11/18/08 – Over the last month or so there has been too much news on this subject to cover on this post. Here are previous updates that seem mild compared to recent events.
Banks may have write down untold billions due to new accounting rule (10/10/08)
Fed Leaves Key Interest Rate Unchanged (9/16/08)
The Federal Reserve said the strains on the financial markets have increased significantly, but it kept its key short-term interest rate unchanged at 2 percent.
More bad news for the credit markets and economy (7/11/08)
Investors fear losses from shares in Mortgage giants Fannie Mae and Freddie Mac. The two companies hold or guarantee around $5 trillion worth of mortgages. That’s roughly half the $9.5 trillion debt of the United States. Stocks in general are falling too. The fear is that a failure of one or both would wreak havoc on the nation’s financial system and the broader economy.
Fed Leaves Key Interest Rate Unchanged (6/25/08)
Caught between inflationary pressures and a weakening economy, the Fed dealt primarily with the weakening economy by keeping interest rates at their present level.
Fed Official: More Bank Losses, Writedowns Loom (6/05/08)
Companies trying to obtain credit may soon find an even more unfriendly environment.
Read article from CFO.com
Fed prepares to hit pause (6/3/08)
Fed Chairman Ben Bernanke says the dollar’s slide against other currencies has led to an “unwelcome” rise in U.S. inflation. Bernanke also suggested that the Fed is unlikely to change official interest rates until there is more stabilization in home prices. Read story.
House prices are falling even faster than during the Great Depression (6/3/08)
S&P/Case-Shiller national index released last week reveals that home prices have already fallen by more over the last year than in any year during the Great Depression. The worst drop during the Depression was 10.5% in 1932 compared to 14.1% in the last year. Worse, in the deflationary 1930s, home prices in real terms declined much less than they did nominally. In today’s inflationary environment, properties have fallen by a wopping 18% in real terms over the past year. And the large inventory of unsold homes suggests that prices will fall more. Read story.
Fed auctions $75 billion more (6/3/08)
Central bank continues its efforts to inject liquidity into frozen credit markets. Please note the previous CNN/Money interpretation below (5/1/08) which was obviously wrong in hindsight. Banks are getting more help than ever from the Fed. Read story.
Fed’s latest Treasury auction – $24.12B (5/1/08)
CNN Money interprets the last Fed auction for Treasuries as “hinting at a sign of improving credit conditions.” Firms aren’t using the Fed as agressively as in the past for collateral help. But note that they still need the Fed’s help to safely trade in money markets.
Fed joins Europe in credit battle (5/2/08)
U.S. central bank, in effort to combat global crisis, says it will hike the amount of emergency reserves supplied to U.S. banks to $150B in May.
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(1/2/2008) This news may be a little late, but it’s not comforting to read of the Fed’s concern of the credit and housing markets in relation to the overall economy on 12/11/07. Interestingly, the single vote against the federal funds rate cut passed by the other nine directors was our own Boston Fed President, Eric Rosengren. He preferred doubling the proposed rate cut from 25 to 50 basis points to help the credit markets. What does this imply for the New England economy?
http://money.cnn.com/2007/12/11/news/economy/fed_statement/index.htm
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Filed under: Bank Credit, Economy
