KeNo's Housing and Economic Portal: Friday May 28 Housing and Economic stories

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Credit Mauled in ‘Whiff of ‘08’ as Athens Burns - (www.bloomberg.com) The 13-month rally in credit markets is unraveling as Europe fails to contain its debt crisis. Money markets showed banks may be the most reluctant to lend to each other in more than eight months and a derivatives index used to protect against European bank failures soared to a record. U.S. company bond sales are poised for the slowest week this year, while in Europe they all but disappeared, according to data compiled by Bloomberg. Emerging-market and mortgage bonds also tumbled yesterday. Investors are increasingly concerned that a 110-billion euro ($140 billion) rescue package for Greece won’t work, escalating into a sovereign crisis reminiscent of the subprime mortgage meltdown that pushed Lehman Brothers Holdings Inc. into bankruptcy. Stocks in Europe and Asia plunged after a decline in U.S. equities in New York yesterday, which at one point was the biggest since 1987. “I don’t think we’re in panic mode but there’s a little bit of a whiff of 2008 here,” said Scott MacDonald, head of credit and economics research at Aladdin Capital Holdings LLC in Stamford, Connecticut, which oversees $12.5 billion.

EU Crafts $928 Billion Show of Force to Halt Crisis - (www.bloomberg.com) European policy makers unveiled an unprecedented loan package worth nearly $1 trillion and a program of bond purchases as they spearheaded a global drive to stop a sovereign-debt crisis that threatened to shatter confidence in the euro. Jolted into action by last week’s slide in the currency and soaring bond yields in Portugal and Spain, the 16 euro nations agreed to offer financial assistance worth as much as 750 billion euros ($962 billion) to countries under attack from speculators. The European Central Bank will counter “severe tensions” in “certain” markets by purchasing buy government and private debt. “It’s a clear signal to the markets,” Austrian Finance Minister Josef Proell told reporters in Brussels early today after the 14-hour meeting. “Never before have we made such a step,” he said. Under pressure from the U.S. and Asia to stabilize markets, the European governments gambled that the show of financial force would prevent a sovereign-debt crisis and muffle speculation that the 11-year-old euro might break apart. The two-pronged offensive pushed up the euro 1.4 percent to $1.2931 as of 11:12 a.m. in Tokyo. The Nikkei 225 Stock Average climbed 1.3 percent to 10,499.25.

EU vows to defend euro against market "wolves" - (www.reuters.com) European Union finance ministers sought agreement on Sunday on emergency measures that could be worth up to 600 billion euros ($805 billion) to prevent Greece's debt crisis spreading to other countries in the euro zone. Vowing to do everything to defend the euro against the "wolfpack" of the financial markets, which have been pounding Greece, Spain and Portugal, the ministers discussed much larger sums than previously to try to end the market turmoil. EU sources said Germany, which faces public opposition to bailouts, was resisting any deal that put no limit on the potential financial assistance for countries such as Portugal, Spain or Ireland and wanted the IMF involved. But a compromise was being discussed that included loan guarantees by euro zone countries worth 440 billion euros, a stabilisation fund worth 60 billion euros and a 100 billion euro top-up of International Monetary Fund loans, they said. "We now see ... wolfpack behaviours (on markets), and if we will not stop these packs, even if it is self-inflicted weakness, they will tear the weaker countries apart," Swedish Finance Minister Anders Borg told reporters in Brussels. U.S. President Barack Obama spoke to the German and French leaders by telephone to reinforce the need to calm jittery financial markets quickly and ensure the global economy is not jolted by a sovereign debt crisis.

In the Gulf of Mexico, what went wrong with the Deep Horizon oil drilling rig? - (www.washingtonpost.com) Deepwater Horizon was true to its name. The giant drilling rig, floating on submerged pontoons, set up shop 42 miles from land in the Gulf of Mexico. It was an award-winning rig that epitomized the technological hubris of the oil industry, successfully chasing the hydrocarbons far beyond the continental shelf in what can accurately be termed the abyss. The drilling of Mississippi Canyon Block 252 this spring looked like an unqualified success. The rig struck oil and gas beneath 5,000 feet of water and 13,000 feet of rock. Executives of BP planned to make a splashy announcement. The Macondo field, as they called it, held 50 million to 100 million barrels of crude. Then came the blowout. The gulf is now witnessing a slow-motion disaster, one that looked even grimmer Saturday with the bulletin that the containment dome that had been lowered onto the worst of the oil leaks has been sidelined by technical problems. No one is sure what exactly happened on the night of April 20 to trigger this crisis. Critical pieces of evidence, including the immolated rig itself, sit under nearly a mile of water on the mud floor of the gulf.

Origin of Wall Street’s Plunge Continues to Elude Officials - (www.nytimes.com) A day after a harrowing plunge in the stock market, federal regulators were still unable on Friday to answer the one question on every investor’s mind: What caused that near panic on Wall Street? Through the day and into the evening, officials from the Securities and Exchange Commission and other federal agencies hunted for clues amid a tangle of electronic trading records from the nation’s increasingly high-tech exchanges. But, maddeningly, the cause or causes of the market’s wild swing remained elusive, leaving what amounts to a $1 trillion question mark hanging over the world’s largest, and most celebrated, stock market. The initial focus of the investigations appeared to center on the way a growing number of high-speed trading networks interact with one another and with venerable exchanges like the New York Stock Exchange. Most investors are unaware that these competing systems have fractured the traditional marketplace and have displaced exchanges like the Big Board as the dominant force in stock trading. The silence from Washington cast a pall over Wall Street, where shaken traders returned to their desks Friday morning hoping for quick answers. The markets remained on edge, as the uncertainty over what caused Thursday’s wild swings added to the worries over the running debt crisis in Greece.

Merkel risks reverse in German state election - (finance.yahoo.com) Voters in Germany's most populous state dealt Chancellor Angela Merkel a painful setback Sunday, erasing her government's majority in the upper house of parliament and curbing its power after a stumbling start and criticism over the Greek debt crisis. Merkel's center-right alliance was voted out of power in a state election in North Rhine-Westphalia, a region of some 18 million people that includes Cologne and the industrial Ruhr area. It was the first electoral test since she started her second term in October. "This is of course a warning shot for the governing parties, and the people should know that it has been heard," said Foreign Minister Guido Westerwelle, the vice chancellor and leader of the Free Democrats, Merkel's junior coalition partner. "We must make an effort to win back lost trust."