KeNo's Housing and Economic Portal: Monday August 22 Housing and Economic stories

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TOP STORIES:

Senate Banking Committee Weighing Probe Of S&P Downgrade Of U.S. Credit Rating - (www.businessinsider.com) According to a Senate Banking Committee aide, the committee is gathering more information about the downgrade in preparation for a possible investigation. Earlier Monday, committee chairman Tim Johnson (D-SD) released the following statement on the downgrade: “In the minds of serious, reasonable, and informed individuals there is no doubt that the U.S. will meet its debt obligations and we are seeing even more proof of that today. As the financial markets stumble, investors continue to regard Treasury debt as a safe haven in times of economic uncertainty. This irresponsible move by S&P may, however, have spillover effects that tax the American people by increasing interest rates on home loans, credit cards, and car loans, and by increasing the cost of finance for some state and local governments. I am deeply disappointed in S&P’s decision to enter into the game of political punditry.”

Debt issuers brace for impact from downgrade - (www.reuters.com) A downgrade of United States' top-tier credit rating has Wall Street scrambling to figure out the knock-on effects for the financial system, from mortgages to banks to markets that rely on U.S. Treasuries for collateral. The immediate effects of the Standard & Poor's downgrade of the country's AAA credit rating late on Friday are likely to be modest, largely because it was expected and already at least partly discounted, experts said. Many downplayed the likelihood of the sort of financial contagion experienced when Lehman Brothers went under in September 2008. Few had expected it to have to file for bankruptcy, and few were prepared for the fallout. Money market funds froze, some major commercial banks collapsed, and many major dealers and finance houses teetered on the edge of failure. But even if that type of scenario is unlikely this time, bankers, lawyers and investors wonder if there could be longer-term consequences of S&P's downgrade, given that U.S. sovereign credit is bedrock to the world financial system.

Fannie Mae, Freddie Mac Ratings Cut by S&P Amid Reliance on U.S. Backing - (www.bloomberg.com) Standard & Poor’s lowered credit ratings on debt issued by U.S.-backed lenders including mortgage giants Fannie Mae and Freddie Mac, citing its own Aug. 5 downgrade of the federal government’s AAA status. Fannie Mae and Freddie Mac, which own or guarantee more than half of the almost $11 trillion in outstanding U.S. mortgage debt, were lowered one step from AAA to AA+, S&P said in a statement today. The downgrade reflects their “direct reliance on the U.S. government,” the ratings firm said. The two companies have operated under U.S. conservatorship since September 2008, when they were seized amid subprime mortgage losses that pushed them toward insolvency. Since then, the government-sponsored enterprises have drawn almost $170 billion in federal aid.

Global Banks Poised to Slash 101,000 Jobs in Fastest Reductions Since 2008 - (www.bloomberg.com) The biggest global banks are cutting jobs at the fastest rate since 2008 as a weak U.S. economy squeezes revenue, regulators push firms to hold more capital and companies restructure businesses to improve profitability. The 50 largest banks, including HSBC Holdings Plc (HSBA), Credit Suisse Group AG (CSGN) and Bank of America Corp. (BAC), disclosed plans for almost 60,000 reductions since Jan. 1, according to company statements and data compiled by Bloomberg Industries. At that pace, they’ll cut more than 101,000 jobs this year -- the most since 192,000 positions were targeted in 2008 amid loan losses, a global credit crunch and unprecedented government bailouts. HSBC’s aim to shed 30,000 workers, unveiled by the London- based firm on Aug. 1, was the single biggest job-cutting announcement since Bank of America said in December 2008 that it would eliminate as many as 35,000 positions, the data show.

Germany doubts larger fund can rescue Italy: report - (www.reuters.com) Doubts are growing in the German government that Italy could be rescued by the European emergency fund, even if the fund were to be tripled in size, according to the German newsmagazine Der Spiegel. The financial needs of the country are so huge that it would overwhelm resources, according to government experts, Der Spiegel said in its online edition. Italy's public debt is about 1.8 trillion euros, or 120 percent of its national output. Germany has consistently said that troubled euro-zone governments should focus on spending cuts and internal reforms, not bailouts. The European Financial Stability Fund currently has 440 billion euros and was designed to help small to medium-sized countries, although the spreading of the debt crisis to Italy and Spain has led to calls for its expansion.