by Chris Colvin, Nightly News writer
Hi. As we wind down toward the long weekend, a look at today's news on the economy and the credit crunch, with Fed Chairman Bernanke in the spotlight again. Also, a very strange futures trade raises speculation that someone knows too much, new clangs on the warning bell about a U.S. war with Iran, and hey Salon wants you to watch Mad Men tonight!
BACKWARD-LOOKING NEWS: The WSJ reports that prices for moderately-priced ($417,000 and below) homes increased 3.2% in the 2nd qtr year-over-year, and were essentially flat from the prior quarter. Also, Q2 GDP revised upward to 4% on stronger business spending and overseas sales. And government-sponsored mortgage financier FreddieMac's Q2 net income was down 45%. Sears net income down 40% (Uh oh consumers struggling?) And Merrill Lynch downgrades Wal-mart to sell. (Yep. Consumers struggling.)
FORWARD-LOOKING NEWS: Starting with Fed Chairman Ben Bernanke's letter to Senator Chuck Schumer. Everyone seems to be hanging by a thread wondering what Bernanke's going to say tomorrow.. but it appears he's already said it! The Fed is watching the markets and is prepared to act (see yesterday's rally). And the private and public sectors could get together and help struggling homeowners. Text of letter courtesy of CalculatedRisk. Rex Nutting at Marketwatch writes up the news story. His blogger colleague Herb Greenberg is a bit taken aback by Bernanke's mortgage workout ideas. But here's a completely different idea than the ones Senators Schumer and Dodd and now Chairman Bernanke are batting around. Senator Obama wants any mortgage workouts to be paid for by abusive lenders rather than taxpayers. And the WSJ's Greg Ip may have moved the futures to the downside this morning with his observation that Ben Bernanke is no Alan Greenspan. Here's a money quote (so to speak): "Mr. Bernanke's approach to the credit crunch is, in part, an effort to undo perceptions fostered by Mr. Greenspan's rate-cutting interventions. Though successful, they drew allegations of "moral hazard" -- that is, of encouraging investors to act more recklessly because they think the Fed will protect them."
Other peeks into the crystal ball: CalulatedRisk gets ahold of a Goldman Sachs housing forecast which projects declines of 7% this year and 7% next. Some of the (really smart) group of CR commenters think this seems realistic and pretty bad for the economy. Others think GS is way underestimating. From the "You Read It Here First" file: Investors Business Daily: "Could Subprime sink Money Market Funds?" nteresting (and somewhat comforting observation) MM fund managers are drastically shortening the duration of the securities they hold.. moving a chunk of their money into securities that mature the next day.
Reuters ponders whether student loans are next at bat in the credit crunch. Some municipal bonds are getting crushed already, as reported by Seeking Alpha. And circling back around to housing.. mortgage woes spread to high-end homes. An observation that's complemented by this CalulatedRisk post on how the non-agency (Fannie/Freddie) mortgage market is kaput. Here's a case study from The SanFrancsico Chronicle via Patrick.net.. a housing market with no buyers.
And Eric Janzen at iTulip.com give us a (forward-looking?) history lesson on the Fed and deflation, courtesy of Japan.
And for a very informative general discussion of the housing and mortgage markets, check out this interview with the founder of "The Mortgage Lender Implode-O-Meter" Aaron Krowne.
One last thing from the markets. I've been staying away from this for the past few posts because it involves futures trading in options (hard to understand) and some highly unusual trades that even professional traders don't get. But more people are writing about it now so if you like murky mysteries.. check out this analysis of what have become known as "those crazy SPY calls." Thestreet.com has another name for them: "The bin Laden Options."
Segueing to politics now, and some Democrats, including Hillary Clinton, divesting themselves of money from a big donor with past legal problems. WSJ has been moving the ball on this.
Steve Benen at The Carpetbagger Report rounds up the findings of a new GAO report that says in very blunt terms that the Surge is largely failing. RiehlWorldView thinks the GAO leaked because people are supporting the war more.
Glenn Greenwald delivers a roundhouse today on the subject of why some Republicans including a popular blogger/radio talk show host are insisting Larry Craig (pleaded guilty to looking for anonymous gay sex) resign, but David Vitter (admitted hiring heterosexual prostitutes) doesn't have to.
And while we've been so darn busy chronicling the minutia of the possible harbingers of an economic collapse, have we been neglecting the rhetorical run-up to the coming war with Iran? Hey, there's only so much Armageddon one person can focus on! (Thanks again Greenwald and Larry Johnson too.) Also: RawStory.. whaaaa?
And Salon digs my new favorite show.. Mad Men. AMC 10 E/9C!!