Top Interest Rate Headlines 08-31-11: White House Could Unveil Mortgage Plan Next Week

White House could unveil mortgage plan next week
Reuters
By Margaret Chadbourn, Reuters
The Obama administration is considering unveiling new plans next week to revive the ailing housing market and reduce foreclosures, including an effort to help troubled borrowers refinance their mortgages.
http://jlne.ws/nZRv0Y

Riccadonna Says U.S. to Grow About 2.5% in 4th Quarter - Video
Bloomberg
Carl Riccadonna, senior U.S. economist at Deutsche Bank Securities Inc., talks about the outlook for the U.S. economy. Riccadonna also discusses the U.S. labor market and manufacturing, and Federal Reserve monetary policy. He speaks with Tom Keene and Michael McKee on Bloomberg Television's "Surveillance Midday."
http://jlne.ws/rh1JtJ

Euro crisis requires market solution
By Lee Robinson and Patrick Young, FT.com
Ultimately the euro crisis remains a pressure cooker building up steam despite the protestations of the currency system being saved by multiple political interventions. Yet after a half dozen supranational attempts to instil order within the sovereign nations of the EU, the markets are clearly not listening. Instead a market solution is now needed.
http://jlne.ws/pz2mAZ

Lockhart Says Fed Should Be Ready to Weigh More Easing to Aid Weak Economy
By Steve Matthews, Bloomberg
Federal Reserve Bank of Atlanta President Dennis Lockhart said the Fed should be ready to consider more monetary easing even while it can’t be expected to eliminate some of the forces impeding economic growth.
http://jlne.ws/qITnWK

FSA Fines Trading Firm £8 Million - one of its largest-ever fines
BY TIM CAVE, WSJ.com
The U.K.'s Financial Services Authority has handed one of its largest-ever fines to a now defunct Canadian trading firm for alleged abusive trading techniques, in a clear sign that it is clamping down on computer-driven practices it regards as damaging to domestic markets.
http://jlne.ws/odR2Sn

CME Urges US Regulator To Delay Dodd-Frank Rules
Dow Jones Newswires
CME Group Inc. (CME) is urging the U.S. Commodity Futures Trading Commission to delay adoption of rules set by the Dodd-Frank law on Wall practices, saying the law is flawed and vulnerable to legal challenges, Crain's Chicago Business reported Wednesday.
http://jlne.ws/nIiMND

Germany OK's eurozone rescue fund changes
By Geir Moulson, Associated Press
German Chancellor Angela Merkel's Cabinet on Wednesday approved a plan to beef up the eurozone's rescue fund, the first step toward its passage in Europe's biggest economy.
http://jlne.ws/qGIPk6

Pimco Launches Hedge-Fund-Like 'Go Anywhere' Bond Fund
BY MIN ZENG, WSJ.com
Pacific Investment Management Co., the big money manager founded by Bill Gross, is wooing investors with a new bond fund that aims to provide returns in any market environment with a broad range of fixed-income strategies.
http://jlne.ws/pRJ2g6

Employment in Most Cities Makes Gains From 2010 - Real Time Economics
By Andrew Ackerman, WSJ.com
Unemployment rates in most metropolitan areas in the U.S. fell during July from a year earlier, according to a Labor Department report released Wednesday. The report said jobless rates were lower in 257 of the 372 metropolitan areas measured. Unemployment rates were higher in 94 areas and unchanged in 21 areas.
http://jlne.ws/prZsFx

Chicago PMI slows in August
By Steve Goldstein, MarketWatch
The Chicago business barometer, which also is called Chicago PMI, slowed in August to a 56.5% reading from 58.8% in July, as managers in the region reported slowing production and new orders and a shrinking in order backlogs. Though the reading was ahead of expectations -- economists polled by MarketWatch had anticipated a 53.0% reading -- the indicator is at a 21-month low
http://jlne.ws/oK4QIn

Moody's: United States: Factory Orders (M3)
Orders for manufactured goods rose 2.4% in July, above expectations. The previously released figures for durable goods orders were revised up slightly to 4.1%. Shipments of durable goods got a significant upward revision, growing 2.4%. Unfilled orders rose, while inventories grew for the 15th consecutive month. Revisions to core capital goods data were positive. Core capital goods orders fell only 0.9%. Shipments fell 0.2% with a slight downward revision.
http://jlne.ws/poDERD

Euro Bonds Are Not Enough: Eurozone Countries Need A Government Banker 
FT.com
The eurozone‘s public finance crisis continues to fester, reflecting both political and intellectual failure. The intellectual failure is that the crisis has been interpreted exclusively as a debt crisis when it is also a central bank design crisis resulting from the euro’s flawed architecture. The flaw is the inability of eurozone governments to harness the central bank’s power to assist government finances. This systemic weakness explains why US and UK government bonds are weathering the storm, whereas Spain confronts default rumors despite having roughly similar debt and deficit profiles.http://jlne.ws/o2MtmD

Top Interest Rate Headlines 08-30-11: ISDA Names George Handjinicolaou Deputy CEO, Head Of Europe

ISDA Names George Handjinicolaou Deputy CEO, Head Of Europe
By Katy Burne, DOW JONES NEWSWIRES
The International Swaps and Derivatives Association has tapped George Handjinicolaou as its deputy chief executive and head of Europe, the association announced Tuesday.
http://jlne.ws/qRpS7U

India's Economic Expansion Slows in Second Quarter
By VIKAS BAJAJ, The New York Times
India’s growth rate continued to slide in the second quarter of the year, falling to 7.7 percent, the government reported Tuesday.
http://jlne.ws/pAkTvL

Lehman set for creditor vote on $65-billion payout
By Nick Brown, The Globe And Mail
Creditors of Lehman Brothers Holdings Inc. were granted approval Tuesday to vote on the failed bank’s $65-billion (U.S.) payback plan, clearing a major hurdle in the path to ending the biggest bankruptcy in U.S. history.
http://jlne.ws/nJx2nW

A Few Fed Policy Makers Favored ‘More Substantial’ Move Aug. 9
By Jeannine Aversa and Scott Lanman, Bloomberg
A few Federal Reserve policy makers this month favored more aggressive action to stimulate the economy and lower unemployment, minutes of their meeting released today showed.
http://jlne.ws/pxXDlw

FRB: FOMC Minutes, Aug. 9, 2011
A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors in Washington, D.C., on Tuesday, August 9, 2011, at 8:00 a.m...
http://jlne.ws/pal4GB

Fed Minutes Reveal Sharp Division
By Mark Gongloff, WSJ.com
The minutes of the Fed’s August 9 meeting just came out, and sure enough, policy makers were just as divided as we expected about whether to tighten or loosen monetary policy.
http://jlne.ws/r09Mrw

Fed should not undo rate commitment: Kocherlakota
Reuters
A top Federal Reserve official who dissented from the U.S. central bank's move this month to ease monetary policy further signaled he would drop his opposition.
http://jlne.ws/r2oBRL

Lehman Credit Veteran Joins Newedge Bond Team
By Katy Burne, DOW JONES NEWSWIRES
Newedge Group has hired Larry McDonald as a senior director in corporate credit sales, a newly created position as the brokerage firm continues to build out its fixed-income platform. He started Aug. 22 in New York and focuses on corporate bonds -- specifically convertible and junk bonds -- reporting to David Blanquart, Newedge's global head of fixed income.
http://jlne.ws/ofQYMB

US house prices fall 4.5% in June
By Shannon Bond, FT.com
http://jlne.ws/nbOpLr

Fed's Evans backs strong policy accommodation
By Leah Schnurr and Jonathan Spicer, Reuters
Chicago Federal Reserve Bank President Charles Evans said on Tuesday he favored strong central bank accommodation for a substantial period of time, as the U.S. economy looks to be moving "sideways."
http://jlne.ws/qtfepv

Economy: Confidence Drops to Lowest Level Since April 2009
Reuters
U.S. consumer confidence crumbled in August to its lowest level in more than two years as the fallout from political wrangling over a budget deal took its toll, according to a private sector report released Tuesday.
http://jlne.ws/pCQYvR

Bill Gross At Long Last Admits Wrongness
Wall Street Journal Blogs
Well, we can stop our long "when will Bill Gross be right" vigil. He's admitted he was wrong.
http://jlne.ws/omASrT

Pimco’s Gross rues US debt ‘mistake’
By Dan McCrum in New York, Financial Times
Bill Gross, manager of the world’s largest bond fund for Pimco, has admitted that it was a mistake to bet so heavily against the price of US government debt. Mr Gross emptied his $244bn Total Return Fund of US government-related securities earlier this year in a high-profile call that has backfired as the bond market has rallied. As of Monday, Pimco’s flagship fund ranked 501th out of 589 bond funds in its category.
http://jlne.ws/p90q2e

CFTC's Sommers: Blocking FIA-Isda document was "huge waste of resources"
Risk.net
A contentious draft rule from the Commodity Futures Trading Commission (CFTC) has revealed partisan divisions within the agency. The CFTC's two Republican-appointed commissioners argue the proposal - which shuts the door on a documentation project run by the Futures Industry Association (FIA) and the International Swaps and Derivatives Association - was unnecessary, and claim they were kept in the dark ahead of the agency's rule-making meeting on July 17.
http://jlne.ws/ox6oXo

IASB criticises Greek debt writedowns
By Adam Jones in London and Jennifer Thompson in Paris - Financial Times
Some European financial institutions should have taken bigger losses on their Greek government bond holdings in recent results announcements, according to the body that sets their accounting rules.
http://jlne.ws/oXA9nL

Sovereign spreads challenging cherished notions
By Gillian Tett, Financial Times
A few years ago, I pointed out in a column that the cost of insuring the US government against a default in the credit derivatives market, had risen above that of McDonalds, the US fast food company, for the first time.
http://jlne.ws/qeru4f

McDonald Joins Newedge On The Corporate Credit Sales Desk As A Senior Director

New Hire for Newedge's Fixed Income, Currency & Commodity Business Line (FICC)

Larry McDonald, Senior Director, Newedge

McDonald joins Newedge on the Corporate Credit Sales Desk as a Senior Director, reporting to David Blanquart, Newedge Global Head of Fixed Income-Credit within Newedge FICC business line. Based in New York McDonald will be servicing buy side clients on Corporate Bonds, specifically Convertible Bonds and High Yield.

From July 2004 through September 2008, Larry was Vice President of Distressed Debt and Convertible Securities Trading at Lehman Brothers. He ran an extremely successful joint venture between the firm's fixed income and equity divisions.

Larry has written a bestselling book on the fall of Lehman Brothers, A Colossal Failure of Common Sense - the Inside Story of the Collapse of Lehman Brothers. Since publishing A Colossal Failure, Larry has delivered over 45 keynote speeches across the world, recently speaking to banks, investment firms, law firms, insurance companies and universities.

Prior to Lehman Brothers, Larry was Co-Founder and COO of Convertbond.com, the premier website source for convertible securities information, valuation and news. In 1999, Convertbond.com was successfully sold to Morgan Stanley and remains property of the firm.

Larry McDonald is a renowned financial and economic expert with over twenty-one years of experience working on Wall Street.


www.presscenter.newedge.com

Top Interest Rate Headlines 08-29-11: U.S. Economy: Saved By The consumer?

U.S. economy: Saved by the consumer?
The Globe And Mail
Maybe Ben Bernanke knows what he's talking about after all. Just a few days ago, the Fed boss was telling the world (via his much-anticipated speech at the annual economicpolicypalooza in Jackson Hole, Wyo.) that he wasn't convinced the U.S. economy was really in as dire straits as many people feared. Now we have some strong evidence to back up his assertion - and from the long-suffering U.S. consumer, no less.
http://jlne.ws/q7qiTU

Core Prices Edge Up in July :: Brent Meyer :: Economic Trends :: 08.29.11 :: Federal Reserve Bank of Cleveland
Brent Meyer, Federal Reserve Bank of Cleveland
The headline CPI jumped up at an annualized rate of 6.2 percent in July, surprising forecasters’ expectations to the upside. Over the past 12 months the CPI is up 3.6 percent, somewhat above its longer-term (5-year) annualized growth rate of 2.1 percent. Increases in food at home (up 7.2 percent) and a rebound in motor fuel prices (up 72 percent after falling 56 percent in June) accounted for a little over half of the overall gain.
http://jlne.ws/qqmOh8

European officials round on Lagarde
http://jlne.ws/ovT6gr

Alan Krueger's New White House Job
By CATHERINE RAMPELL, The New York Times
Alan B. Krueger, an economist at Princeton, has been chosen to be the next chairman of the president’s Council of Economic Advisers.
http://jlne.ws/reMPrT

Vietnam Central Bank Lifts Dollar Reserve Ratios 100bps
Central Bank News
The State Bank of Vietnam raised the required reserve ratios on foreign currency for credit institutions by 100 basis points.  The ratio on non-term foreign currency deposits and deposits of less than 12 months will be 8% (7% previously) for most State-owned commercial banks, joint stock banks, 100 percent foreign owned banks, joint venture banks, and foreign bank branches.  The ratio will be 7% (6% previously) for the Bank for Agricultural and Rural Development, the Central People's Credit Fund, and cooperative banks.  The ratio on deposits longer than 12 months will be 6% (5%) and 5% (4%) respectively for those two groups.
http://jlne.ws/nR5DaD

ECB to reassess inflation risks
By Ralph Atkins, FT.com
http://jlne.ws/qwMiw6

Low rates good — and bad — for consumers
By Jennifer Waters, MarketWatch
Borrowers breathed a collective sigh of relief when the Federal Reserve said earlier this month that it would hold interest rates at rock bottom for the next two years. But savers were far from happy.
http://jlne.ws/q5K0ZT

Lagarde Snubbed in Push to Raise Bank Capital
By Rainer Buergin and Emma Ross-Thomas, Bloomberg
Germany, Spain and the European Union rebuffed International Monetary Fund Managing Director Christine Lagarde’s call for an “urgent,” potentially mandatory, recapitalization of Europe’s banks.
http://jlne.ws/n0JrQw

German Inflation Eases
By WILLIAM LAUNDER And MARGIT FEHER, WSJ.com
Preliminary consumer-price inflation slowed slightly in Germany in August on a monthly basis, meeting economists' expectations as food and energy prices retreated in six German states.
http://jlne.ws/nfljDm

Jean-Claude Trichet: Achieving maximum long-term growth
Trichet, President of the European Central Bank, at the Federal Reserve Bank of Kansas City Economic Symposium, Panel: Setting priorities for long-term
growth, Jackson Hole, 27 August 2011
http://jlne.ws/nuqr1e

Irene Losses Appear Less Than Worst-Case for Insurers
Forbes
Hurricane Irene blazed a trail from North Caroline to New England over the weekend. While she caused plenty of damage from her punishing winds, heavy rains and resulting flooding, the ultimate course and strength of the hurricane was far from the worst-case scenario.
http://jlne.ws/pcbnqY

Japan’s economic prospects: Out of the ruins
The Economist
FIVE months after a tsunami and nuclear meltdown assailed Japan, the economy has been pummelled by fresh blows. Share prices have followed global stockmarkets down, with the Nikkei 225 index revisiting its nadir in the days after the earthquake in March. As if the fears about a global slowdown that have depressed equity investors were not enough, the yen has been soaring, which will hurt Japanese exporters. Adding to the pain, Moody’s, a credit-rating agency, downgraded Japan’s debt rating one notch to Aa3 on August 24th because of its huge public debt and chaotic politics.
http://jlne.ws/nBCWGF

B. of A. to raise $8.3 bln from sale of CCB stake
By Sue Chang, MarketWatch
Bank of America Corp. /quotes/zigman/190927/quotes/nls/bac BAC -0.12% said Monday that it will sell 13.1 billion shares of China Construction Bank Corp. in a private deal to raise about $8.3 billion in cash. Bank of America is still expected to retain a 5% stake in the Chinese bank after the transaction. "This sale of approximately half of our shares of CCB stock is expected to generate about $3.5 billion in additional Tier 1 common capital and reduce our risk-weighted assets by $7.3 billion under Basel I," said Chief Financial Officer Bruce Thompson in a statement. The deal is likely to close in the third quarter
http://jlne.ws/nHRfZK

US consumer spending rises in July
BBC News
US consumer spending rebounded last month, driven by a rise in car sales, official figures have shown. Sales increased by 0.8% in July compared with June, the biggest rise in five months, the Commerce Department said. In June, sales had fallen 0.1%.
http://jlne.ws/n8Yr1T

Texas Manufacturing Outlook Survey, August 2011 - Economic Data - FRB Dallas
Texas factory activity was largely unchanged in August, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, remained positive but fell from 10.8 to 1.1, suggesting growth stalled this month. Most other measures of current manufacturing conditions indicated slower growth in August. The new orders index fell from 16 to 4.8 this month, suggesting order volumes continued to increase, but at a decelerated pace. The shipments index was positive and little changed, edging down from 7.8 to 6.7. The capacity utilization index dipped into negative territory in August, with one-quarter of manufacturers noting a decrease.
http://jlne.ws/n3Uaeo

Banks Decry Surcharges as Basel Plans Capital 'Punishment' for Size, Risk
By Cheyenne Hopkins and Craig Torres - Bloomberg
Global banks are launching a counterattack against new capital guidelines, warning that they could reduce lending and harm growth as well as alter competition in the financial system.
http://jlne.ws/oQsRWs

Lagarde’s ugly truth on debt
Financial Times
Jackson Hole may be a central bankers’ conference, but the most important thing to come out of this year’s gathering had nothing to do with central banking policy. Christine Lagarde has said publicly what most policymakers have avoided addressing since the crisis began. Using her new bully pulpit at the International Monetary Fund she has conceded that the common problem facing the developed world is an excessive overhang of claims on debt that financed worthless investments. These claims will have to be liquidated, and the quicker the better.
http://jlne.ws/pFslQV

European officials round on Lagarde
By FT Reporters
European officials rounded on Christine Lagarde on Sunday, accusing the managing director of the International Monetary Fund of making a “confused” and “misguided” attack on the health of Europe’s banks.
http://jlne.ws/p14Sqi

IMF's Lagarde Warns World Economy Entering 'Dangerous' Phase
BusinessWeek
Christine Lagarde, the new managing director of the International Monetary Fund chief, warned that the world economy is in a "dangerous new phase" and that officials must take new steps to strengthen growth.
http://jlne.ws/nHzIDb

Bernanke Must Act Calmly on Policy, Economist Says.
Bloomberg
Stephen King, chief economist at HSBC Holdings Plc, talks about Federal Reserve Chairman Ben S. Bernanke's speech at the Kansas City Fed's annual symposium in Jackson Hole, Wyoming. King also discusses the sovereign debt crisis in Europe and funding for Greece.
http://jlne.ws/pEqccQ

Doubts over German role in Greek debt deal
By James Wilson in Frankfurt - Financial Times
German “bad bank” agencies holding billions of euros of Greek debt have still to decide whether to join a bond swap designed to cut Athens’ refinancing burden as part of an EU bail-out.
http://jlne.ws/nEZ4eU

ISDA Determinations Committee: Irish Life & Permanent Plc Second Restructuring Credit Event
Press Release
The International Swaps and Derivatives Association, Inc. (ISDA) today announced that its EMEA Credit Derivatives Determinations Committee resolved that a Restructuring Credit Event occurred in respect of Irish Life & Permanent plc.
http://jlne.ws/r5wTJi

UBS' $20 million "loan" for staying in Stamford comes after city fined bank $2 million
Stamford Advocate
Gov. Dannel P. Malloy is giving UBS $20 million to stay in Stamford, but it was not long ago the city, under then-Mayor Malloy, was quietly reaping financial penalties from the Swiss banking giant for failing to construct more offices.
http://jlne.ws/owLwuG

UBS And Credit Suisse To Take Lumps from Swiss-British Tax Agreement
Forbes
The U.K. added itself to the growing list of governments seeking to cinch the noose on tax evaders hiding behind the secrecy imparted by Swiss banks, including UBS and Credit Suisse.
http://jlne.ws/n8mO2n

August 25, 2011: Citigroup Downgrades Global GDP Growth for 2011 & 2012 [Newsletter]

August 25, 2011

JLN Interest Rates - http://www.jlninterestrates.com


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BIS: Call For Papers For The Joint ECB-BIS Workshop On "Global Liquidity And Its International Repercussions"

"Global liquidity" is a term frequently employed to explain the rally in stock markets, the decline in bond yields, the real estate booms, the surge in international capital flows and the rise in inflation observed in the years before the crisis and/or more recently. Similarly, some see the drying up of global liquidity as responsible for serious episodes of financial distress internationally. That said, global liquidity is an elusive and multi-faceted concept. In the economics profession there is no consensus on its definition, measurement, causes and implications. As a result, explanations that rely on global liquidity are often speculative and controversial... In an upcoming workshop, BIS aims to bring together academics and researchers to present and discuss research on global liquidity. The deadline for research paper submissions is Nov. 30, 2011.

Read about the BIS paper and workshop here.


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MarketsWiki Questions: Exploring Financial Technology - Question 5 Interactive Video Now Available

Ahead of our MarketsWiki Questions: Exploring Financial Technology event in October we're asking experts in the financial services industry seven questions and providing the best answers in an interactive video format.

Question 5: Build or Buy? What parts of trading technology are worth building and what are worth buying? - http://jlne.ws/qh4JCb

(Question 5 is sponsored by: Traiana - http://lin.sh/mwq_traianalogo)




Lead Stories

Citigroup Downgrades Global GDP Growth for 2011 & 2012
24/7 Wall St.
Citigroup is downgrading the global growth targets for 2011 and 2012. The economic team there now sees the global growth Citigroup cut its 2011 global GDP growth forecast to 3.1% from a prior rate of 3.4%. More importantly, it is cutting the global GDP growth for 2012 down to 3.2% from 3.7%.
http://jlne.ws/qODenL

Warren Buffett invests $5bn in Bank of America
BBC
Warren Buffett's company Berkshire Hathaway has announced it is investing $5bn (£3.1bn) in Bank of America. News of the world famous investor's decision sent Bank of America's shares more than 25% higher.
http://jlne.ws/oEyRRx

Henry Blodget vs. Bank of America: "Rotted to the Core"
Yahoo! Finance: The Daily Ticker
A major controversy has erupted in the blogosphere over the value of Bank of America's balance sheet, and whether the bank will be forced to raise capital in the near future. At the center of the debate is my colleague Henry Blodget, who touched off a maelstrom Tuesday with a blog that concluded Bank of [...]
http://jlne.ws/rqrPra

BofA moves to counter more blog rumours
By Helen Thomas, David Gelles and Telis Demos in New York, Financial Times
Bank of America has again sought to calm investors’ fears about the bank, for the second day taking the unusual step of directly addressing rumours and analysis published in the blogosphere.
http://jlne.ws/qAg2WB

No Agreement on Bank of America Capital Needs
Wall Street Journal Blogs
It's amazing how divergent the views are on the health of Bank of America.
http://jlne.ws/oQKQ0F

Bank of America and Goldman bonds lose friends
Futures Magazine
Yields marked time on Tuesday buffeted by a strong rally for stocks yet underpinned by hopes that the Jackson Hole address by Fed Chairman Bernanke on Friday will maintain downside pressure on yields.
http://jlne.ws/qPBqCD

Ratings firms reaffirm German AAA status:
By MarketWatch
Ratings firms Fitch, Moody's and Standard & Poor's reaffirmed Germany's triple-A credit rating on Thursday, CNBC reported. The cable network said spokesmen from the three agencies reaffirmed the rating and outlook after Germany's DAX stock index extended a decline on market rumors of a potential downgrade.
http://jlne.ws/q5fgFX

Moody's Cuts Japan's Credit Rating
By WILLIAM SPOSATO, WSJ
TOKYO—Moody's Investors Service downgraded Japan's sovereign debt rating Wednesday, but assigned it a stable outlook and said there was little chance of a crisis in Japan's debt market any time soon.
http://jlne.ws/qXLN2f

Moody’s not pleased with Greek collateral grab
Posted by Joseph Cotterill, Financial Times
Following Finland’s cash collateral deal with Greece — an issuer comment from Moody’s on Monday:
http://jlne.ws/p4eH8i

Moody's Ex-Staffer Says Ratings Rife With Conflicts
ABC News
The former Moody's analyst who filed comments with the U.S. Securities and Exchange Commission is critical of internal systems at his former employer but is not holding his breath for regulators to save it.
http://jlne.ws/nwwi85

Former Moody’s Exec Details Sleaze Within Credit Rating Firm
By Alain Sherter, BNET
It’s open season on the credit rating agencies, and at least one former Moody’s (MCO) executive is doing the shooting. William Harrington, until 2010 a senior analyst in
the firm’s derivatives group, accuses Moody’s of everything from tailoring its securities ratings to suit financial industry clients to lying to lawmakers about the company’s
actions.
http://jlne.ws/n4A342

Fitch: U.S. Money Funds Reduce Exposure, Shorten Maturities to European Banks
Reuters
U.S. prime money market funds (MMFs) lowered the maturity profile of their CD exposures to European banks in several countries while also reducing their total exposure to European banks, according to a Fitch Ratings report.
http://jlne.ws/qR6zlE

European Central Bank buys E14.3 billion in bonds
AP via Yahoo! News
The European Central Bank spent E14.3 billion ($20.6 billion) last week buying government bonds to protect large economies like Spain and Italy from the debt crisis, but market concerns persisted about how long the emergency purchases would contain market turmoil.
http://jlne.ws/mYddgA

Misdiagnosing the eurozone’s banks
Financial Times
Falls in eurozone bank shares have set off warning bells for the bloc’s banking sector. It is a false alarm – for now. With local exceptions, European banks are not squeezed for funds. Alarmism risks fuelling the sort of misdiagnosis that has already made governments throw good taxpayer money down holes dug by banks themselves.
http://jlne.ws/puuR3r

Morgan Stanley at Brink Got $107B From Fed
By Bradley Keoun, Bloomberg
As markets convulsed in September 2008, Morgan Stanley (MS) Treasurer David Wong briefed the Federal Reserve on a “dark” scenario in which the U.S. firm would need at least $10 billion of emergency loans from the central bank.
http://jlne.ws/rjNsVX

A Rush Out of 'Junk'
BY MATT WIRZ, KATY BURNE AND VIPAL MONGA, Dow Jones
The market for "junk" bonds is enduring its worst rout since the depths of the financial crisis. Demand for high-yield bonds sold by the riskiest U.S. companies has nearly dried up, an ominous sign for low-rated companies hoping to tap the bond markets and private-equity firms trying to finance leveraged buyouts. New junk-bond offerings in August were at their lowest level since December 2008.
http://jlne.ws/nLuz4S

Foreclosures A Third Of Sales; Mortgage Rates Rise
By NPR Staff and Wires
Foreclosures made up roughly one-third of all home sales this spring. While that's a smaller share of sales from the previous quarter, it's six times the percentage of foreclosures in a healthy housing market. Meanwhile, fixed mortgage rates edged up this week from their lowest levels in decades.
http://jlne.ws/pR1dO5

Bernanke Is Unlikely to Promise New Action by the Fed
BY DAVID WESSEL, WSJ
Fed Chairman Ben Bernanke is unlikely to use his speech Friday at the Federal Reserve's annual Jackson Hole, Wyo., conclave to unveil new efforts to bolster the U.S. economy—despite financial markets' lingering hopes that he will.
http://jlne.ws/ogp0xg

Bernanke Not Planning Policy Announcement: Influential Research Firm
By: John Melloy, CNBC
Federal Reserve Chairman Ben Bernanke will not hint at a third round of quantitative easing [cnbc explains] at the central bank's annual Jackson Hole, Wyo., summit this week, according to Medley Global Advisors, an influential research firm.
http://jlne.ws/q2gYam

The Illusion of Bank Profits: A Bridge to a Cliff
Forbes
It's about those profits, folks. They are nothing but smoke and mirrors.
http://jlne.ws/rrT5uz

Investors adopt longer-term approach to Treasuries
By Telis Demos and Aline van Duyn in New York, Financial Times
The search for yield among investors continues. But, amid mounting fears of a double-dip, it is taking a new twist. The main avenue for yield enhancement in recent years has been a switch into riskier assets – from junk bonds to asset-backed securities.
http://jlne.ws/p8pRuU

The Rich Can Afford to Pay More Taxes
By BRUCE BARTLETT, NY Times
The issue is not whether the wealthy should pay more, but how best to accomplish it, an economist writes.
http://jlne.ws/pp51sS

FDIC ‘Problem’ Banks Shrink, First Time Since ’06
By Meera Louis, Bloomberg
The Federal Deposit Insurance Corp.’s list of “problem” banks fell in the second quarter for the first time since 2006 as the industry’s income improved and costs tied to bad loans eased.
http://jlne.ws/pKBfxv

Searching for the Financial Accelerator: How Credit Affects the Business Cycle
Federal Reserve Bank Of St. Louis
A prominent view in economics is that malfunctioning credit markets “are not simply passive reflections of a declining real economy, but are in themselves a major factor depressing economic activity.”
http://jlne.ws/oeKmXN

N.Y. judge dismisses Strauss-Kahn charges
By Sue Chang, MarketWatch
A New York judge has dismissed sexual assault charges against former International Monetary Fund chief Dominique Strauss-Kahn, according to media reports Tuesday. The move had been expected after prosecutors admitted that credibility issues with Nafissatou Diallo, the accuser, had hurt the case, reports said.
http://t.co/qm0CaMu

MSRB Files Supervisory Rule for Muni Advisors
By Lynn Hume, The Bond Buyer
The Municipal Securities Rulemaking Board has filed a proposed rule with the Securities and Exchange Commission that would require muni advisors to establish supervisory systems to ensure they and their "associated persons" comply with SEC and MSRB rules.
http://jlne.ws/nzUg7a

Head of rating agency S and P stepping down
AP via Yahoo! News
The president of Standard & Poor's is stepping down, an announcement coming only weeks after the rating agency's unprecedented move to strip the United States of its AAA credit rating.
http://jlne.ws/q6fbCN

Wall Street Aristocracy Got $1.2 Trillion From Fed
By Bradley Keoun and Phil Kuntz, Bloomberg
Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and
brokerage firms to their best year ever with $104 billion of profits.
http://jlne.ws/npgb3z

Survey: More economists prefer cuts over taxes
The Associated Press
The majority of economists surveyed by the National Association for Business Economics believe that the federal deficit should be reduced only or primarily through spending cuts.
http://jlne.ws/p2eT5b

Financial Firms Were Busy Hiring In The Calm Before The Storm
By William Hutchings Of FINANCIAL NEWS
Investment banks and asset managers expanded their U.K.-based staff significantly over the 12 months to June, shortly before what turned out to be a period of market turmoil, according to recently published figures. The number of "Financial Services Authority-approved persons", that is, staff whose seniority or function requires them to be approved by the UK's financial services regulator, increased by at least 10% at eight investment banks and two asset managers over the 12 months to June, according to figures collated and just published by Imas, a U.K. corporate finance adviser.
http://jlne.ws/oaY3OW

Rep. Van Hollen on U.S. Debt Panel Outlook
Bloomberg
U.S. Representative Christopher Van Hollen, a Maryland Democrat who sits on the 12-member deficit-cutting super committee, talks about the prospects for finding $1.5 trillion in budget savings. He speaks with Erik Schatzker on Bloomberg Television's "InsideTrack."
http://jlne.ws/rlKIUT

Fed says it is treating US, European banks the same
Reuters
LONDON/NEW YORK: The Federal ReserveBank is treating foreign banks the same as their US peers, atop policymaker said on Thursday, contrary to a published report that said the US central bank was keeping a closer eyeon European banks struggling with the continent's debt crisis.
http://jlne.ws/pk8bM7

The CFTC Announces Appointment of Gary Barnett as Swaps Division Director
Press Release
Washington, DC - The Commodity Futures Trading Commission (CFTC) today announced the appointment of Gary Barnett to serve as the agency’s Director of the Division of Swap Dealer and Intermediary Oversight. The new division is part of the agency’s restructuring to fulfill its expanded responsibilities under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Barnett will play a key role in the CFTC’s efforts to regulate the swaps market under the law.
http://jlne.ws/mWyHkC




Events

Valuation and Pricing Methodologies of Debt Instruments - Auction Rate Securities
Sept. 1, 2011
Madison Street Capital (MSC) Is Lead Presenter In This Financial Research Associates Webinar Segment
http://jlne.ws/pxF2sq

FIA Treasury & Rates Forum
Sept. 14, 2011
FIA Program On Growing Role Of Treasury Futures - New York City
http://jlne.ws/fQFQXP

SEFCON II
Oct. 3, 2011
WMBAA To Examine Role And Operation Of Swap Execution Facilities Under Dodd-Frank
http://jlne.ws/pY4N7S







Economic News

Kansas City Fed Mfg Survey Shows Modest Expansion
By Gary Siegel, The Bond Buyer
Manufacturing activity in the Federal Reserve Bank of Kansas City’s region “continued to expand modestly, and producers remained generally positive about future months,” according to the bank’s monthly manufacturing survey, released Thursday.
http://jlne.ws/rqP3yc

Home mortgage applications fall to 15-year low
By DEREK KRAVITZ, Associated Press
Mortgage applications to purchase a home fell last week to a 15-year low, despite the lowest mortgage rates in decades.
http://jlne.ws/rnkbqq

German Ifo business morale plummets in August
By Annika Breidthardt, Reuters
German business morale posted its steepest drop this month since the aftermath of the Lehman Brothers collapse in late 2008, raising fresh doubts about the broader European economy as it grapples with a crippling debt crisis.
http://jlne.ws/phCUDg

Durable-goods orders climb 4.0% in July
By Jeffry Bartash, MarketWatch
Orders for U.S. durable goods jumped 4.0% in July, mainly because of higher demand for autos and commercial aircraft, the government reported Wednesday.
http://jlne.ws/nxHZIR

US: Richmond Fed Manufacturing Index fell to -10 in August
FXstreet.com
The US Richmond Fed Manufacturing Index decreased to -10 in August, in comparison with the -1 drop in July, according to data published by the Federal Reserve Bank of Richmond.
http://jlne.ws/nkY7CP

New Home Sales Fell 0.7 Percent In July
By DEREK KRAVITZ, Associated Press
Sales of new homes fell for the third straight month in July, a sign that housing remains a drag on the economy. If the current pace continues, 2011 would be the worst year for new-home sales in nearly half a century.
http://jlne.ws/ofpuzE

Retailers Brace for Weak Second Half
By Lauren Coleman-Lochner and Matt Townsend, Bloomberg
Retailers’ slowest earnings growth since the last recession has them bracing for a weakened second half as the U.S. economy leaves consumers confronting the prospect of losing their jobs and a volatile stock market.
http://jlne.ws/r5jLv3

Consumer Edge says U.S. confidence hits new low
Reuters
Consumer confidence has fallen further after weeks of intensified economic concerns and broad stock market declines, and Conference Board data due later this month could be even weaker than current projections suggest, Consumer Edge Research said on Monday.
http://jlne.ws/rc1d6k

Mortgage delinquencies rise in second quarter
By Amy Hoak, MarketWatch
Mortgage delinquencies rose in the second quarter, a development that reflects the deterioration of the job market, the Mortgage Bankers Association’s chief economist said on Monday.http://jlne.ws/qGOFo9

Housing markets: Low rates, no interest
The Economist
Mortgage rates reached record lows this week, according to the weekly market survey from Freddie Mac. The average rate on a 30-year fixed-rate loan fell to 4.15 percent, with borrowers paying an average point of 0.7 percent. That rate is down from 4.32 percent last week.
http://jlne.ws/qJBUwr

Unemployment rates rose last month in 28 states, and fell in 9, showing the job market is still weak
By CHRISTOPHER S. RUGABER, Associated Press
Unemployment rates rose in July in more than half the states for the second straight month, evidence that job growth remains weak nationwide.
http://jlne.ws/mVdOJU




Exchanges, Clearing Houses & MTFs

LCH.Clearnet to revalue JPY trades in SwapClear using OIS
Press Release
LCH.Clearnet Ltd’s (LCH.Clearnet) market-leading interest rate swap (IRS) clearing service SwapClear is to begin using the overnight index swap (OIS) curve to discount Japanese Yen IRS trades from October 2011. The total outstanding notional value of IRS denominated in JPY within SwapClear is currently ¥ 1417 trillion, comprising over 12% of the total SwapClear portfolio by value.
http://jlne.ws/pLB7LX

Eurex Clearing launches the first major element of its new Client Asset Protection Services
Press Release
Eurex Clearing, Europe’s leading clearinghouse, announced the launch of its “Individual Clearing Model”, the first major element of a new suite of industry leading client segregation services. The new service is the first segregation solution offered by a clearing house enabling full legal and operational segregation of all assets (positions and margin collateral) for its non-clearing members (clients with trading admission) at the clearing house level. The new model allows for collateral and positions to be
transferred immediately in the event of a clearing member default, thus clients are protected and enabled to continue their trading activities.
http://jlne.ws/r0s5Ru

Free IR services from the NYSE get go-ahead
Inside Investor Relations | Business Insider
Flying in the face of protest, the SEC has approved a controversial new NYSE rule giving issuers free IR services. Service providers outside of the exchange’s coterie of partners bitterly opposed the change, saying it would squash competition and stifle innovation.
http://jlne.ws/picXL8





Firms & Banks

Quantitative Brokers Launches The Roll Tracker for US Treasury Futures Roll
Press Release
New York, NY, August 25, 2011-- Quantitative Brokers today launched The Roll Tracker, a free, web-based tool that provides real-time forecasts of the CME –traded US Treasury futures roll. The Roll Tracker, available via the company website, calculates the projected shift of open interest for the current roll cycle based on intraday observations of traded volume for each calendar spread contract. It is updated every minute and also displays the historical shifts in open interest of previous rolls, dating back to March 2009. The Roll Tracker is available for the CME 2-, 5-, and 10-year US Treasury Note, the 30-year US Treasury Bond, and the Ultra T-Bond futures.
http://jlne.ws/nrdaeg

Goldman Sachs Drops on News Blankfein Hired Defense Lawyer
By Avi Salzman, Barron's
Goldman Sachs (GS) CEO Lloyd Blankfein has hired a high-profile defense attorney, Reuters reported shortly before the market closed on Monday, sending the shares down sharply. Blankfein is not facing any civil or criminal charges, but various government agencies, including the Justice Department, are inquiring into the role Goldman Sachs played during the mortgage meltdown.
http://jlne.ws/pYHVZ6

Goldman, Citi to Offer Mortgage-Backed Securities in September
Forbes
Goldman Sachs (GS) and Citigroup (C) are planning to market bonds backed by commercial mortgages next month, according to a report by Bloomberg News.
http://jlne.ws/oL5AEO

Citigroup Safer Investment Than BofA: Schorr
Bloomberg
Citigroup Inc. (C) , the third-biggest U.S. bank, is a safer investment than Bank of America Corp. (BAC) and has more growth potential in emerging markets, according to Glenn Schorr, an analyst with Nomura Holdings Inc.
http://jlne.ws/q26ztx

Citi Announces Appointment of Christy York as Managing Director and Head of Capital Introduction for Europe, Middle ...
Business Wire
LONDON--(BUSINESS WIRE)--Citi today announced that Christy York has been appointed Managing Director and Head of Capital Introduction for its Prime Finance business in the Europe, Middle East and Africa (EMEA) region. Mr. York will report to Paul Harvey, Prime Finance Head of Sales and Capital Introduction in EMEA, and to Chris Greer, Global Head of Capital Introductions, on a global level. Mr ...
http://jlne.ws/otwcrV

RBS Boss Tells BBC They Face 'Head Winds' After Reporting £1.4 Billion Loss
PRWeb
According to Belmont Thornton, the Royal Bank of Scotland has announced after-tax losses of £1.4 billion for the first half of 2011. The announcement represents further bad news for the lender, who is 84% owned by UK taxpayers, following losses of £1.2 billion in 2010.
http://jlne.ws/pVVrsL

WaMu’s $7 Billion Bankruptcy Nears Finish Line
By Peg Brickley of Dow Jones Daily Bankruptcy Review
A bankruptcy judge indicated Wednesday that creditors may not have to wait long to find out whether she will confirm Washington Mutual Inc.’s $7 billion Chapter 11 plan.
http://jlne.ws/nWuAfr

BNY Mellon Clearing Joins CME Group for OTC Clearing
PR Newswire
NEW YORK, Aug. 23, 2011 /PRNewswire/ -- BNY Mellon Clearing, LLC announced today that it has joined CME Group as a clearing member firm in order to clear over-the-counter interest rate swaps on behalf of its institutional clients. As a result of recent regulatory changes, it is...
http://jlne.ws/rfP9RM

SocGen CEO Oudea struggles to banish Kerviel demons
Reuters via Yahoo! News
Societe Generale boss Frederic Oudea is having to work harder to keep his promise of a new dawn after the bank's devastating trading scandal in 2008.
http://jlne.ws/oeNLxX

UBS Plans to Cut About 3,500 Jobs to Save Costs
By Elena Logutenkova, Bloomberg
UBS AG (UBSN), Switzerland’s biggest bank, will eliminate about 3,500 jobs, or 5.3 percent of its workforce, as stricter capital requirements and a slowdown in client trading reduce earnings.
http://jlne.ws/qPberW

Deutsche Bank Hired 80% Of Their Analyst Interns This Year
Business Insider
Here's a sign that Wall Street is looking for a younger, cheaper generation now that it's forced to lay off staff amid low economic outlooks and a stricter regulatory
environment.
http://jlne.ws/qFeI3F

HSBC eyes sale of Canadian brokerage
Globe and Mail
Banking giant HSBC Holdings PLC (HBC-N41.76-0.36-0.85%) is fielding offers for part of its Canadian unit, signalling that its massive worldwide restructuring is unlikely to leave its operation here untouched.
http://jlne.ws/pvi4s8





Global News

MPC member Martin Weale says no need for more QE
BBC
The UK economy does not need any more stimulus from the policy of quantitative easing at present, a member of the Bank of England's rate setting body has said.
http://jlne.ws/pij378

Tax deal with Swiss banks agreed by UK authorities
BBC News
The Swiss government has agreed to tax money held by UK citizens in Swiss bank accounts for the first time, while still hiding their identity.
http://jlne.ws/nG8v23

British Bankers’ Association Warns Of The Real Cost Of Regulatory Change
A chorus of concerned bankers and business people is now warning about the consequences to economic growth of further uncosted regulatory change, the British
Bankers’ Association warns.
http://jlne.ws/p0qY59

Belgium adds to call for euro bonds, bigger bailout
Reuters
Pressure on Germany and France to take radical action on the euro zone debt crisis mounted on Friday, as financial markets sagged further and Belgium added its support to calls for the region to issue debt jointly.
http://jlne.ws/qxCUcz

Greece growth to be worse than thought
FT.com
http://jlne.ws/oxhVJw

Japan Urges G-7 Coordination on Markets
Toru Fujioka and Kate Anderson Brower, Bloomberg
Japan called on Group of Seven nations to work closely to counter market turmoil and Asian officials sought to calm investors as stocks slumped on concern the U.S. recovery is faltering. The G-7 needs “very close cooperation in coming weeks,” Japanese Finance Minister Yoshihiko Noda said in Tokyo, where the Topix index fell to a two-year low. Hong Kong financial official K.C. Chan urged investors to “stay calm” and not be “spooked by the market,” as the Hang Seng Index slumped 3.1 percent. In Beijing, Vice President Xi Jinping said his nation will avoid an economic hard landing.
http://jlne.ws/oWFi95




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Top Interest Rate Headlines 08-26-11: Bernanke Offers No Plan for New Stimulus

Bernanke Offers No Plan for New Stimulus
The New York Times
The Federal Reserve chairman, Ben S. Bernanke, said Friday that the economy was recovering and the nation’s long-term prospects remained strong, an upbeat assessment that offered little indication of any plans for additional measures to bolster short-term growth.
http://jlne.ws/onBZhM

Economic Growth Revised Down
By TOM BARKLEY And JEFFREY SPARSHOTT, WSJ.com
The U.S. economy grew a meager 1% and corporate profits moderated in the April-July period amid weak consumer spending, stalled exports and a smaller buildup in inventories, highlighting the weakness of the recovery.
http://jlne.ws/mWlKHp

European shorting ban extended
By Jennifer Hughes and James Mackintosh, Financial Times
Short-selling bans on selected European bank stocks have been extended by regulators until the end of September in an unprecedented degree of regulatory co-ordination.
http://jlne.ws/rlAlUJ

Eurodollar, Fed-Fund Option Plays See Rates Turn Negative
By Howard Packowitz Of DOW JONES NEWSWIRES
Traders in the Eurodollar and fed-funds market on Thursday employed a rare set of options strategies suggesting they believe that key short-term U.S. rates may fall to zero or even turn negative through the middle of next year.
http://jlne.ws/oGNyde

Sovereign CDS Exposure In Americas Growing Faster Than Financials - CreditSights
By Katy Burne Of DOW JONES NEWSWIRES
The share of sovereign default protection among the largest swap contracts documented in the Americas has been growing, while the portion attributable to financials has shrunk, according to analysis from independent research firm CreditSights Inc.
http://jlne.ws/qLWPBA

DJ Fed Balance Sheet Expands In Latest Week
By Jamila Trindle and Andrew Ackerman Of DOW JONES NEWSWIRES
The size of the U.S. Federal Reserve's balance sheet expanded slightly in the latest week as the central bank maintained a large portfolio of assets following the end of its economic stimulus.
http://jlne.ws/qUOF6w

Greece Sets Out Conditions for Bond Swap
By ALKMAN GRANITSAS, WSJ
ATHENS—Greece said it won't proceed with a proposed bond-swap deal if private participation in the program falls short of a minimum 90% participation rate. In a letter sent to foreign governments on Thursday and posted in part on the Athens Stock Exchange websites Friday, Greek Finance Minister Evangelos Venizelos laid out two conditions for Greece to proceed with the deal.
http://jlne.ws/pRivNu

US funds show true state of eurozone banks
By Gillian Tett, Financial Times
In any murder mystery film, it pays to watch the boring grey man (or woman) in the corner; quiet, unobtrusive characters can be deadly. So, too, in finance.
http://jlne.ws/noF1ka

U.S. Taxpayers Recover Nearly $900 Million From TARP Warrant Sales During Last Six Months - Cumulative Proceeds From Warrant Dispositions Now Reach More Than $9 Billion Since TARP's Inception
Press Release
The US Department of the Treasury today released the latest TARP Warrant Disposition Report including data during the six months ending June 30, 2011. During that period, Treasury received more than $886 million in gross proceeds from the disposition of 20 warrant positions through repurchases and auctions of institutions in the Capital Purchase Program (CPP), the Targeted Investment Program (TIP) and the Asset Guarantee Program (AGP). Since the TARP’s inception, Treasury has received more than $9 billion in gross proceeds from the disposition of warrants associated with investments made through CPP, TIP and AGP.
http://jlne.ws/nfsr2S

Ex-Lehman Officials to Pay $90 Million to Settle Suit
By PETER LATTMAN, NY Times
Richard S. Fuld, Lehman's former chief executive, is among those being sued.Jim Young/ReutersRichard S. Fuld Jr., Lehman’s former chief, is among those being sued. Former officials of Lehman Brothers, including Richard S. Fuld Jr., its former chief executive, have agreed to pay $90 million to settle a shareholder lawsuit that accused them of misleading investors about the investment bank’s health in the months leading up to its collapse.
http://jlne.ws/rjqpHO

Goldman Sachs International cutting pay: report
Market Watch
Goldman Sachs International, a unit of Goldman Sachs Group Inc. , will reduce the pay of some of its London-based investment bankers, the Financial News reported on Thursday. An undetermined number of staff in the bank's European division were informed over the summer that their base salaries will be reduced, according to the report, which cited an unnamed source with ...
http://jlne.ws/pdAVFP

Barclays cuts 140 jobs at corporate unit
Market Watch
Barclays PLC BCS is cutting 140 jobs at its corporate division as part of the bank's continuing strategy to slash costs across the company. The job cuts, 100 compulsory and 40 voluntary, are a result of combining the infrastructure of Barclays Corporate with its investment banking business BarCap. "As has been previously announced, as part of the One Barclays strategy, we are taking measures to ...
http://jlne.ws/pA3FSU

UBS hires Morgan Stanley financial adviser
Market Watch
UBS Wealth Management Americas, a unit of UBS AG UBS, recently hired Brian Zalewski, a financial adviser, from Morgan Stanley Smith Barney. Last Friday, Zalewski joined UBS' Chicago Tower, Ill., office, where he reports to Geoffrey Centner, branch manager. Zalewski generated $1.1 million in fees and commissions and managed $110 million in client assets, according to a person familiar with his ...
http://jlne.ws/oSudZ6

Fed Chair Bernanke: The Near- and Longer-Term Prospects for the U.S. Economy

Chairman Ben S. Bernanke
At the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming
August 26, 2011

The Near- and Longer-Term Prospects for the U.S. Economy

Good morning. As always, thanks are due to the Federal Reserve Bank of Kansas City for organizing this conference. This year's topic, long-term economic growth, is indeed pertinent--as has so often been the case at this symposium in past years. In particular, the financial crisis and the subsequent slow recovery have caused some to question whether the United States, notwithstanding its long-term record of vigorous economic growth, might not now be facing a prolonged period of stagnation, regardless of its public policy choices. Might not the very slow pace of economic expansion of the past few years, not only in the United States but also in a number of other advanced economies, morph into something far more long-lasting?

I can certainly appreciate these concerns and am fully aware of the challenges that we face in restoring economic and financial conditions conducive to healthy growth, some of which I will comment on today. With respect to longer-run prospects, however, my own view is more optimistic. As I will discuss, although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years. It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals. In the interim, however, the challenges for U.S. economic policymakers are twofold: first, to help our economy further recover from the crisis and the ensuing recession, and second, to do so in a way that will allow the economy to realize its longer-term growth potential. Economic policies should be evaluated in light of both of those objectives.

This morning I will offer some thoughts on why the pace of recovery in the United States has, for the most part, proved disappointing thus far, and I will discuss the Federal Reserve's policy response. I will then turn briefly to the longer-term prospects of our economy and the need for our country's economic policies to be effective from both a shorter-term and longer-term perspective.

Near-Term Prospects for the Economy and Policy
In discussing the prospects for the economy and for policy in the near term, it bears recalling briefly how we got here. The financial crisis that gripped global markets in 2008 and 2009 was more severe than any since the Great Depression. Economic policymakers around the world saw the mounting risks of a global financial meltdown in the fall of 2008 and understood the extraordinarily dire economic consequences that such an event could have. As I have described in previous remarks at this forum, governments and central banks worked forcefully and in close coordination to avert the looming collapse. The actions to stabilize the financial system were accompanied, both in the United States and abroad, by substantial monetary and fiscal stimulus. But notwithstanding these strong and concerted efforts, severe damage to the global economy could not be avoided. The freezing of credit, the sharp drops in asset prices, dysfunction in financial markets, and the resulting blows to confidence sent global production and trade into free fall in late 2008 and early 2009.

We meet here today almost exactly three years since the beginning of the most intense phase of the financial crisis and a bit more than two years since the National Bureau of Economic Research's date for the start of the economic recovery. Where do we stand?

There have been some positive developments over the past few years, particularly when considered in the light of economic prospects as viewed at the depth of the crisis. Overall, the global economy has seen significant growth, led by the emerging-market economies. In the United States, a cyclical recovery, though a modest one by historical standards, is in its ninth quarter. In the financial sphere, the U.S. banking system is generally much healthier now, with banks holding substantially more capital. Credit availability from banks has improved, though it remains tight in categories--such as small business lending--in which the balance sheets of potential borrowers remain impaired. Companies with access to the public bond markets have had no difficulty obtaining credit on favorable terms. Importantly, structural reform is moving forward in the financial sector, with ambitious domestic and international efforts underway to enhance the capital and liquidity of banks, especially the most systemically important banks; to improve risk management and transparency; to strengthen market infrastructure; and to introduce a more systemic, or macroprudential, approach to financial regulation and supervision.

In the broader economy, manufacturing production in the United States has risen nearly 15 percent since its trough, driven substantially by growth in exports. Indeed, the U.S. trade deficit has been notably lower recently than it was before the crisis, reflecting in part the improved competitiveness of U.S. goods and services. Business investment in equipment and software has continued to expand, and productivity gains in some industries have been impressive, though new data have reduced estimates of overall productivity improvement in recent years. Households also have made some progress in repairing their balance sheets--saving more, borrowing less, and reducing their burdens of interest payments and debt. Commodity prices have come off their highs, which will reduce the cost pressures facing businesses and help increase household purchasing power.

Notwithstanding these more positive developments, however, it is clear that the recovery from the crisis has been much less robust than we had hoped. From the latest comprehensive revisions to the national accounts as well as the most recent estimates of growth in the first half of this year, we have learned that the recession was even deeper and the recovery even weaker than we had thought; indeed, aggregate output in the United States still has not returned to the level that it attained before the crisis. Importantly, economic growth has for the most part been at rates insufficient to achieve sustained reductions in unemployment, which has recently been fluctuating a bit above 9 percent. Temporary factors, including the effects of the run-up in commodity prices on consumer and business budgets and the effect of the Japanese disaster on global supply chains and production, were part of the reason for the weak performance of the economy in the first half of 2011; accordingly, growth in the second half looks likely to improve as their influence recedes. However, the incoming data suggest that other, more persistent factors also have been at work.

Why has the recovery from the crisis been so slow and erratic? Historically, recessions have typically sowed the seeds of their own recoveries as reduced spending on investment, housing, and consumer durables generates pent-up demand. As the business cycle bottoms out and confidence returns, this pent-up demand, often augmented by the effects of stimulative monetary and fiscal policies, is met through increased production and hiring. Increased production in turn boosts business revenues and household incomes and provides further impetus to business and household spending. Improving income prospects and balance sheets also make households and businesses more creditworthy, and financial institutions become more willing to lend. Normally, these developments create a virtuous circle of rising incomes and profits, more supportive financial and credit conditions, and lower uncertainty, allowing the process of recovery to develop momentum.

These restorative forces are at work today, and they will continue to promote recovery over time. Unfortunately, the recession, besides being extraordinarily severe as well as global in scope, was also unusual in being associated with both a very deep slump in the housing market and a historic financial crisis. These two features of the downturn, individually and in combination, have acted to slow the natural recovery process.

Notably, the housing sector has been a significant driver of recovery from most recessions in the United States since World War II, but this time--with an overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and ongoing concerns by both potential borrowers and lenders about continued house price declines--the rate of new home construction has remained at less than one-third of its pre-crisis level. The low level of construction has implications not only for builders but for providers of a wide range of goods and services related to housing and homebuilding. Moreover, even as tight credit for some borrowers has been one of the factors restraining housing recovery, the weakness of the housing sector has in turn had adverse effects on financial markets and on the flow of credit. For example, the sharp declines in house prices in some areas have left many homeowners "underwater" on their mortgages, creating financial hardship for households and, through their effects on rates of mortgage delinquency and default, stress for financial institutions as well. Financial pressures on financial institutions and households have contributed, in turn, to greater caution in the extension of credit and to slower growth in consumer spending.

I have already noted the central role of the financial crisis of 2008 and 2009 in sparking the recession. As I also noted, a great deal has been done and is being done to address the causes and effects of the crisis, including a substantial program of financial reform, and conditions in the U.S. banking system and financial markets have improved significantly overall. Nevertheless, financial stress has been and continues to be a significant drag on the recovery, both here and abroad. Bouts of sharp volatility and risk aversion in markets have recently re-emerged in reaction to concerns about both European sovereign debts and developments related to the U.S. fiscal situation, including the recent downgrade of the U.S. long-term credit rating by one of the major rating agencies and the controversy concerning the raising of the U.S. federal debt ceiling. It is difficult to judge by how much these developments have affected economic activity thus far, but there seems little doubt that they have hurt household and business confidence and that they pose ongoing risks to growth. The Federal Reserve continues to monitor developments in financial markets and institutions closely and is in frequent contact with policymakers in Europe and elsewhere.

Monetary policy must be responsive to changes in the economy and, in particular, to the outlook for growth and inflation. As I mentioned earlier, the recent data have indicated that economic growth during the first half of this year was considerably slower than the Federal Open Market Committee had been expecting, and that temporary factors can account for only a portion of the economic weakness that we have observed. Consequently, although we expect a moderate recovery to continue and indeed to strengthen over time, the Committee has marked down its outlook for the likely pace of growth over coming quarters. With commodity prices and other import prices moderating and with longer-term inflation expectations remaining stable, we expect inflation to settle, over coming quarters, at levels at or below the rate of 2 percent, or a bit less, that most Committee participants view as being consistent with our dual mandate.

In light of its current outlook, the Committee recently decided to provide more specific forward guidance about its expectations for the future path of the federal funds rate. In particular, in the statement following our meeting earlier this month, we indicated that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. That is, in what the Committee judges to be the most likely scenarios for resource utilization and inflation in the medium term, the target for the federal funds rate would be held at its current low levels for at least two more years.

In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September, which has been scheduled for two days (the 20th and the 21st) instead of one to allow a fuller discussion. The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability.

Economic Policy and Longer-Term Growth in the United States
The financial crisis and its aftermath have posed severe challenges around the globe, particularly in the advanced industrial economies. Thus far I have reviewed some of those challenges, offered some diagnoses for the slow economic recovery in the United States, and briefly discussed the policy response by the Federal Reserve. However, this conference is focused on longer-run economic growth, and appropriately so, given the fundamental importance of long-term growth rates in the determination of living standards. In that spirit, let me turn now to a brief discussion of the longer-run prospects for the U.S. economy and the role of economic policy in shaping those prospects.

Notwithstanding the severe difficulties we currently face, I do not expect the long-run growth potential of the U.S. economy to be materially affected by the crisis and the recession if--and I stress if--our country takes the necessary steps to secure that outcome. Over the medium term, housing activity will stabilize and begin to grow again, if for no other reason than that ongoing population growth and household formation will ultimately demand it. Good, proactive housing policies could help speed that process. Financial markets and institutions have already made considerable progress toward normalization, and I anticipate that the financial sector will continue to adapt to ongoing reforms while still performing its vital intermediation functions. Households will continue to strengthen their balance sheets, a process that will be sped up considerably if the recovery accelerates but that will move forward in any case. Businesses will continue to invest in new capital, adopt new technologies, and build on the productivity gains of the past several years. I have confidence that our European colleagues fully appreciate what is at stake in the difficult issues they are now confronting and that, over time, they will take all necessary and appropriate steps to address those issues effectively and comprehensively.

This economic healing will take a while, and there may be setbacks along the way. Moreover, we will need to remain alert to risks to the recovery, including financial risks. However, with one possible exception on which I will elaborate in a moment, the healing process should not leave major scars. Notwithstanding the trauma of the crisis and the recession, the U.S. economy remains the largest in the world, with a highly diverse mix of industries and a degree of international competitiveness that, if anything, has improved in recent years. Our economy retains its traditional advantages of a strong market orientation, a robust entrepreneurial culture, and flexible capital and labor markets. And our country remains a technological leader, with many of the world's leading research universities and the highest spending on research and development of any nation.

Of course, the United States faces many growth challenges. Our population is aging, like those of many other advanced economies, and our society will have to adapt over time to an older workforce. Our K-12 educational system, despite considerable strengths, poorly serves a substantial portion of our population. The costs of health care in the United States are the highest in the world, without fully commensurate results in terms of health outcomes. But all of these long-term issues were well known before the crisis; efforts to address these problems have been ongoing, and these efforts will continue and, I hope, intensify.

The quality of economic policymaking in the United States will heavily influence the nation's longer-term prospects. To allow the economy to grow at its full potential, policymakers must work to promote macroeconomic and financial stability; adopt effective tax, trade, and regulatory policies; foster the development of a skilled workforce; encourage productive investment, both private and public; and provide appropriate support for research and development and for the adoption of new technologies.

The Federal Reserve has a role in promoting the longer-term performance of the economy. Most importantly, monetary policy that ensures that inflation remains low and stable over time contributes to long-run macroeconomic and financial stability. Low and stable inflation improves the functioning of markets, making them more effective at allocating resources; and it allows households and businesses to plan for the future without having to be unduly concerned with unpredictable movements in the general level of prices. The Federal Reserve also fosters macroeconomic and financial stability in its role as a financial regulator, a monitor of overall financial stability, and a liquidity provider of last resort.

Normally, monetary or fiscal policies aimed primarily at promoting a faster pace of economic recovery in the near term would not be expected to significantly affect the longer-term performance of the economy. However, current circumstances may be an exception to that standard view--the exception to which I alluded earlier. Our economy is suffering today from an extraordinarily high level of long-term unemployment, with nearly half of the unemployed having been out of work for more than six months. Under these unusual circumstances, policies that promote a stronger recovery in the near term may serve longer-term objectives as well. In the short term, putting people back to work reduces the hardships inflicted by difficult economic times and helps ensure that our economy is producing at its full potential rather than leaving productive resources fallow. In the longer term, minimizing the duration of unemployment supports a healthy economy by avoiding some of the erosion of skills and loss of attachment to the labor force that is often associated with long-term unemployment.

Notwithstanding this observation, which adds urgency to the need to achieve a cyclical recovery in employment, most of the economic policies that support robust economic growth in the long run are outside the province of the central bank. We have heard a great deal lately about federal fiscal policy in the United States, so I will close with some thoughts on that topic, focusing on the role of fiscal policy in promoting stability and growth.

To achieve economic and financial stability, U.S. fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time. As I have emphasized on previous occasions, without significant policy changes, the finances of the federal government will inevitably spiral out of control, risking severe economic and financial damage.1 The increasing fiscal burden that will be associated with the aging of the population and the ongoing rise in the costs of health care make prompt and decisive action in this area all the more critical.

Although the issue of fiscal sustainability must urgently be addressed, fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery. Fortunately, the two goals of achieving fiscal sustainability--which is the result of responsible policies set in place for the longer term--and avoiding the creation of fiscal headwinds for the current recovery are not incompatible. Acting now to put in place a credible plan for reducing future deficits over the longer term, while being attentive to the implications of fiscal choices for the recovery in the near term, can help serve both objectives.

Fiscal policymakers can also promote stronger economic performance through the design of tax policies and spending programs. To the fullest extent possible, our nation's tax and spending policies should increase incentives to work and to save, encourage investments in the skills of our workforce, stimulate private capital formation, promote research and development, and provide necessary public infrastructure. We cannot expect our economy to grow its way out of our fiscal imbalances, but a more productive economy will ease the tradeoffs that we face.

Finally, and perhaps most challenging, the country would be well served by a better process for making fiscal decisions. The negotiations that took place over the summer disrupted financial markets and probably the economy as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses. Although details would have to be negotiated, fiscal policymakers could consider developing a more effective process that sets clear and transparent budget goals, together with budget mechanisms to establish the credibility of those goals. Of course, formal budget goals and mechanisms do not replace the need for fiscal policymakers to make the difficult choices that are needed to put the country's fiscal house in order, which means that public understanding of and support for the goals of fiscal policy are crucial.

Economic policymakers face a range of difficult decisions, relating to both the short-run and long-run challenges we face. I have no doubt, however, that those challenges can be met, and that the fundamental strengths of our economy will ultimately reassert themselves. The Federal Reserve will certainly do all that it can to help restore high rates of growth and employment in a context of price stability.


1. See Ben S. Bernanke (2011), "Fiscal Sustainability," speech delivered at the Annual Conference of the Committee for a Responsible Federal Budget, Washington, June 14. Return to text

Top Interest Rate Headlines 08-24-11: Home Mortgage Applications Fall To 15-Year Low

Home mortgage applications fall to 15-year low
By DEREK KRAVITZ, Associated Press
Mortgage applications to purchase a home fell last week to a 15-year low, despite the lowest mortgage rates in decades.
http://jlne.ws/rnkbqq
German Ifo business morale plummets in August
By Annika Breidthardt, Reuters
German business morale posted its steepest drop this month since the aftermath of the Lehman Brothers collapse in late 2008, raising fresh doubts about the broader European economy as it grapples with a crippling debt crisis.
http://jlne.ws/phCUDg

Bernanke Not Planning Policy Announcement: Influential Research Firm
By: John Melloy, CNBC
Federal Reserve Chairman Ben Bernanke will not hint at a third round of quantitative easing [cnbc explains] at the central bank's annual Jackson Hole, Wyo., summit this week, according to Medley Global Advisors, an influential research firm.
http://jlne.ws/q2gYam

Tax deal with Swiss banks agreed by UK authorities
BBC News
The Swiss government has agreed to tax money held by UK citizens in Swiss bank accounts for the first time, while still hiding their identity.
http://jlne.ws/nG8v23

Durable-goods orders climb 4.0% in July 
By Jeffry Bartash, MarketWatch
Orders for U.S. durable goods jumped 4.0% in July, mainly because of higher demand for autos and commercial aircraft, the government reported Wednesday.
http://jlne.ws/nxHZIR

Moody's Cuts Japan's Credit Rating
By WILLIAM SPOSATO - WSJ
TOKYO—Moody's Investors Service downgraded Japan's sovereign debt rating Wednesday, but assigned it a stable outlook and said there was little chance of a crisis in Japan's debt market any time soon.
http://jlne.ws/qXLN2f

BNY Mellon Clearing Joins CME Group for OTC Clearing
PR Newswire
NEW YORK, Aug. 23, 2011 /PRNewswire/ -- BNY Mellon Clearing, LLC announced today that it has joined CME Group as a clearing member firm in order to clear over-the-counter interest rate swaps on behalf of its institutional clients. As a result of recent regulatory changes, it is...
http://jlne.ws/rfP9RM

SocGen CEO Oudea struggles to banish Kerviel demons
Reuters via Yahoo! News
Societe Generale boss Frederic Oudea is having to work harder to keep his promise of a new dawn after the bank's devastating trading scandal in 2008.
http://jlne.ws/oeNLxX

No Agreement on Bank of America Capital Needs
Wall Street Journal Blogs
It's amazing how divergent the views are on the health of Bank of America.
http://jlne.ws/oQKQ0F

Moody's Ex-Staffer Says Ratings Rife With Conflicts
ABC News
The former Moody's analyst who filed comments with the U.S. Securities and Exchange Commission is critical of internal systems at his former employer but is not holding his breath for regulators to save it.
http://jlne.ws/nwwi85

The Rich Can Afford to Pay More Taxes
By BRUCE BARTLETT, NY Times
The issue is not whether the wealthy should pay more, but how best to accomplish it, an economist writes.
http://jlne.ws/pp51sS

Top Interest Rate Headlines 08-23-11: FDIC ‘Problem’ Banks Shrink, First Time Since ’06

FDIC ‘Problem’ Banks Shrink, First Time Since ’06
By Meera Louis, Bloomberg
The Federal Deposit Insurance Corp.’s list of “problem” banks fell in the second quarter for the first time since 2006 as the industry’s income improved and costs tied to bad loans eased.
http://jlne.ws/pKBfxv

Searching for the Financial Accelerator: How Credit Affects the Business Cycle
Federal Reserve Bank Of St. Louis
A prominent view in economics is that malfunctioning credit markets “are not simply passive reflections of a declining real economy, but are in themselves a major factor depressing economic activity.”
http://jlne.ws/oeKmXN

Bank of America and Goldman bonds lose friends
Futures Magazine
Yields marked time on Tuesday buffeted by a strong rally for stocks yet underpinned by hopes that the Jackson Hole address by Fed Chairman Bernanke on Friday will maintain downside pressure on yields.
http://jlne.ws/qPBqCD

UBS Plans to Cut About 3,500 Jobs to Save Costs
By Elena Logutenkova, Bloomberg
UBS AG (UBSN), Switzerland’s biggest bank, will eliminate about 3,500 jobs, or 5.3 percent of its workforce, as stricter capital requirements and a slowdown in client trading reduce earnings.
http://jlne.ws/qPberW

Treasury Year Bills Go At 0.100% High Rate
By Gary Siegel, The Bond Buyer
The Treasury Department Tuesday auctioned $25 billion of 364-day bills at a 0.100% high yield, a price of 99.898889
http://jlne.ws/otvdHY

MSRB Files Supervisory Rule for Muni Advisors
By Lynn Hume, The Bond Buyer
The Municipal Securities Rulemaking Board has filed a proposed rule with the Securities and Exchange Commission that would require muni advisors to establish supervisory systems to ensure they and their "associated persons" comply with SEC and MSRB rules.
http://jlne.ws/nzUg7a

N.Y. judge dismisses Strauss-Kahn charges
By Sue Chang, MarketWatch
A New York judge has dismissed sexual assault charges against former International Monetary Fund chief Dominique Strauss-Kahn, according to media reports Tuesday. The move had been expected after prosecutors admitted that credibility issues with Nafissatou Diallo, the accuser, had hurt the case, reports said.
http://t.co/qm0CaMu

US: Richmond Fed Manufacturing Index fell to -10 in August
FXstreet.com
The US Richmond Fed Manufacturing Index decreased to -10 in August, in comparison with the -1 drop in July, according to data published by the Federal Reserve Bank of Richmond.
http://jlne.ws/nkY7CP

Eurex Clearing launches the first major element of its new Client Asset Protection Services
Press Release
Eurex Clearing, Europe’s leading clearinghouse, announced the launch of its “Individual Clearing Model”, the first major element of a new suite of industry leading client segregation services. The new service is the first segregation solution offered by a clearing house enabling full legal and operational segregation of all assets (positions and margin collateral) for its non-clearing members (clients with trading admission) at the clearing house level. The new model allows for collateral and positions to be transferred immediately in the event of a clearing member default, thus clients are protected and enabled to continue their trading activities.
http://jlne.ws/r0s5Ru

New Home Sales Fell 0.7 Percent In July
By DEREK KRAVITZ, Associated Press
Sales of new homes fell for the third straight month in July, a sign that housing remains a drag on the economy. If the current pace continues, 2011 would be the worst year for new-home sales in nearly half a century.
http://jlne.ws/ofpuzE

Morgan Stanley at Brink Got $107B From Fed
By Bradley Keoun, Bloomberg
As markets convulsed in September 2008, Morgan Stanley (MS) Treasurer David Wong briefed the Federal Reserve on a “dark” scenario in which the U.S. firm would need at least $10 billion of emergency loans from the central bank.
http://jlne.ws/rjNsVX

Head of rating agency S&P stepping down
AP via Yahoo! News
The president of Standard & Poor's is stepping down, an announcement coming only weeks after the rating agency's unprecedented move to strip the United States of its AAA credit rating.
http://jlne.ws/q6fbCN

European Central Bank buys E14.3 billion in bonds
AP via Yahoo! News
The European Central Bank spent E14.3 billion ($20.6 billion) last week buying government bonds to protect large economies like Spain and Italy from the debt crisis, but market concerns persisted about how long the emergency purchases would contain market turmoil.
http://jlne.ws/mYddgA

Misdiagnosing the eurozone’s banks
Financial Times
Falls in eurozone bank shares have set off warning bells for the bloc’s banking sector. It is a false alarm – for now. With local exceptions, European banks are not squeezed for funds. Alarmism risks fuelling the sort of misdiagnosis that has already made governments throw good taxpayer money down holes dug by banks themselves.
http://jlne.ws/puuR3r

British Bankers’ Association Warns Of The Real Cost Of Regulatory Change
A chorus of concerned bankers and business people is now warning about the consequences to economic growth of further uncosted regulatory change, the British Bankers’ Association warns.
http://jlne.ws/p0qY59

Deutsche Bank Hired 80% Of Their Analyst Interns This Year
Business Insider
Here's a sign that Wall Street is looking for a younger, cheaper generation now that it's forced to lay off staff amid low economic outlooks and a stricter regulatory environment.
http://jlne.ws/qFeI3F