Chanhassen Villager - Inflation Angst and Energy Anger - Comments

In Case You Missed

FAdams — Tue, 18 Nov 2008 09:55:36 -0600

In Case You Missed It:
“Fighting the Financial Crisis, One Challenge at a Time”
By Secretary Henry M. Paulson, Jr.

November 18, 2008

We are going through a financial crisis more severe and unpredictable than any in our lifetimes. We have seen the failures, or the equivalent of failures, of Bear Stearns, IndyMac, Lehman Brothers, Washington Mutual, Wachovia, Fannie Mae, Freddie Mac and the American International Group. Each of these failures would be tremendously consequential in its own right. But we faced them in succession, as our financial system seized up and severely damaged the economy.

By September, the government faced a systemwide crisis. After months of making the most of the authority we already had, we asked Congress for a comprehensive rescue package so we could stabilize our financial system and minimize further damage to our economy.
By the time the legislation had passed on Oct. 3, the global market crisis was so broad and so severe that we needed to move quickly and take powerful steps to stabilize our financial system and to get credit flowing again. Our initial intent was to strengthen the banking system by purchasing illiquid mortgages and mortgage-related securities. But the severity and magnitude of the situation had worsened to such an extent that an asset purchase program would not be effective enough, quickly enough. Therefore, exercising the authority granted by Congress in this legislation, we quickly deployed a $250 billion capital injection program, fully anticipating we would follow that with a program for buying troubled assets.

There is no playbook for responding to turmoil we have never faced. We adjusted our strategy to reflect the facts of a severe market crisis, always keeping focused on our goal: to stabilize a financial system that is integral to the everyday lives of all Americans. By mid-October, our actions, in combination with the Federal Deposit Insurance Corporation's guarantee of certain debt issued by financial institutions, helped us to accomplish the first major priority, which was to immediately stabilize the financial system.

As we assessed how best to use the remaining money for the Troubled Asset Relief Program, we carefully considered the uncertainties around the deteriorating economic situation in the United States and globally. The latest economic reports underscore the challenges we are facing. The gross domestic product for the third quarter (which ended Sept. 30, three days before the bill passed) shrank by 0.3 percent. The unemployment rate rose in October to a level not seen since the mid-1990s. Home prices in 10 major cities have fallen 18 percent over the previous year. Auto sales numbers plummeted in October and were more than a third lower than one year ago. The slowing of European economies has been even more drastic.

I have always said that the decline in the housing market is at the root of the economic downturn and our financial market stress. And the economy, as it slows further, threatens to prolong this decline, as well as the stress on our financial institutions and financial markets.

A troubled-asset purchase program, to be effective, would require a huge commitment of money. In mid-September, before economic conditions worsened, $700 billion in troubled asset purchases would have had a significant impact. But half of that sum, in a worse economy, simply isn't enough firepower.

If we have learned anything throughout this year, we have learned that this financial crisis is unpredictable and difficult to counteract. We decided it was prudent to reserve our TARP money, maintaining not only our flexibility, but also that of the next administration.

The current $250 billion capital purchase program is strong medicine for our financial institutions. More capital enables banks to take losses as they write down or sell troubled assets. And stronger capitalization is essential to increasing lending, which is vital to economic recovery.

Recently I've been asked two questions. First, Congress gave you the authority you requested, and the economy has only become worse. What went wrong? Second, if housing and mortgages are at the root of our economic difficulties, why aren't you addressing those problems?
The answer to the first question is that the purpose of the financial rescue legislation was to stabilize our financial system and to strengthen it. It is not a panacea for all our economic difficulties. The crisis in our financial system had already spilled over into the overall economy. But recovery will happen much, much faster than it would have had we not used TARP to stabilize our system. If Congress had not given us the authority for TARP and the capital purchase program and our financial system had continued to shut down, our economic situation would be far worse today.

The answer to the second question is that more access to lower-cost mortgage lending is the No. 1 thing we can do to slow the decline in the housing market and reduce the number of foreclosures. Together with our bank capital program, the moves we have made to stabilize and strengthen Fannie Mae and Freddie Mac, and through them to increase the flow of mortgage credit, will promote mortgage lending. We are also working with the Department of Housing and Urban Development, the F.D.I.C. and others to reduce preventable foreclosures.

I am very proud of the decisive actions by the Treasury Department, the Federal Reserve and the F.D.I.C. to stabilize our financial system. We have done what was necessary as facts and conditions in the market and economy have changed, adjusting our strategy to most effectively address the crisis. We have preserved the flexibility of President-elect Barack Obama and the new secretary of the Treasury to address the challenges in the economy and capital markets they will face.

As policymakers face the difficult challenges ahead, they will begin with two considerable advantages: a significantly more stable banking system, one where the failure of a major bank is no longer a pressing concern; and the resources, authority and potential programs available to deal with the future capital and liquidity needs of credit providers.

Deploying these new tools and programs to restore our financial institutions, financial markets and the flow of lending and credit will determine, to a large extent, the speed and trajectory of our economic recovery. I am confident of success, because our economy is flexible and resilient, rooted in the entrepreneurial spirit and productivity of the American people.

I doubt we would have given

pat neuman — Fri, 14 Nov 2008 15:22:44 -0600

I doubt we would have given the world the steamboat, airplane, computer, CAT scan, Internet and iPod without having had fossil fuels to burn. What will we do in the future without burning fossil fuels?

Defending capitalism Always

FAdams — Fri, 14 Nov 2008 11:56:50 -0600

Defending capitalism

Always a defender of the free-market system, Larry Kudlow from CNBC says the markets surged up 6.6 percent because of a speech President Bush gave defending capitalism during the G-20 World Economic Summit.

Here are several passages from the speech:

“At its most basic level, capitalism offers people the freedom to choose where they work and what they do … the dignity that comes with profiting from their talent and hard work. … The free-market system also provides the incentives that lead to prosperity -- the incentive to work, to innovate, to save and invest wisely, and to create jobs for others.”

“Free-market capitalism is far more than an economic theory. It is the engine of social mobility -- the highway to the American Dream. And it is what transformed America from a rugged frontier to the greatest economic power in history -- a nation that gave the world the steamboat and the airplane, the computer and the CAT scan, the Internet and the iPod.”

Capping all this off, Bush said, “The triumph of free-market capitalism has been proven across time, geography, culture, and faith. And it would be a terrible mistake to allow a few months of crisis to undermine 60 years of success.”

Kudlow questions if, when Barack Obama is president, the U.S. will lurch toward the semi-socialism of Old Europe.

"Investors want to know which way President-elect Obama is going to go," says Kudlow. "Might he reach back to the Democratic pro-growth supply-side policies of John F. Kennedy’s tax cuts, free trade, and strong dollar? Or will he fall back to the hopeless government tinkering of Jimmy Carter or the welfare-statism of Lyndon Johnson?"

Dow surges higher The New

FAdams — Thu, 13 Nov 2008 15:43:47 -0600

Dow surges higher

The New York Times reports that the Dow Jones industrial average ended up 552.59 points, or 6.6 percent, after the Dow swung almost 900 points. At one time, the Dow had fallen below 8,000, after the Labor Department reported that the number of newly laid-off individuals seeking unemployment benefits jumped last week to a level not seen since just after the terrorist attacks on Sept. 11, 2001.

Washington, DC-- The

FAdams — Mon, 10 Nov 2008 08:38:48 -0600

Washington, DC-- The Treasury Department today announced that it will purchase $40 billion in senior preferred stock from the American International Group (AIG) as part of a comprehensive plan to restructure federal assistance to the systemically important company. Together with steps taken by the Federal Reserve, this restructuring will improve the ability of the firm to execute its asset disposition plan in an orderly manner. AIG will use the equity to pay down $40 billion of the Federal Reserve's secured lending facility.

Under the agreement AIG must be in compliance with the executive compensation and corporate governance requirements of Section 111 of the Emergency Economic Stabilization Act. AIG must comply with the most stringent limitations on executive compensation for its top five senior executive officers as required under the Emergency Economic Stabilization Act. Treasury is also requiring golden parachute limitations and a freeze on the size of the annual bonus pool for the top 70 company executives. Additionally, AIG must continue to maintain and enforce newly adopted restrictions put in place by the new management on corporate expenses and lobbying as well as corporate governance requirements, including formation of a risk management committee under the board of directors

The government says the

FAdams — Fri, 07 Nov 2008 08:36:07 -0600

The government says the nation's unemployment rate bolted to a 14-year high of 6.5 percent in October as employers slashed 240,000 jobs, according to reports.

Stocks still down after

FAdams — Thu, 06 Nov 2008 16:07:43 -0600

Stocks still down after Obama election

For the second straight day, the Dow Jones Industrial average fell by more than 400 points. Weak sales reports from retailers, worries about the economy and weak spending sent the major stock exchanges down more than 4 percent, including the Dow, which tumbled more than 443 points. The broader Standand & Poor's 500-stock index fell 5 percent.

Still angry about the $700

FAdams — Thu, 06 Nov 2008 10:44:39 -0600

Still angry about the $700 billion that was given to banks? What about the $61 billion economic aid bill in September?

Get used it. Excessive government spending and demand-side economics are now the order of the day. House Speaker Nancy Pelosi said Wednesday she hopes Congress can return this month to pass another economic stimulus package.

White House spokesman Tony Fratto said there was no change in the administration's opposition to a measure similar to the one in September that focused on increased federal spending (demand-side economis) to rejuvenate the economy.

Stocks slump after

FAdams — Thu, 06 Nov 2008 10:38:07 -0600

Stocks slump after election

Investors took profits and dealt with another round of bleak economic news as shares on Wall Street eclipsed their gains from Election Day, according to the New York Times. At the close, the Dow Jones industrial average was down 5 percent, or 486.01 points. The broader Standard & Poor's 500-stock index declined 5.2 percent.

WASHINGTON (Reuters) - The

FAdams — Thu, 30 Oct 2008 10:17:55 -0500

WASHINGTON (Reuters) - The U.S. economy shrank at a 0.3 percent annual rate in the third quarter, its sharpest contraction in seven years as consumers cut spending and businesses reduced investment in the face of rising fears that recession was setting in.

Thursday after a government

FAdams — Wed, 29 Oct 2008 08:34:13 -0500

Thursday after a government report showed the economy contracted in the third quarter by less than expected and after the Federal Reserve's second interest rate cut in a month. The major stock indexes jumped more than 1.5 percent, including the Dow Jones industrials, which rose 150 points.

Oct. 27- Oil prices fell to

FAdams — Mon, 27 Oct 2008 13:01:04 -0500

Oct. 27- Oil prices fell to just above $63 a barrel as growing evidence of a global economic slowdown had investors betting on a further drop in energy demand.

The White House said

FAdams — Thu, 23 Oct 2008 15:13:38 -0500

The White House said Thursday, Oct. 22, the economy would remain gloomy through at least the end of the year.

"We expect our GDP (gross domestic product) number next week not to be a good one and the next quarter to be tough as well," White House press secretary Dana Perino said.

Economic turmoil punishment

FAdams — Fri, 17 Oct 2008 14:06:42 -0500

Economic turmoil punishment from above?

The current economic turmoil in the U.S. is "divine punishment," Hamas Prime Minister Ismail Haniyeh said during a sermon before Muslim prayers at a Gaza City mosque. He said God was chastising America for its support of the Israeli-led blockade imposed on Gaza.
Haniyeh said God's punishment would also extend to America's allies, according to international reports.

The Dow Jones industrial

FAdams — Thu, 16 Oct 2008 16:11:04 -0500

The Dow Jones industrial average rose 401.35 points or 4.6 percent on Thursday and the broader Standard & Poor's 500-stock index jumped 4.2 percent as oil prices declined. Crude oil prices closed down $4.70 to $69.84.

Inflation Angst and Energy Anger

FAdams — Thu, 03 Jul 2008 13:20:39 -0500

Read news about monetary issues, economic issues and the increase in energy prices. The first blog on these subjects was called "Inflation Angst."