt backed by auto loans last year, Bloomberg data show. Other auto finance companies, including World Omni Financial Corp., have indicated they plan to access the TALF. The Deerfield Beach, Florida-based lender filed a prospectus with the U.S. Securities and Exchange Commission on Jan. 12 to sell securities backed by auto loans.
Huntington Auto plans to sell packaged loans that are eligible for the TALF, a person familiar with the transaction said today. Barclays Plc is managing the sale, the person said.
WASHINGTON – President Barack Obama issued a withering critique today of Wall Street corporate behavior, calling it “the height of irresponsibility" for Wall Street employees to be paid more than $18 billion in bonuses last year while their financial sector was crumbling.
"It is shameful," Obama said from the Oval Office. "And part of what we're going to need is for the folks on Wall Street who are asking for help to show some restraint, and show some discipline, and show some sense of responsibility.''
The president's comments, made with new Treasury Secretary Timothy Geithner at his side, came in swift response to a report that employees of the New York financial world garnered an estimated $18.4 billion in bonuses last year. The figure, from the New York state comptroller, drew prominent news coverage.
Yet Obama's stand also came just one day after he surrounded himself with well-paid chief executives at the White House. He had pulled in those business leaders and hailed them for being on the “front lines in seeing the enormous problems in our economy right now.''
The president said the public dislikes the idea of helping the financial sector, only to see the hole get bigger because of lavish spending no fax payday loans. The comptroller's report found that Wall Street employees got paid about the same amount of bonuses as they did in the boom time of 2004.
Obama said he and Geithner will speak directly to Wall Street leaders about the bonuses, which threaten to undermine public support for more government intervention. The House just approved an economic stimulus plan that would cost taxpayers more than $800 billion; the Senate is considering its own version.
Separately, Congress also passed a $700 billion plan last year to shore up the financial sector.
"We're going to be having conversations as this process moves forward directly with these folks on Wall Street to underscore that they have to start acting in a more responsible fashion if we are to, together, get this economy rolling again," Obama said.
"There will be time for them to make profits, and there will be time for them to get bonuses," Obama said. "Now is not that time.''
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