Archive for the ‘meltdown’ Category

Meltdown far from over, new mortgage crisis looms

November 27, 2008

The full scope of the housing meltdown isn’t clear and already there are ominous signs of a new crisis — one that could turn out the lights on malls, hotels and storefronts nationwide.

By MATT APUZZO, Associated Press Writer

Even as the holiday shopping season begins in full swing, the same events poisoning the housing market are now at work on commercial properties, and the bad news is trickling in. Malls from Michigan to Georgia are entering foreclosure.

Hotels in Tucson, Ariz., and Hilton Head, S.C., also are about to default on their mortgages.

That pace is expected to quicken. The number of late payments and defaults will double, if not triple, by the end of next year, according to analysts from Fitch Ratings Ltd., which evaluates companies’ credit.

“We’re probably in the first inning of the commercial mortgage problem,” said Scott Tross, a real estate lawyer with Herrick Feinstein in New Jersey.

That’s bad news for more than just property owners. When businesses go dark, employees lose jobs. Towns lose tax revenue. School budgets and social services feel the pinch.

Companies have survived plenty of downturns, but economists see this one playing out like never before. In the past, when businesses hit rough patches, owners negotiated with banks or refinanced their loans.

But many banks no longer hold the loans they made. Over the past decade, banks have increasingly bundled mortgages and sold them to investors. Pension funds, insurance companies, and hedge funds bought the seemingly safe securities and are now bracing for losses that could ripple through the financial system.

“It’s a toxic drug and nobody knows how bad it’s going to be,” said Paul Miller, an analyst with Friedman, Billings, Ramsey, who was among the first to sound alarm bells in the residential market.

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http://news.yahoo.com/s/ap/20081127/ap_on_bi_ge/melt
down_coming_soon;_ylt=Ao5Sg.24hesMbnCpBUd_uzes0NUE

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At G-20, China Did Not Commit Bailout Funds Despite Huge Reserves

November 16, 2008

China got what it wanted in Washington’s financial summit — a promise of a bigger role for developing countries in global finance — but gave no sign Sunday whether it will respond by using any of its $1.9 trillion in reserves in a bailout fund.

By JOE McDONALD, AP Business Writer

China has been pushing for developing countries generally — and itself specifically — to have more influence at the International Monetary Fund and other global bodies. Analysts say that might be Beijing’s price to give in to foreign appeals to dip into its reserves and contribute money toward an IMF emergency loan fund for struggling countries.

The Washington summit was an “important and positive” step toward “the reform of the international financial structure,” foreign ministry spokesman Qin Gang said in a statement. It made no mention of possible bailout contributions, and a man who answered the phone at the ministry press office said he had no information.

Leaders from 21 nations, including China, and four international organizations attended the emergency two-day summit intended to address the financial crisis sweeping the globe.

Summit participants vowed Saturday at the conclusion of the two-day conference to cooperate more closely, keep a sharper eye out for potential problems and give bigger roles to fast-rising nations. But the leaders avoided many of the harder details leaving them to be worked out before their next summit, after President George W. Bush is gone and President-elect Barack Obama is in the White House.

China says it will cooperate with the IMF but Chinese officials say its most important role will be to preserve global growth by keeping its own economy healthy. Beijing announced a 4 trillion yuan ($586 billion) stimulus package last week, at a time of slowing economic growth and fears that falling exports could lead to layoffs and factory closures.

“China’s economic power is growing, so China could contribute and help ease the financial crisis,” said Wu Jinglian, a prominent economist and Cabinet adviser. “But the first priority is to keep our own economy growing. That will benefit every country in the world.”

A woman cooks while her husband playing computer games inside ...
A woman cooks while her husband playing computer games inside the prefabricated temporary housing in Yingxiu, Sichuan Province in China Nov. 8, 2008. Six months after the worst quake to hit China in three decades, the future remains uncertain for many survivors. Jobs are hard to come by, and government aid payments are about to end. Many people are still in temporary housing. China’s leaders have called reconstruction a priority. Last week, the government announced plans to pump $146 billion into the effort over the next three years. Some 120 billion yuan ($17.5 billion) will be spent on ensuring schools, hospitals and other public facilities are built to higher standards.(AP Photo/Andy Wong)

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http://news.yahoo.com/s/ap/20081116/ap_on_re_as/as_asia_meltdown_summit_1

Failure of auto industry could set off catastrophe

November 13, 2008

Advocates for the nation’s automakers are warning that the collapse of the Big Three — or even just General Motors — could set off a catastrophic chain reaction in the economy, eliminating up to 3 million jobs and depriving governments of more than $150 billion in tax revenue.

Associated Press
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Industry supporters are offering such grim predictions as Congress weighs whether to bail out the nation’s largest automakers, which are struggling to survive the steepest economic slide in decades.

“We’ve got to do this because the cost of inaction is so high to communities, to workers, to companies,” said Sen. Sherrod Brown, a Democrat from Ohio. He was among many lawmakers worried that an industry collapse would be devastating for everything from school districts to small businesses.

Even if just GM collapsed, the failure could bring down the other two companies — and even the U.S. operations of foreign automakers — as parts suppliers run out of money and shut down.

Concern about the automakers hit new heights Friday when GM and Ford reported they spent a combined $14.6 billion more than they took in last quarter. GM said it could run out of money by the end of the year.

Ford said it could last through 2009, but only because it arranged a hefty credit line last year.

All this comes after tight credit and economic uncertainty in October reduced U.S. auto sales to their lowest level in 25 years — with no rebound in sight.

If the industry failed, among the hardest-hit communities would be Lordstown, Ohio, a village of 3,600 people about 50 miles east of Cleveland that has been home to a GM factory since 1966.

If the plant closed, Lordstown would lose up to 70 percent of its budget, a scary scenario that proponents of a multibillion dollar bailout say would be repeated across the industrial Midwest.

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http://finance.yahoo.com/news/Failure-of-auto-
industry-apf-13552316.html

Can Washington save the Big Three automakers?

November 9, 2008

With the Big Three US automakers teetering on the edge of insolvency, it appears Washington may finally be ready to come to Detroit’s rescue.

Only hours after both General Motors and Ford Motor Co. announced large third-quarter losses — and stressed that they are both rapidly running out of cash — President-elect Barack Obama focused on the industry’s plight during his first news conference since Tuesday’s election.


Above: 1910 Ford Model T

“I have made it a high priority for the transition team to work on additional policy options to help the auto industry adjust,” Obama told reporters gathered in Chicago.

AFP

Just how bad a situation the automakers are facing was hammered home on Friday, when GM reported a 2.5 billion dollar net loss for the third quarter, bringing to nearly 57 billion dollars its losses since the beginning of 2005.

Ford’s 129 million dollar quarterly loss, meanwhile, brought to nearly 24.5 billion dollars the deficit it has run up since plunging into the red in 2006.

Yet the losses only partially state the true depth of the problem for the automakers.

Going into the third quarter, GM had 21 billion dollars on its books. By the end of September, that had plunged to 16.2 billion dollars, coming perilously close to the 11 billion to 14 billion dollars it says it needs on hand to keep the company operating.

GM logo
Ford burned through 7.7 billion dollars in the quarter, though its reserves are nearly twice as richer thanks to a massive line of credit it acquired last year.

Though it doesn’t report its full financial data, the privately-held Chrysler LLC is also thought to be fast running out of cash: one reason, analysts believe, why its parent, Cerberus Capital Management, was so eager to sell Chrysler to GM.

That deal, however, was scuttled by GM, and observers believe Cerberus may now rush to find another buyer as the economy continues to worsen.

“I doubt there’s anyone who challenges the fact that we’re operating in difficult times, perhaps as difficult as we’ve ever faced in the auto industry,” GM Chairman and CEO Rick Wagoner said during a Friday conference call with reporters and industry analysts.

Detroit’s situation has certainly worsened in the face of the current economic crisis that combines what many describe as a “perfect storm” of factors, such as high fuel costs, tight credit, job losses and rising commodity prices.

 

But the seeds of the current crisis date back to the last big oil shock, of 1979, which helped the Japanese gain a foothold for small, fuel-efficient products.

As gas lines faded from memory, the Asian automakers continued to gain ground by focusing on quality, something GM, Ford and Chrysler have only recently come to grips with — and with varying degrees of success.

Further compounding the situation, Detroit has been consciously slow to embrace changes in the American automotive marketplace, especially the shift from big trucks to small, fuel-efficient passenger cars.

And even where it has, lamented Consumer Reports’ auto analyst David Champion, it has needed “more models that were exciting for people to buy.”

Again, Detroit has begun to address that complaint, and a flood of more fuel-efficient — and exciting — models are on tap to debut over the next several years. The challenge now will be to keep that flow going.

GM President Fritz Henderson said Friday the automaker will have to cut back on some product programs in order to ensure liquidity.

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http://www.breitbart.com/article.php?id=081108175210.5dfg9d6x&show_article=1

Obama Should Make Haste Slowly

November 7, 2008

Festina lente. Make haste slowly. That was the motto of the revolutionary-minded young Augustus who soon grasped that he needed to build upon Rome’s past, rather than dismantle it.

Amid the celebration of the historic victory of Barack Obama, the country should now quit the bickering, appreciate a fair and peaceful transference of power, and unite behind its new commander in chief.

By Victor David Hanson
The Washington Times

But in turn our new President Obama would do well to heed that ancient Roman wisdom, appreciating that the real world after Nov. 4 is not exactly the same as its frequent caricature during the hard-fought campaign.

John McCain promised to cut taxes on all. Mr. Obama promised to raise them on some. But neither plan fully appreciated that we are now buried deep under trillions of dollars of debt – and need both more revenue and less expenditure.

An Obama administration, like it or not, must cede to the laws of physics: America will have to pay down debt while not raising taxes too high at a time of recession. That balancing act will make it hard to borrow additional billions for more promised federal spending.

“Hope and change” may have implied an easy transition to our clean, cool solar and wind future. But for a while longer, America’s envisioned new electric cars will still require old-fashioned natural gas, coal and nuclear power to generate electricity to charge them.

Economic slowdown, conservation and public promises to drill more oil and natural gas have already helped to collapse world oil prices and saved us billions. And before we talk of ending the coal industry, we should thank our lucky stars that America has the world’s most plentiful supply of coal to transition us to alternate sources of energy.

We need more regulation of both Wall Street and Fannie Mae and Freddie Mac, which all went feral and turned on us during both the Clinton and Bush administrations. Yet European leaders are faced with far worse financial meltdowns than we are – and their problems have nothing to do with American excess or George Bush.

The dollar is climbing against the Euro because market analysts realize that for all our sins, American financial institutions are still far less exposed than those elsewhere in the world, and our free-market system far more flexible to recover from excess and grow the economy.

Some have called for the Wall Street bailout to be just the first, rather than the last, large federal takeover of American finance. But again, we should remember that despite a looming recession, Americans are still collectively the most affluent and free citizens in the world – precisely because our unique free-market system creates enormous wealth and draws in more capital and talent than elsewhere on promises of commensurate individual rewards. President Obama need not give radical chemotherapy to an ill economy that does not have a fatal cancer.

The shooting war in Iraq is ending. President Obama can continue to withdraw American troops slowly on the basis of a growing victory, rather than rashly and harnessed to an artificial timetable. In time, a Democratic administration could assert that a constitutional government in Iraq and an unprecedented defeat of al Qaeda in the heart of the ancient caliphate enhanced U.S. security at home and abroad – and are achievements to be claimed rather than simply reckless acts to be abruptly abandoned.

For all the campaign charges of unfairness, America currently has the most progressive tax system in the world, in which the top 5 percent of wage earners pay over 60 percent of all federal income taxes. President Obama will raise rates, as promised. Yet he might consider that Americans in the past came to accept the Clinton income tax hike to 40 percent on the top bracket – but may well balk at adding unprecedented increases in payroll taxes on top of all that. That combination could mean a sizable tax raise on many of those self-employed who already pay nearly half their income in various taxes – and gut rather than just shear the sheep.

Read the rest:
http://www.washingtontimes.com/news/2008/nov/
07/make-haste-slowly/

Revenge of The Left Over Economic Losses Not Limited to U.S.

November 3, 2008

It is not just that the Democrats will win a crushing victory in both houses of Congress, perhaps reaching the 60-seat Senate threshold that lets them steam-roll legislation. It is also that the incoming class of 2008 is of a new creed. Many no longer believe – or actively reject – the free trade and free market catechisms.

As commentator Markos Moulitsas put it in Newsweek: “The big question is, will Democrats nationwide simply ‘win’ the night–or will they deliver an electoral drubbing so thorough that it signals the utter rejection of conservative ideology and kills the notion that America is a ‘center-right’ country?” he said.

By Ambrose Evans-Pritchard
The Telegraph (UK)

No matter that statist policies were responsible for this global crisis in the first place. It was Western governments that set interest rates too low for too long, encouraging us all to abuse credit.

It was Eastern governments that held down their currencies to pursue mercantilist trade advantage, thereby accumulating vast foreign reserves that had to be recycled. Hence the bond bubble. This is the deformed creature known as Bretton Woods II. Protectionist Democrats are right to complain that the game is rigged. Free trade? Laugh on.

But at this point I have given up hoping that we will draw the right conclusions from this crisis. The universal verdict is that capitalism has run amok.

In any case the damage caused as credit retrenchment squeezes real industry is likely to be so great that Barack Obama may have to pursue unthinkable policies, just as Franklin Roosevelt had to ditch campaign orthodoxies and go truly radical after his landslide victory in 1932. Indeed, Mr Obama – if he wins – may have to start by nationalizing the US car industry.

For those who missed it, I recommend Edward Stourton’s BBC interview with Eric Hobsbawm, the doyen of Marxist history.

“This is the dramatic equivalent of the collapse of the Soviet Union: we now know that an era has ended,” said Mr Hobsbawm, still lucid at 91.

“It is certainly greatest crisis of capitalism since the 1930s. As Marx and Schumpeter foresaw, globalization not only destroys heritage, but is incredibly unstable. It operates through a series of crises.

“There’ll be a much greater role for the state, one way or another. We’ve already got the state as lender of last resort, we might well return to idea of the state as employer of last resort, which is what it was under FDR. It’ll be something which orients, and even directs the private economy,” he said.

Dismiss this as the wishful thinking of an old Marxist if you want, but I suspect his views may be closer to the truth than the complacent assumptions so prevalent in the City.

To those who still think that business can go on as normal now that EU taxpayers have had to rescue the financial system, I can only say: what will happen to London if EU exchange controls are imposed, or if leverage is restricted by draconian laws – as demanded by the German, Dutch, and Nordic Left?

Does the UK still have a blocking minority under EU voting rules to stop a blitz of directives that could shut down half the activities of the City – or the ‘Casino’ as they say in Brussels? I doubt it.

Who thinks that the three key Commission posts – single market, competition, and trade – will still be held by free marketeers when the new team comes in next year?

In Germany, Oskar Lafontaine’s Linke party now has 23pc support in Saarland on a Marxist pledge to nationalize banks and utilities. Needless to say, the Social Democrats (SPD) are shifting hard Left to protect their flank.

“The rule of the radical market ideology that began with Margaret Thatcher and Ronald Reagan has ended with a loud bang,” said Frank-Walter Steinmeier, Germany’s foreign minister and SPD candidate for chancellor next year.

Read the rest:
http://www.telegraph.co.uk/finance/comment/ambroseevans_
pritchard/3366575/Revenge-of-the-Left-across-the-world.html

India Exports Slow as Global Crisis Curtails Demand

November 3, 2008

India’s exports grew at the slowest pace in 18 months in September as a weakening global economy damped demand for the nation’s products.

By Kartik Goyal
Bloomberg

Overseas shipments, which account for about 15 percent of the economy, rose 10.4 percent to $13.7 billion from a year earlier, after gaining 27 percent in August, the government said in New Delhi today. Imports increased 43.3 percent to $24.4 billion, widening the trade deficit to $10.6 billion.

“The global financial and economic headwinds adversely affected foreign demand for Indian manufactured goods,” said Gaurav Kapur, an economist at ABN Amro Bank in Mumbai. “The growth of total incoming new work to the Indian manufacturing economy lost considerable momentum.”

Flagging exports and waning domestic demand are forcing companies in India to cut production, weakening growth in an economy expected by the central bank to expand at the slowest pace in four years. Sales overseas are slowing as the global credit crunch crimps spending by customers in Europe and the U.S., Asia’s biggest overseas markets.

“The financial crisis has exacerbated a global downturn that was expected earlier but is now likely to be more severe and prolonged,” Prime Minister Manmohan Singh told a meeting of businessmen in New Delhi today. “A crisis of this magnitude was bound to affect our economy and it has.”

Rate Cut

To spur local demand and shield India’s $1.2 trillion economy from the global slowdown, the central bank on Nov. 1 unexpectedly cut interest rates for the second time in two weeks and reduced the amount of money lenders must hold in reserve.

The Reserve Bank of India lowered its repurchase rate to 7.5 percent from 8 percent, reduced the amount of deposits that lenders need to set aside as reserves to 5.5 percent from 6.5 percent, and cut the amount of money lenders are required to keep in government bonds to 24 percent from 25 percent.

“We recognize that the situation is abnormal and we need to be constantly on the alert,” Singh said. “The situation is being watched on a day-to-day basis and more steps will be taken if required.”

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http://www.bloomberg.com/apps/news?pid=20601080&sid=a1SgYuxJ4njY

Global Financial Meltdown: Iceland, Mired in Debt, Blames Britain for Woes

November 2, 2008

No one disputes that Iceland’s economic troubles are largely the country’s own fault. But there may be more to the story, at least in the view of Iceland’s government, its citizens and even some outsiders. As grave as their situation already was, they say, Britain — their old friend, NATO ally and trading partner — made it immeasurably worse.

By Sarah Lyall
The New York Times

The troubles between the countries began three weeks ago when Britain took the extraordinary step of using its 2001 antiterrorism laws to freeze the British assets of a failing Icelandic bank. That appeared to brand Iceland a terrorist state.

“I must admit that I was absolutely appalled,” the Icelandic foreign minister, Ingibjorg Solrun Gisladottir, said in an interview, describing her horror at opening the British treasury department’s home page at the time and finding Iceland on a list of terrorist entities with Al Qaeda, Sudan and North Korea, among others.

In a volatile economic climate, in which appearance matters almost as much as reality, being associated with terrorism is not a good thing.

“The immediate effect was to trigger an almost complete freeze on any banking transactions between Iceland and abroad,” said Jon Danielsson, an economist at the London School of Economics. “When you’re labeled a terrorist, nobody does business with you.”

Iceberg with hole edit.jpg

The Icelandic prime minister, Geir H. Haarde, accused Britain of “bullying a small neighbor” and said the action was “very out of proportion.” In a recent speech in Beijing, Sir Howard Davies, a former deputy governor of the Bank of England and now the director of the London School of Economics, said that Britain had used a “beggar thy neighbor” approach to Iceland.

And an online petition signed so far by more than 20 percent of Iceland’s population said the British prime minister, Gordon Brown, had sacrificed Iceland “for his own short-term political gain,” thereby turning “a grave situation into a national disaster.”

Iceland’s financial problems had been brewing for some time. This past spring, the country’s banks, bloated with foreign deposits and debts, began to falter. This fall, as the financial crisis deepened, the government took over two of the country’s three largest banks.

Britain’s government, alarmed about the tens of thousands of accounts held by its citizens, companies, local governments and charities, froze the British assets of one of the failed banks, Landsbanki. It also seized the assets of Kaupthing Singer & Friedlander, the British subsidiary of another Icelandic bank, Kaupthing.

Read the rest:
http://www.nytimes.com/2008/11/02/world
/europe/02iceland.html?_r=1&hp&oref=slogin

Recession Will Likely Be Long, Deep Says Consumer Spending Trend

October 31, 2008

By Patrice Hill
The Washington Times

Consumers this summer pulled back on spending by the most since 1980, driving the economy into what analysts expect to be one of the nastiest recessions in decades.

The nation’s legions of shoppers started out the summer cutting back on purchases from food and clothing to cars primarily because of record high gas prices of more than $4 a gallon. But the trend worsened even as gas prices dropped with the approach of fall, when a severe credit crisis caused huge stock losses, job cuts and an unprecedented collapse in consumer confidence.

Battered consumers cut spending by 3.1 percent, curbing purchases of both essential and discretionary goods such as clothing, newspapers, food and fuel by 6.4 percent — the most since 1950 — and slashing purchases of big-ticket items such as cars and appliances by a devastating 14 percent, the Commerce Department reported Thursday.

$100 dollar bills are being counted in this undated handout ...

Consumers barely maintained spending on services from haircuts to sports and entertainment.

Consumers normally fuel 70 percent of economic activity and continued to spend during the last recession in 2001, but their rare retraction in the latest quarter caused the economy to shrink by 0.3 percent.

With a multitude of developments from job losses to falling credit card limits conspiring to keep consumers at bay, analysts say, the economy is in for a long slog. A recovery may not arrive until this time next year.

“The U.S. economy has clearly moved into recession,” said Swiss Re economist Kurt Karl. “The outlook has deteriorated sharply over the past two months. The credit crisis will have a severe impact on the real economy — in the U.S. and globally.”

Mr. Karl held out hope that the economy will improve in the second half of next year after the banking system and financial markets slowly stabilize and the housing market ends its steep fall.

Read the rest:
http://www.washingtontimes.com/news/2008/
oct/31/consumers-signal-bad-recession/

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American Consumers Borrow Even More

By JEANNINE AVERSA, AP Economics Writer

WASHINGTON – Beaten down and watching their wealth shrink, Americans are burrowing ever deeper — cutting back on spending and spelling more trouble for the sinking economy.

One of the biggest problems saddling the country is damage from the housing market’s collapse. Mounting foreclosures, falling home prices and soured mortgage investments are taking their toll on both individuals and businesses alike.

Federal Reserve Chairman Ben Bernanke, who is scheduled to speak via satellite Friday at a Berkeley, Calif., conference on the mortgage meltdown, is likely to call on government officials and lawmakers to keep working on ways to provide more relief.

The Bush administration is considering a plan that would help around 3 million struggling homeowners avoid foreclosure by having the government guarantee billions of dollars worth of distressed mortgages. The plan also could include loan modifications that would lower interest rates for a five-year period.

Fallout from the housing meltdown has spurred the worst global credit and financial crisis in more than a half century. To combat the problems, the government has taken a flurry of bold steps. The Treasury Department is pouring $250 billion into banks in return for partial ownership and the Fed this week started buying mounds of debt from companies. It also slashed interest rates to 1 percent, a level seen only once before in the last half century.

A new batch of economic reports out Friday is likely to offer fresh confirmation of the stresses weighing on American consumers. Income growth is expected to barely budge in September, inching up just 0.1 percent, according to economists’ estimates. Consumers probably trimmed their spending during the month by 0.3 percent, economists predict.

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http://news.yahoo.com/s/ap/20081031/ap_on_bi_ge/
financial_meltdown;_ylt=Al6I_fO7EM5xBSCF2EJtjBCs0NUE

Consumer Confidence at All Time Low

October 28, 2008

Layoffs, plunging home prices and tumbling investments have pushed consumer pessimism to record levels in October, a private research group said Tuesday. Wall Street shook it off, though, focusing instead on higher global markets amid optimism the Federal Reserve will ease interest rates further.

By CHRISTOPHER S. RUGABER, AP Economics Writer

The Conference Board said the consumer confidence index fell to 38, down from a revised 61.4 in September and significantly below analysts’ expectations of 52.

An employee working as a money changer prepares U.S. dollar ...

That’s the lowest level for the index since the Conference Board began tracking consumer sentiment in 1967, and the third-steepest drop. A year ago, the index stood at 95.2.

Wall Street, which has come to expect bad news on the economy, took the report in stride. The Dow gave up some of its early gains but was still up about 2 percent in midday trading, while the broader S&P 500 index rose 1.7 percent.

Investors are expecting the Federal Reserve to cut its target interest rate Wednesday by up to one-half a percentage point to 1 percent after its two-day meeting that began Tuesday.

In addition, European and Asian financial markets were up significantly Tuesday on expectations of the cut.

The news was not good for Main Street, though.

“Consumers are extremely pessimistic,” said Lynn Franco, director of the Conference Board’s Consumer Research Center. “This news does not bode well for retailers who are already bracing for what is shaping up to be a very challenging holiday season.”

Separately, a closely watched index of home prices fell by its steepest ever annual rate in August.

Read the rest:
http://news.yahoo.com/s/ap/20081028/ap_on_bi_
ge/financial_meltdown;_ylt=AvFHy3dQgaV.mq1iCIt6A.us0NUE