Job market, other indicators weak — double dip recession on the horizon?

Looks like not if the Fed can help it. This is likely to be a week full of not so good economic news, and if that scenario comes to pass there’ll be a lot of talk about a “double dip” recession.  And make no mistake, the talk will be justified. I’m not sure what fiscal tools Bernanke has left in the box, but there seems to be agreement that he’ll go more chainsaw and less scalpel to avoid a double-dipper. I guess we’ll see …

From the link:

With little support in Congress for a renewed burst of government spending, the burden of rescuing a lagging recovery falls upon the nation’s central bank. The Fed already has kept its benchmark lending rate near zero for almost two years, and has tried to further loosen credit via unusual asset purchases, known as “quantitative easing.” In a speech Friday, Bernanke said the Fed would take additional “unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.”

He told an audience of central bankers in Jackson Hole, Wyo., that the Fed could spur growth by:

•Expanding its $2 trillion balance sheet with additional purchases of long-term securities.

•Announcing plans to keep its benchmark interest rate near zero for “a longer period than is currently priced into the markets.”

•Or reducing the minuscule interest banks earn on deposits with the central bank.

Bernanke said the Fed must balance the benefits of employing unconventional monetary policy tools against their costs. Overly aggressive action could raise doubts that the Fed would be able to unwind its extraordinary assistance once the economy recovers.

Over 50% of Treasuries held by US investors

For the first time in three years.

From the link:

For the first time since the start of the financial crisis in August 2007, U.S. investors own more Treasuries than foreign holders.

Mutual funds, households and banks have boosted the domestic share of the $8.18 trillion in tradable U.S. debt to 50.2 percent as of May, according to the most recent Treasury Department data. The last time holdings were as high, Federal Reserve Chairman Ben S. Bernanke cut interest rates for the first time between scheduled policy meetings as losses in subprime mortgages spurred a flight from riskier assets.

How banks are damaging small business and the economy

This ought to be sobering news for anyone still fretting over the state of the economy and why Main Street isn’t feeling anything close to a recovery right now.

From the link:

In the last two years, $40 billion worth of loans to small businesses have evaporated, and correcting the problem should be “front and center among our current policy challenges,” Ben Bernanke, chairman of the Federal Reserve, said in a speech Monday.

Loans to small businesses dropped from more than $710 billion in the second quarter of 2008 to less than $670 billion in the first quarter of 2010, according to bank financial reports submitted to the Federal Financial Institutions Examination Council.

Looking at these two reasons for the dramatic drop in business credit the first certainly has a role, but the second is the actual killer. I know of many small businesses that would happily take on new debt but can’t because their credit lines were slashed to the bone (sometimes for no discernible reason other than the overall economy was bad) and haven’t seen that credit flexibility return to this day.

He cited weaker demand from Main Street businesses worried about taking on more debt during tough times, “deterioration in the financial condition of small businesses during the economic downturn,” and a lack of supply of available credit.

“Clearly, though, to support the recovery, we need to find ways to ensure that creditworthy borrowers have access to needed loans,” Bernanke said.

Fed clamping down on financial sector

As I’ve written many, many times, I’m no fan of government regulation, but increased oversight is probably necessary in the financial world right now. You can’t blame the sector’s companies for seeking as much profit as possible, but the United States’ — and the world’s for that matter –economy simply can’t handle bad actors that are deemed “too big to fail.

Too big to fail should mean too big to have autonomy. Any financial institution that wants to get out from under the thumb of the Fed ought to have the opportunity to break down into separate, more streamlined units that could fail if the market so determines without taking everyone else out with them.

From the link:

The Federal Reserve is working to beef up oversight of financial companies to better protect the nation from another financial crisis in the future, chairman Ben Bernanke said Wednesday.

Economy may be improving, but unemployment still a drag

There may be some economic pollyannas starting to make appearances, but don’t count Fed chief Ben Bernanke among them. His exact quote the current state of things? “Far from being out of the woods.” Those aren’t the words of someone who’s feeling real good about the economy right now.

From the second link:

Bernanke said he expects the Fed’s easy money policies and a gathering recovery “will be sufficient to slowly reduce the unemployment rate over the coming year” from its current level of 9.7%. But he admitted that the jobless rate remains a major concern.

“The economy has stabilized and is growing again, although we can hardly be satisfied when 1 out of every 10 U.S. workers is unemployed and family finances remain under great stress,” Bernanke said.

The Fed chief also noted that bank lending continues to be weak and inflation expectations stable. Those observations should allow the central bank to continue to hold short-term interest rates near zero percent for what the Fed has called an “extended period” while keeping prices stable.

The Fed’s borrowing $200 billion …

… to prep for raising the interest rate.

Economic indicators not behaving

News stories like this perfectly illustrate why I remain skeptical of any rosy near-term predictions. I honestly think the media is doing the general public a great disservice with the “doom,” “doom,” “doom” and then, “it’s all going to be great!,” followed soon after with, “alas, woe is us.” The news cycles leave people tired, confused and probably distrustful of most things they hear.

The fact is we remain in fairly uncharted territory and even though things are looking a little better in that everything is no longer in a free fall, many things can happen to really crater the global economy. Let’s just say we are not on solid footing by any measure right now. Any report to the contrary is just blowing smoke.

Instead of worrying over all this bipolar news, the best bet is to keep the stiff upper lip, chin up approach and just stay alert to the facts and conditions on the ground.

From the link:

The nation’s service sector shrank in May at the slowest pace since late last year. And factory orders rose in April. But the improvements fell short of economists’ expectations and disappointed investors, who sent stocks lower.

Economic reports earlier this week on home sales and manufacturing had been encouraging, but Wednesday’s figures sent a reminder that the economy remains sluggish.

“People assumed it was safe to go back outdoors, but it’s still raining,” said David Wyss, chief economist at Standard & Poor’s. “It’s just not raining quite as hard.”

The Institute for Supply Management said its services index registered 44 in May, up slightly from 43.7 in April. It was the highest reading since October. Service industries such as retailers, financial services, transportation and health care make up about 70 percent of U.S. economic activity.

But the ISM figure marked its eighth straight monthly decline, and it fell slightly below economists’ expectations. Any reading below 50 indicates the services sector is shrinking. The last time the index was at 50 or higher was in September.

Separately, the government reported that orders to U.S. factories rose 0.7 percent in April, the second increase in three months.

But the Commerce Department’s report fell short of analysts’ expectations. And the government also marked down the March figure to a 1.9 percent drop, from the 0.9 percent decline previously reported.

Wall Street fell after the disappointing figures were released. The Dow Jones industrial average dropped more than 65 points to 8,675.24. Broader averages also declined.

Federal Reserve Chairman Ben Bernanke, meanwhile, said Wednesday that the economy will begin growing later this year, but the improvement will be slight.

“We expect that the recovery will only gradually gain momentum,” he told lawmakers. “Businesses are likely to be cautious about hiring, and the unemployment rate is likely to rise for a time, even after economic growth resumes.”

The current recession, the longest since World War II, began after the bursting of the housing bubble led to a financial crisis last fall. Economists say recoveries after such crises tend to be slower, as credit remains tight even after growth returns.

The economy stumbles on

It’s not imploding, but it’s not getting better just yet. Watch the indicators — such as the still falling GDP and rising unemployment, and on the positive side a rising consumer confidence — before you believe any media hype.

For the most part the media ignored this story until it reached crisis level (I’ve been blogging about the financial meltdown since the first days of this blog) and then went into full “we’re doomed!” mode. After scaring the pants off of everyone, the media is now going with things are better and the worst is over. Don’t go to the bank with that bill of goods.

Here’s the latest from the Fed:

Taking fresh stock of economic and financial conditions, Federal Reserve policymakers are considering whether they need to take additional measures to ease the recession.

Most economists are betting there won’t be any major announcements Wednesday at the end of a two-day meeting given the Fed’s bold $1.2 trillion move just last month to revive the economy.

Still, analysts aren’t ruling anything out as credit and financial stresses persist and a new potential danger has arisen to the economy in the form of the swine flu outbreak.

“Never say never with these guys. But I don’t think they have a real reason to increase support at this time,” said Michael Feroli, economist at JPMorgan Economics.

Fed Chairman Ben Bernanke and his colleagues are all but certain to leave the targeted range for its key bank lending rate between zero and 0.25 percent.

Fed sees light at the end of tunnel

The latest beige book report goes for optimism. I’m guessing they’re more just satisfied things aren’t spiraling even further down as opposed to seeing anything worth getting excited about. But I’ve been pretty contrarian about this financial crisis going back to the first days of this blog.

From the first link:

The Fed’s “Beige Book,” which offers an anecdotal look at economic activity in its 12 districts, said that “overall economic activity contracted further or remained weak,” noting that areas such as manufacturing were still depressed.

But the report said that five of the districts “noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilizing at a low level.”

The positives may have been the “green shoots” that Fed Chairman Ben Bernanke referred to recently when saying he saw some signs of life in the economy.

It was “consistent with the recent data that have shown improvement in some sectors of the economy, particularly consumption and housing,” said Michelle Meyer of Barclays Capital.

“While downward pressure continues, the pace of the declines may be easing up, somewhat. Not a major surprise in light of the data we’ve seen for March, but noteworthy nonetheless,” said Ian Lyngen of RBS Securities. “That said, the overall picture remains negative for the U.S. economic outlook — home prices continuing to decline and credit remaining ‘very tight’ throughout the country.”

In finance, the Beige Book said “bankers reported tight credit conditions, rising delinquencies and some deterioration of loan quality.”

Though the report said home prices and construction were largely falling, “better-than-expected buyer traffic led to a scattered pickup in sales in a number of Districts.”

Fed buying up additional $1T-plus in securities

The sheer hugeness of all the dollar figures being thrown around by the Fed, Treasury and Congress is staggering. Hopefully this will work. If nothing else, it is truly unprecedented.

From the link:

The Federal Reserve’s surprise announcement Wednesday that it would purchase more than $1 trillion in Treasury securities and mortgage bonds in hopes of sparking greater economic activity shows that Chairman Ben Bernanke is working hard to keep his pledge to do whatever it takes to reverse the nation’s deep recession.

The Fed’s rate-setting Federal Open Market Committee ended a two-day meeting with the announcement that it would leave its benchmark federal funds rate near zero. That was expected. Unexpected was word that the Fed would now aggressively purchase assets to get money flowing across the broader economy.

“It’s a decision by the committee to go all out,” said Laurence Meyer, a former Fed governor from 1996 to 2002, joking that “every move these days is historic and unprecedented.”

The Fed’s printing money

This move could really hurt the dollar, and is seen by many (most?) economists as a true “nuclear option.” Make sure you’re belted in — this ride ain’t over yet.

From the link:

Expectations of Fed buying raised the prices, and consequently pushed down the interest rate yields, on mortgage-backed securities as well as Treasury bonds, which were included in the deal. Stocks rose slightly as well, while the dollar fell on inflation worries. The yield on the benchmark 10-year Treasury note plummeted one-half percentage point, to around 2.5%.

“The good news is that the Fed is clearly being a lot more aggressive,” said Desmond Lachman, a resident fellow at the American Enterprise Institute. “The bad news is that I think it reflects their assessment that the economy is a whole lot weaker than they thought it would be.”

The Fed did not cut short-term interest rates because it can’t—they’re already at virtually zero. The post-meeting statement said the rate-setting Federal Open Market Committee “anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

The FOMC statement was full of surprises, albeit in the Fed’s typical bland language. The Fed committed itself to buying another $750 billion this year in mortgage-backed securities issued by “agencies” like Fannie Mae and Freddie Mac, on top of the $500 billion it had already committed to buying. It doubled to $200 billion the amount of agency debt it will buy this year.

And in a surprising change of direction, the Fed said it will buy $300 billion of longer-term Treasury securities. Up until now, Federal Reserve Chairman Ben Bernanke had said there was no need for the Fed to buy Treasuries since there was a strong market for them already. The Fed’s new thinking seems to be that it can’t hurt to try a little Treasury buying in hopes that the money will trickle down to non-Treasury securities. It said the goal of the Treasury purchases is “to help improve conditions in private credit markets.”

Whither the Fed goest?

Who really knows?

From the link:

The Fed has already used its main tool to the limit, having pushed its target interest rate, the federal-funds rate, to near zero. It already has ramped up lending and asset purchases. But it could decide to push harder by, for instance, purchasing long-term Treasury securities or increasing its purchases of debt issued or guaranteed by Fannie Mae and Freddie Mac. It is unclear whether the Fed will decide to take new steps at its meetings on March 17 and 18.

Treasury purchases could help bring down long-term interest rates by pushing up the price of government bonds and thus pushing down their yields. That, in turn, could bring down other long-term rates because Treasury debt is a benchmark for many loans and securities.

Fed officials have wavered on taking such a step, but recently have been struck by the initial success the Bank of England appeared to have with such a move last week.

“The world is suffering through the worst financial crisis since the 1930s, a crisis that has precipitated a sharp downturn in the global economy,” Fed Chairman Ben Bernanke said Tuesday in comments at the Council on Foreign Relations.

A recovery, he added, would be “out of reach” until officials stabilize the financial system, and even if that happens the recession will persist until “later this year.”

Adding a dose of humility to his assessment, Mr. Bernanke conceded, “My forecasting record on this recession is about the same as the win-loss record of the Washington Nationals.” The Major League Baseball team had 59 wins and 102 losses last year, the worst in baseball.

Economic predictions for 2009 and 2010

I’ve heard all manner of speculation since the financial crisis came to full boil last fall. First was we’ll know nothing good or bad until May or June of this year. Right on the heels of that analysis was to completely write-off 2009, ride it out and look for more clarity in 2010. The most recent buzz has been even gloomier, predicting a bad 2009 and an even worse 2010.

If that’s where you stand right now, this survey by the National Association for Business Economics is downright rosy.

(Note: the above link seems to be a little dodgy. If it gives you problems try this instead.)

From the link, first the expected bad news:

The recession is projected to worsen this year. The country stands to lose a sizable chunk of economic activity in 2009 as consumers at home and abroad retrench in the face of persistent economic troubles. And the U.S. unemployment rate _ now at 7.6 percent, the highest in more than 16 years _ is expected hit a peak of 9 percent this year.

That gloomy outlook came from leading forecasters in the latest survey by the National Association for Business Economics to be released Monday. The new estimates are roughly in line with other recent projections, including those released last week by the Federal Reserve.

“The steady drumbeat of weak economic and financial market data have made business economists decidedly more pessimistic on the economic outlook for the next several quarters,” said NABE president Chris Varvares, head of Macroeconomic Advisers.

All told, Varvares and his fellow forecasters now expect the economy to shrink by 1.9 percent this year, a much deeper contraction than the 0.2 percent dip projected in the fall.

If the new forecast is correct, it would mark the first time since 1991 the economy actually contracted over a full year and would be the worst showing since 1982, when the country had suffered through a severe recession.

And then some unexpected — well not good, but certainly better — news:

“A meaningful recovery is not expected to take hold until next year,” said Varvares.

NABE predicts GDP will rebound in 2010, averaging 2.4 percent over the course of the year. The Fed, too, is forecasting that the economy will grow again in 2010_ and will pick up momentum in 2011.

Even so, the Fed is still guarded about any turnaround.

 Update: Maybe not so fast there according to Ben Bernanke:

Mr. Bernanke told the Senate Banking Committee that the Federal Reserve was doing everything it could to unlock credit markets and ease the financial crisis. But a full recovery, he said, is months, if not years away.

“If actions taken by the administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability — and only if that is the case, in my view — there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery,” Mr. Bernanke said.

Major what-ifs included the ramifications of an increasingly global financial crisis, as well as a negative feedback loop as lower confidence translates to worsening market conditions, and vice versa.

All the fed’s t-men and

all the SEC’s machinations, couldn’t put the economy back together again.

My only response to this story letting us know the Fed thinks “economic woes” will continue despite its best (and that isn’t saying a whole lot right now) efforts — no shit.

From the link:

Even as Federal Reserve officials slashed their key interest rate to a record low and pledged to use other unconventional tools to fight the worst financial crisis since the 1930s, they still feared the economy would be stuck in a painful rut for some time.

Documents released Tuesday provided insights into the Fed’s historic decision to ratchet down its rate from 1 percent to near zero at its Dec. 15-16 meeting. In the first action of its kind in the Fed’s 95-year history, Fed Chairman Ben Bernanke and his colleagues created a target range for its rate, putting it at zero to 0.25 percent.

Despite the aggressive action, “the economic outlook would remain weak for a time and the downside risks to economic activity would be substantial,” according to the Fed document.

The single biggest (quiet) story of 2008

Easily the bankruptcy of Lehman Brothers. Before and after this event the government threw money around like a drunk sailor on shore leave. If you had a hand out, the Fed put a cool billion right there in your sweaty palm.

Lehman? Left rolling in their own excrement and costing creditors something around $200B.

The way this entire financial meltdown has been handled is criminal. Just one more black mark on the legacy of the failed Bush 43 regime.

From the link:

Lehman Brothers Holdings Inc’s emergency bankruptcy filing wiped out as much as $75 billion of potential value for creditors, The Wall Street Journal reported on Monday, citing an analysis by the bank’s restructuring advisers.

A more planned and orderly filing would have allowed Lehman to sell some assets outside of bankruptcy court protection and would have given it time to unwind derivatives positions, according to the analysis by Alvarez & Marsal.

The Journal said it was too early to say how much money Lehman creditors would recover; it said unsecured creditors have asserted they are owed $200 billion.

Lehman filed for bankruptcy protection in September after the U.S. government declined to bail it out and a frantic weekend of negotiations to save the investment bank failed.

Funds rate below half a percent

It was expected the Fed would drop the funds rate to a historic low of 0.5 percent from the previous record-tying 1 percent.

Instead the rate is going to be a floating point between 0.25 and zero percent. And that decision is not expected to change anytime soon.

I keep writing this, but man, we’re into seriously uncharted waters. I just get the feeling Bernanke and Paulson are adrift without a paddle or a clue. I hope I’m wrong.

From the link:

The central bank typically sets a specific target for its federal funds rate instead of a range. The rate had previously been at 1% and this marks the first time the Fed has cut rates below 1%. Most investors were expecting the Fed to cut rates to either 0.25% or 0.5%.

The federal funds rate is an overnight lending rate used as a benchmark to set rates for a variety of loans, including adjustable rate mortgages, credit cards, home equity lines of credit and business loans. This marks the tenth time it has cut rates in the last 15 months.

Several banks announced they were lowering their prime rate to 3.25% in light of the Fed’s decision. Typically, the prime rate is 3 percentage points higher than the fed funds rate. It was 4% before Tuesday’s rate cut.

Despite the dramatic nature of the Fed’s move, some economists questioned whether it will have much effect on the economy. They said the problem for consumers and businesses right now is not the cost of borrowing, but the availability of credit and the weaker economic fundamentals.

“Lowering rates to this level is purely a psychological move made to send the message that the Fed is committed to righting the sinking economic ship,” said Rich Yamarone, director of economic research at Argus Research. He noted the previous rate cuts did little to stop home and auto sales from plunging.

The financial meltdown is not slowing

On top of this week’s bleak jobless rate report, not one bit of economic news seems very heartening. I guess the biggest upside (if you can call it that) is the fact everyone finally agrees we are in a recession.

All the head-in-the-sand, la-la-la-la-singers out there are at least facing reality. That’s a start. If they had a bit more contact with “Main Street USA,” a major presidential campaign topic, they’d realized this thing has been going on for a long, long time. The US may not be in a new Depression just yet, but our economy has a lot of Americans in depression.

From the link:

The year-long U.S. recession has taken a turn for the worse recently, two top Federal Reserve policy-makers said on Thursday, raising expectations for aggressive policy action by the central bank as soon as next week.

Separately, Federal Reserve Chairman Ben Bernanke urged more aggressive steps to halt home foreclosures, one of the most visible outcomes of the severe U.S. downturn.

Chicago Federal Reserve Bank President Charles Evans said that the economy is “contracting markedly” as consumer spending sinks and the jobless rate rises, and that a recovery might not be on tap until 2010.

“The outlook has clearly deteriorated” in the past six weeks, Evans told reporters after a speech to the Michigan Bankers Associationin Dearborn.

Evans’ comments were echoed by Atlanta Fed President Dennis Lockhart, who spoke at an energy conference in New Orleans and termed the near-term outlook “not encouraging.”

“Employment is expected to weaken further,” Lockhart said. House prices likely will continue to fall, with a further erosion of household wealth, while consumer spending will likely decline at least for the next few months.

If this financial crisis has grabbed your interest, or if you’d like a bit deeper analysis than daily Dow Jones reports and jobless announcements, the New Yorker published “Anatomy of  a Meltdown,”  by John Cassidy in the December 1, 2008 issue. That article can be found here.

It’s a bit long, but it does explain the steps the Fed has been taking for a whole lot longer than the general public understands to try and put “a finger in the dike” as the original strategy was phrased. Obviously that strategy was a non-starter and now we are staring down flat-out corporate socialism in the United States.

I highly recommend spending the time with Cassidy’s breakdown of the current financial crisis. He presents a very thorough timeline of actions taken, failures seen only in hindsight and a national economy still careening out of control.

From the New Yorker link:

The most serious charge against Bernanke and Paulson is that their response to the crisis has been ad hoc and contradictory: they rescued Bear Stearns but allowed Lehman Brothers to fail; for months, they dismissed the danger from the subprime crisis and then suddenly announced that it was grave enough to justify a huge bailout; they said they needed seven hundred billion dollars to buy up distressed mortgage securities and then, in October, used the money to purchase stock in banks instead. Summing up the widespread frustration with Bernanke, Dean Baker, the co-director of the Center for Economic and Policy Research, a liberal think tank in Washington, told me, “He was behind the curve at every stage of the story. He didn’t see the housing bubble until after it burst. Until as late as this summer, he downplayed all the risks involved. In terms of policy, he has not presented a clear view. On a number of occasions, he has pointed in one direction and then turned around and acted differently. I would be surprised if Obama wanted to reappoint him when his term ends”—in January, 2010.

The Fed is dreaming …

… of happy bunnies and warm milk.

Or, in other words, who believes this horseshit anymore? Really.

From the link:

Taking care not to declare victory, the chairman of the Federal Reserve and the secretary of the treasury told Congress on Tuesday that the unprecedented rescue efforts over the past eight weeks appear to have prevented the collapse of financial markets and returned them to a semblance of normalcy.

Reviewing the progress of the Wall Street rescue package that Congress passed Oct. 3, Fed Chairman Ben Bernanke said that stability had returned after the surprise decision to inject $250 billion into U.S. banks and thrifts, coupled with the Fed’s decision to bypass banks and lend directly to U.S. corporations in need of capital.

“These actions, together with similar measures in many other countries, appeared to stabilize the situation and to improve investor confidence in financial firms,” Bernanke told the House Financial Services Committee.

Defending his implementation of the rescue effort, Treasury Secretary Henry Paulson said success must be judged by what hadn’t happened instead of what had.

In the old west Paulson and Bernanke would have been rode out of town along with their spilling bag of snake oil by now.

No corporate socialism for automakers

Or so it seems. The Big Three flew their private jets to DC with very natty, custom-made hats in hand for a little government scratch to tide ’em over for a while.

Looks like maybe they should have flown coach on a commercial carrier and crawled in with moth-eaten ski caps. Image is everything there guys.

From the link:

A year-end drive to win new aid for the ailing auto industry was near collapse in Congress on Wednesday, pulled down by old resentments toward Detroit’s Big Three and continued fighting between Democrats and the outgoing Bush administration.

Midwestern senators mounted a last push to try to craft a compromise $25 billion loan package to be administered by the Commerce Department and financed in a manner acceptable to the White House. But even on a day of punishing economic news, the leadership vacuum in Washington is such that many prefer to leave any bailout in the hands of the two men who have handled so many already: Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.

Also from the link:

“They don’t have a lot of chits here. They have people who are upset at them,” Reid told Politico. “I want to help them. It’s not the companies. I want to help the workers. That’s where I am. The people who work there deserve our attention. But the path has been laid by these bosses who came here yesterday on their corporate jets. … They all flew down here in their corporate jets. It’s just not the right picture.”

I don’t like all the corporate handouts …

… going around, and I certainly don’t like the fact automakers are right there on hands-and-knees, but the issue of auto loans to consumers is a real problem (I blogged on that issue here) so this proposal might not be all that bad.

From the second link:

Michigan’s Congressional delegation is urging the Treasury secretary and the Federal Reserve chairman to use their authority as part of the $700 billion bailout package to help more consumers obtain car loans, warning that the tightened credit markets were endangering millions of jobs.

The effort, led by Representatives John D. Dingell, a Democrat, and Fred Upton, a Republican, comes amid plunging vehicle sales as auto lenders struggle to find financing.

 

In addition, two of Detroit’s automakers, General Motors and Chrysler, are considering a merger to combine their cash reserves and cut costs.

”In this current economic environment, it is imperative that the government ensures that liquidity is restored so that the U.S. auto industry is able to function until normalcy is restored to credit markets,” the lawmakers say in a draft of a letter to the Treasury secretary, Henry M. Paulson Jr., and the Fed chairman, Ben S. Bernanke, that was obtained by The New York Times.

Automakers say that a lack of financing has compounded a weakened economy and kept consumers out of showrooms. The industry says that more than 90 percent of new-vehicle purchases are financed.

As of late Wednesday, all but three of Michigan’s 17-member delegation had signed the letter, and the others are expected to join as well, according to a person involved in the effort, who spoke on the condition of anonymity because the letter was not intended to become public until Thursday.

Credit remains tight

I hate to be so doom-and-gloom on the economic picture today, but the news is bad, very bad and worse. The little exercise in corporate socialism known as the “bailout.” Let’s call that one a failure so far since the entire purpose was to open inter-bank credit to help prop up ailing financial institutions.

How did that turn out?

The title from the link:

U.S. Banks Still Aren’t Lending

Despite the federal government’s best efforts, banks are hoarding cash. It may be 2010 before the credit climate improves

And from further into the article:

The defensive crouch that Dorner and other bank executives have adopted is creating a quandary for Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and other Washington policymakers who are trying to get credit flowing freely across the economy. The government is reaching deep into its pockets to stimulate the credit markets, most recently with a plan to inject $250 billion into big banks. But while there are small signs of improvement—notably a modest drop in the rate banks charge one another to borrow money—the initiatives are being blunted by banks’ reluctance to loosen their purse strings. Right now the modest uptick in lending is coming mostly from panicked companies drawing down existing lines of credit rather than new loans.

Simply put, banks are hoarding cash, and the influx of government money won’t necessarily change their plans. That’s the case with Citigroup (C), which has shrunk the size of its balance sheet by 13% over the past year and plans to cut even further. “We’re not going to treat [the money from the government] like a windfall and back off of the measures that we have under way to get the company fit,” Citigroup Chief Financial Officer Gary Crittenden told analysts recently.

The industry may be hunkering down for a while. In a recent survey by data firm Reuters LPC, 40% of lenders and loan investors said they didn’t expect the credit climate to improve significantly until 2010, after the worst of the recession has passed. “Lending won’t start until everyone agrees the bottom has been reached,” Richard M. Kovacevich, chairman of San Francisco-based Wells Fargo (WFC) told BusinessWeek in an interview with Maria Bartiromo.

Global accounting gets high level support

The merging of US and international accounting standards is coming. Global companies welcome this because this integration eases the need to keep separate books to meet two sets of standards.

The looming reality of one world-one standard recently received support from a couple of heavy hitters …

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke both defended the Securities and Exchange Commission’s plans for converging American accounting standards with international bookkeeping rules.

Their comments on Thursday came in response to criticism over the rapid progression of the project that is being pushed aggressively by SEC Chairman Christopher Cox. Michael Capuano, a congressman from Massachusetts and a member of the House Financial Services Committee, questioned the Treasury and Fed chiefs on the wisdom of outsourcing, in a manner of speaking, the rules that affect how companies report their most crucial information — including earnings — at a time when the U.S. is in the midst of a regulatory overhaul. Paulson and Bernanke were testifying at hearing about how to overhaul the regulation system.