The intense storm created by the credit crisis that pounded the financial sector for the past year and resulted in the collapse of Bear Stearns claimed two more victims this weekend. Lehman Brothers, which was surrounded by possible sale or Fed bailout rumors on Friday, announced Monday that it is filing for Chapter 11 bankruptcy. Also on Monday, Merrill Lynch announced it would be purchased by Bank of America for $50 billion or $29 a share.
The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) was released today, demonstrating that home builder’s confidence has fallen again. The index is now at 18, its lowest since December 2007.
“Clearly, conditions in the housing market remain very weak, and our builder members are not seeing any signs of improvement,” said David Seiders NAHB chief economist in a press statement. “Indeed, the continuing erosion of employment and consumer confidence/sentiment, coupled with surging energy costs, falling house prices and rising home mortgage foreclosures, pose considerable downside risks to the economy and our housing forecast. A targeted stimulus such as a temporary home-buyer tax credit would help turn this situation around and restore housing as an engine of economic growth.”
And in a move likely to chip away at some of the U.S. dollar’s recent gains, the Federal Reserve today announced today that it will offer another $75 billion in 28-day credit through its Term Auction Facility, effectively accepting more mortgage based securities as collateral for windows at the Fed’s discount window.
Here’s an invitation for you to comment on these most recent developments: What do you think this means? Is the Fed just digging us in deeper? Or are their efforts having any positive impact on the markets?
So, what do you think?
In a unanimous decision, the Federal Open Market Committee today voted to lower the target for the federal funds rate by 50-basis points to 4.75%. Within moments the Dow Jones Industrial Average leaped more than 200 points to 13607.62, the S&P 500 jumped 27 points to 1504.29 and the Nasdaq Composite Index added 43 points to 2624.99.
“The implications are worrying,” says Joseph Trevisani, chief market analyst for FX Solutions LLC, adding that so far Federal Reserve Bank chairman Ben S. Bernanke has been prudent. “This really means that the Fed is genuinely concerned, you put this in the context of their previous reluctance and you have a completely different economic landscape,”
In the press statement, the Fed says tight credit could intensify the housing correction and dampen economic growth more generally, and that the cut is intended to ease adverse effects on the economy, calm the markets and promote moderate growth; and while core inflation has moderated, some inflation risks remain.In addition, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 5.25%.
More to come…
