| Page 2 of 2 < |
Wall St. U-Turn Pulls U.S. Stocks Out of Nosedive
|
TOOLBOX
   Resize
COMMENT
 Discussion Policy
 CLOSE
Comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions. You are fully responsible for the content that you post.
Who's Blogging  |
At the World Economic Forum, Secretary of State Condoleezza Rice said that the U.S. economy is resilient and will continue to be a "leading engine of global growth."
"I know that many are concerned by the recent fluctuations in U.S. financial markets and by concerns about the U.S. economy," she told a gathering of political and business leaders from around the world in Davos, Switzerland.
The immediate impetus for the rally on U.S. markets was reports that a plan is in the works for major banks to infuse new capital into mortgage insurance companies. These firms protect investors in a wide range of debt products against losses. Losses on complicated mortgage securities have been so great that the insurers are running out of money.
The New York State Insurance Department yesterday led a round of discussions with banks about possible large new investments in the insurance companies, which would keep them from going under or having their credit ratings reduced. A report in the Financial Times yesterday that a cash infusion of up to $15 billion is being contemplated sent shares of bond insurers and other financial companies soaring.
"Bond insurers are part of the safety net of the U.S. financial system," said Robert L. Gay, managing partner of the consulting firm Fenwick Advisers. "If they were allowed to fail, it could cause the kind of chain of events whereby a financial crisis contributes to a recession."
Shares of the bond insurer Ambac Financial Group soared 72 percent, to close at $13.70. Its competitor MBIA closed up 33 percent, at $16.61.
In a positive sign for the housing market, Bankrate reported that mortgage rates fell last week to their lowest level since 2004, at least for people with good credit who are taking out a loan of less than $417,000. In its survey of mortgage lenders, the rate on a 30-year, fixed-rate mortgage was 5.31 percent yesterday, down from 5.42 percent last week and 6.23 percent a year earlier.
Signs of stability in the financial sector notwithstanding, the slowing economy will probably lead to a wider budget deficit this year, the Congressional Budget Office said. The federal government will spend about $250 billion more than it takes in during the 2008 budget year, CBO Director Peter Orszag told Congress, up from $163 billion in 2007.
The 2008 number includes the impact of expected Iraq war spending but does not include the cost of any fiscal stimulus package that Congress passes; packages of $100 billion to $150 billion are being discussed.
The CBO does not forecast a recession in its estimates but does predict slower growth. Orszag indicated that if a recession occurs, the deficit would widen even more.
Unlike European markets, which tumbled yesterday, most stock exchanges in Asia closed up several percentage points yesterday and continued rising in early trading today, though they remained significantly off highs from earlier this year.
Investors were responding to the U.S. Fed's rate cut. The message from the general uptrend, said Huang Yiping, chief Asia economist for Citigroup, was that a "downside risk from the U.S. economy" remains but that it is limited.
Staff writer Ariana Eunjung Cha in Shanghai contributed to this report.
