Results tagged “credit crisis” from Economic Alert

California Controller John Chiang issued a press release this afternoon announcing that the state will likely run out of money by the end of October and will need to borrow $7 billion to meet its obligations through the end of the fiscal year (that's June 30, 2009). With the national credit crisis looming large, that borrowing won't be easy. Chiang urges Congress to take quick action to restore confidence in the financial markets.

His quote:

"There is no question that today's economic uncertainties and a tight credit market may create enormous challenges to the State to borrow at one time the entire $7 billion I have determined the State will need to meet its obligations through the end of the fiscal year. The difficulty is also compounded by the short window of time between now and the final days of October, the period in which my office has projected the State will likely run out of cash.

"It is critical that Congress take swift action to adopt an economic recovery plan that can calm the fears of American consumers, stabilize the market and loosen the credit stream we will need to continue to provide quality programs and services Californians expect and deserve."

Earlier today, Gov. Arnold Schwarzenegger sent a letter to California's Congressional delegation, urging them to support the bailout plan, stressing that "this plan is not a 'bailout' for Wall Street. To the contrary, the plan is about protecting Main Street."

Unless Congress acts quickly, Schwarzenegger warned, "California will be unable to sell voter-approved bonds for the highway, school, housing and water construction projects that our state is relying on to help carry us through this difficult economy."

Bottom line: "I am writing to urge you to vote in favor of the Emergency Economic Stabilization Act. This plan is critical to the well-being of every community in California and across the nation. Swift action in Congress is needed to restore confidence in our financial system.

As Congress wrangles over the details of a proposed $700 billion market bailout, much of the debate has centered on whether taxpayers should foot the bill for bad decisions made by Wall Street executives and homebuyers who got in over their heads by taking out mortgages they couldn't afford.

The government plan is intended to give the economy a shot in the arm by taking bad debt off the balance sheets of banks and other financial institutions, thereby loosening up credit so that the economy can grow. Mostly, this means buying up troubled mortgages and mortgage-backed securities, but it could also include credit card debt, auto loans or just about any kind of debt that none of the big banks and Wall Street firms feel good about carrying in these troubled times.

While everyone's weighing the need to protect and preserve the nation's economy against the unpleasant possibility of rewarding those who endangered it, no one seems to be thinking of those people who lost big chunks of their savings accounts when their banks failed earlier this year.

What about them?

The Federal Reserve has extended a two-year $85 billion line of credit to American International Group, Inc. Federal officials said a fire sale of AIG assets could further damage the economy. AIG has promised to repay the loan, presumably from a more controlled sale of assets, at 11.5 percent interest. The line of credit is greater than the state of Nebraska's GDP last year (just over $80 billion).

Wall Street, apparently, was unimpressed. The stock market this morning has already given up yesterday's gains, dropping 200 points in early trading.

Business Editor Kevin Smith chronicles this week's economic turbulence in a story today - Lehman Brothers declares bankruptcy, Bank of America to buy Merrill Lynch, American International Group fights for life and the Dow drops 500 points.

Rep. Adam Schiff, D-Pasadena, is quoted high with a sentiment shared by many:

"I never saw anything like this in my lifetime," he said. "During a more typical financial crisis you might lose one major institution and maybe one smaller bank, but to see several financial giants who have been around for so long start to fold up their tents ..."

"I'm hoping that the earthquake has hit and this is not a pre-shock for bigger things to come," Schiff said.

In that vein, a smattering of good (or at least better) news today:

• The Dow rallied, gaining 141 points to close above 11,000.
• The Labor Department reports consumer prices went down for the first time in two years in July (sure, it's only by .01 percent, but down is better than up, right), leading experts to anticipate further "price moderation" in coming months, especially if energy prices continue to decline.
• Shares of WaMu and Wachovia bounced as AIG secured enough funding to keep fighting.

And, perhaps taking a hint from the Labor Department, Home Depot announced it will cut prices on more than 1,200 items by 5 percent to 50 percent over the next three weeks. The price cuts will remain in effect at least through the next quarter, according to an AP story.

A record number of homeowners are behind schedule in mortgage payments or have already entered foreclosure proceedings, according to the Mortgage Bankers Association.

More than 9 percent of U.S. mortgages were delinquent or in foreclosure at the end of June, according to the MBA's National Delinquency Survey. In a statement released today, the MBA reported 6.41 percent of home loans were behind by at least one payment with an additional 2.75 percent already in foreclosure.

"The seasonally adjusted total delinquency rate continues to be the highest recorded in the MBA survey," according to the MBA statement. "The increase in the overall delinquency rate was driven by increases in the number of loans 90 or more days past due, primarily in California and Florida."

The Wall Street Journal reports today that a Treasury Department bailout of Fannie Mae and Freddie Mac could come as soon as this weekend. While spare on the details, WSJ reports the plan will likely include "a capital injection" and "changes to senior management."