US Economy: Great Depression

Great Depression lesson

Mon Mar 31, 12:19 AM ET USA Today

With the Bush administration set to unveil an overhaul of the nation's fragmented financial regulatory system today, and Congress likely to offer a counterproposal in
the coming months, it might be tempting to tune the whole debate out. After all, this is a topic unusually rich in detail and complexity.
But the question at its core is really quite simple. Should financial institutions capable of doing great harm to markets or necessitating taxpayer bailouts be left alone to
decide what level of risks they wish to undertake? The answer is just as simple: no.
The government learned that lesson in the Great Depression, which was triggered in part by runs at undercapitalized banks. It set up a system requiring banks to
maintain sufficient reserves. It also created federal deposit insurance to give people confidence that their money would be safe.
But since then, a parallel universe of unregulated financial institutions has come to be and taken over much of the business of financing. In this universe, the traditional
bank lending its own money to people it knows has been replaced by a series of impersonal and interdependent institutions such as investment banks and hedge
funds. These firms have turned the basics of banking — lending, borrowing, managing risk — into a system of readily tradable, but impossibly complex, securities.
This system has been a failure. Rather than spreading and diversifying risks as intended, it has enabled certain institutions, such as Bear Stearns Cos., to place
enormous bets in housing and other areas, without the government, shareholders, or even top executives fully appreciating the risks involved or knowing whether the
institutions have the means to cover their losses. That is a scary proposition given how Wall Street's largest houses can have a domino effect if they fail.
An enhanced government role in overseeing these institutions need not be overly regulatory. Washington should have little interest in signing off on every new financial
instrument issued. But if it is going to rush in when large institutions get into trouble, it has an interest in keeping them out of trouble in the first place. This entails
requiring them to maintain adequate reserves should their financial conditions rapidly deteriorate. It also entails some way to promote greater transparency and
simplicity in credit markets.
There's no sense in allowing so much of the financial world to play by its own rules when times are good and expect a bailout when they are not. That lesson was
learned in the 1930s, and needs to be relearned now.

An economy on the edge

Thu Apr 3, 12:20 AM ET USA Today
Alfred Kahn, the adviser to President Carter who was chastised for using the dreaded R-word to describe an economic slump, famously took to calling it a "banana"
instead. President Bush prefers to call it a "rough patch" or not to talk about it at all. But Federal Reserve Chairman Ben Bernanke treated the nation like grown-ups
Wednesday, telling Congress that the economy is in such shaky shape that a "recession is possible."
This isn't exactly a news flash. Many economists — looking at billions of dollars of bad mortgages, months of job losses, plummeting home and car sales, and soaring
gasoline and food prices — have concluded the nation is already in one.
But more important than whether the current downturn meets the technical definition of recession (two consecutive quarters of economic contraction) is the question
of how bad this is going to be.
No one knows for sure, not even Bernanke, making the situation a little like walking down a dark path and wondering whether that noise in the bushes is an angry
dog or a grizzly bear.
Bernanke's frank testimony at a congressional hearing led to two conclusions:
* If the nation is not already in recession, it is flirting with one. Bernanke expressed some optimism, however, that the economy could start recovering later this year.

* For all the recession talk, the more ominous threat lies elsewhere. Bernanke made it clear the nation was perilously close to something far worse when Bear
Stearns, Wall Street's fifth-largest investment bank, came within 24 hours of filing for bankruptcy protection. Had the Fed not stepped in with a controversial rescue
plan, he said, the viability of scores of other institutions Bear Stearns did business with worldwide would have been in doubt. That could have set off a cascade of
failures that, as Bernanke understated it, would have caused damage "severe and extremely difficult to contain."
Rescuing a reckless speculator such as Bear Stearns is distasteful. But construing the Fed's action as a bailout for wealthy bankers misstates both the motive and the
result. The purpose was to avoid a collapse of the world financial system, which would invite not recession but depression.
Bernanke said he doesn't foresee a collapse of another big firm, but if there's a menacing growl in the bushes, that's the animal to worry about. Recessions are more
easily managed.

USA 2008: The Great Depression
Food stamps are the symbol of poverty in the US. In the era of the credit crunch, a record 28 million Americans are now relying on them to survive – a sure sign the world's richest country faces economic crisis
Tuesday, 1 April 2008 Independent UK
We knew things were bad on Wall Street, but on Main Street it may be worse. Startling official statistics show that as a new economic recession stalks the United
States, a record number of Americans will shortly be depending on food stamps just to feed themselves and their families.
Dismal projections by the Congressional Budget Office in Washington suggest that in the fiscal year starting in October, 28 million people in the US will be using
government food stamps to buy essential groceries, the highest level since the food assistance programme was introduced in the 1960s.
The increase – from 26.5 million in 2007 – is due partly to recent efforts to increase public awareness of the programme and also a switch from paper coupons to
electronic debit cards. But above all it is the pressures being exerted on ordinary Americans by an economy that is suddenly beset by troubles. Housing foreclosures,
accelerating jobs losses and fast-rising prices all add to the squeeze.
Emblematic of the downturn until now has been the parades of houses seized in foreclosure all across the country, and myriad families separated from their homes.
But now the crisis is starting to hit the country in its gut. Getting food on the table is a challenge many Americans are finding harder to meet. As a barometer of the
country's economic health, food stamp usage may not be perfect, but can certainly tell a story.
Michigan has been in its own mini-recession for years as its collapsing industrial base, particularly in the car industry, has cast more and more out of work. Now, one
in eight residents of the state is on food stamps, double the level in 2000. "We have seen a dramatic increase in recent years, but we have also seen it climbing more in
recent months," Maureen Sorbet, a spokeswoman for Michigan's programme, said. "It's been increasing steadily. Without the programme, some families and kids
would be going without."
But the trend is not restricted to the rust-belt regions. Forty states are reporting increases in applications for the stamps, actually electronic cards that are filled
automatically once a month by the government and are swiped by shoppers at the till, in the 12 months from December 2006. At least six states, including Florida,
Arizona and Maryland, have had a 10 per cent increase in the past year.
In Rhode Island, the segment of the population on food stamps has risen by 18 per cent in two years. The food programme started 40 years ago when hunger was
still a daily fact of life for many Americans. The recent switch from paper coupons to the plastic card system has helped remove some of the stigma associated with
the food stamp programme. The card can be swiped as easily as a bank debit card. To qualify for the cards, Americans do not have to be exactly on the breadline.
The programme is available to people whose earnings are just above the official poverty line. For Hubert Liepnieks, the card is a lifeline he could never afford to lose.
Just out of prison, he sleeps in overnight shelters in Manhattan and uses the card at a Morgan Williams supermarket on East 23rd Street. Yesterday, he and his
fiancée, Christine Schultz, who is in a wheelchair, shared one banana and a cup of coffee bought with the 82 cents left on it.
"They should be refilling it in the next three or four days," Liepnieks says. At times, he admits, he and friends bargain with owners of the smaller grocery shops to
trade the value of their cards for cash, although it is illegal. "It can be done. I get $7 back on $10."
Richard Enright, the manager at this Morgan Williams, says the numbers of customers on food stamps has been steady but he expects that to rise soon. "In this
location, it's still mostly old people and people who have retired from city jobs on stamps," he says. Food stamp money was designed to supplement what people
could buy rather than covering all the costs of a family's groceries. But the problem now, Mr Enright says, is that soaring prices are squeezing the value of the benefits.
"Last St Patrick's Day, we were selling Irish soda bread for $1.99. This year it was $2.99. Prices are just spiralling up, because of the cost of gas trucking the food
into the city and because of commodity prices. People complain, but I tell them it's not my fault everything is more expensive."
The US Department of Agriculture says the cost of feeding a low-income family of four has risen 6 per cent in 12 months. "The amount of food stamps per household
hasn't gone up with the food costs," says Dayna Ballantyne, who runs a food bank in Des Moines, Iowa. "Our clients are finding they aren't able to purchase food like
they used to."
And the next monthly job numbers, to be released this Friday, are likely to show 50,000 more jobs were lost nationwide in March, and the unemployment rate is up
to perhaps 5 per cent.

Wall Street fears for next Great Depression

Independent.co.uk Web By Margareta Pagano, Business Editor Sunday, 16 March 2008
Wall Street is bracing itself for another week of roller-coaster trading after more than $300bn (£150bn) was wiped off the US equity markets on Friday following the
emergency funding package put together by the Federal Reserve and JPMorgan Chase to rescue Bear Stearns.
One UK economist warned that the world is now close to a 1930s-like Great Depression, while New York traders said they had never experienced such fear. The
Fed's emergency funding procedure was first used in the Depression and has rarely been used since.
A Goldman Sachs trader in New York said: "Everyone is in a total state of shock, aghast at what is happening. No one wants to talk, let alone deal; we're just
standing by waiting. Everyone is nervous about what is going to emerge when trading starts tomorrow."
In the UK, Michael Taylor, a senior market strategist at Lombard, the economics consultancy, said on Friday night: "We have all been talking about a 1970s-style
crisis but as each day goes by this looks more like the 1930s. No one has any clue as to where this is going to end; it's a self-feeding disaster." Mr Taylor, who had
been relatively optimistic, has turned bearish: "It really does look as though the UK is now heading for a recession. The credit-crunch means that even if the Bank of
England cuts rates again, the banks are in such a bad way they are unlikely to pass cuts on."
Mr Taylor added that he expects a sharp downturn in the real UK economy as the public and companies stop borrowing. "We have never seen anything like this
before. This is new territory for us. Liquidity is being pumped into the system but the banks are not taking any notice. This is all about confidence. The more the
central banks do, the more the banks seem to ignore what's going on."
Mr Taylor added that the problems unravelling at Bear Stearns are just the beginning: "There will be more banks and hedge funds heading for collapse."
One of the problems facing the markets is that, despite the Fed's move last week to feed them another $200bn, the banks are still not lending to each other.
"This crisis is one of faith. We are going to see even more problems in the hedge funds as they face margin calls," said Mark O'Sullivan, director of dealing at
Currencies Direct in London. "What we are waiting for now is for the Fed to cut interest rates again this week. But that's already been discounted by the market and
is unlikely to help restore confidence."
Mr O'Sullivan added that the dollar's free-fall is set to continue and may need cuts in European interest rates to trim the euro's recent strength against the dollar. "But
the ECB doesn't like cutting rates," he said.
On Europe, Mr Taylor said that while the German economy remains strong, others such as Italy's and Spain's are weakening. "You could see a scenario where the
eurozone breaks up if economies continue to be so worried about inflation."
European financial markets were relatively unscathed by Wall Street's crisis but traders expect there to be a backlash when stock markets open tomorrow.
The Fed's plan will give 28 days of secured funding to Bear Stearns, which saw its value slashed over the week by more than a half to $3.7bn. JP Morgan will
provide the funding, but the Fed will bear the risk if the loan is not repaid. Fed chairman, Ben Bernanke, who pumped $200bn of loans to cash-strapped institutions
last week, said more would be available to help others in distress.

Bernanke admits US is contracting but plays down 'Great Depression'

By Stephen Foley in New York Thursday, 3 April 2008
Ben Bernanke, the chairman of the Federal Reserve, has admitted for the first time that the US economy may be contracting, but he said suggestions that the country
was heading into a new Great Depression were unlikely to prove true.
Assailed by references to the economic catastrophe of the 1930s during his testimony before Congress yesterday, Mr Bernanke – one of the world's foremost
scholars of the causes of the Depression – said the modern-day Fed was pursuing "creative" actions to shore up confidence in the financial system.
His comments were the first public references to the Fed's role in the bail-out of Bear Stearns, whose failure last month would have had consequences that "could
have been severe and extremely difficult to contain", he told the joint economic committee.
The Fed stepped in with a $29bn loan to support JPMorgan's takeover of Bear Stearns and ripped up decades of previous central banking policy to promise that it
would act as lender of last resort not just to retail banks but also now to Wall Street. "We think we have been pretty creative," Mr Bernanke said.
The Fed chairman batted away suggestions that it would have been better to let Bear Stearns go into liquidation, to punish it for poor investments in sub-prime
mortgages. He said that, "with the very glaring exception of the 1930s, the Fed has been an eff-ective market stability regul-ator".He added: "At the time of the
Depression, liquidationist theory was supported by the Treasury, and it was partly on the basis of that theory that the Fed stood by and let a third of the banks in the
country fail. The financial stability that was not addressed was a major contributor to the Depression, not just in the US but abroad. Today we will not let prices fall at
10 per cent a year, we will act to keep the economy growing and stable. There are very great differences between the 1930s and today."
Mr Bernanke repeated his prediction of a rebound in the US economy later this year but conceded: "It now appears likely that real gross domestic product will not
grow much, if at all, over the first half of 2008, and could even contract slightly". It was before the joint economic committee a year ago that Mr Bernanke predicted
"the impact on the broader economy and financial markets of the problems in the sub-prime market seem likely to be contained" – a prediction that proved not to be
the case.
The International Monetary Fund has again cut its forecast for global growth this year, it emerged yesterday. The world economy will grow at the slowest pace since
2002, according to an IMF document obtained by Bloomberg News, and there is a one-in-four chance of an all-out global recession.
"Global expansion is losing momentum in the face of what has become the largest financial crisis in the US since the Great Depression," the IMF says.

US faces 'greatest crisis since Great Depression', UK growth down to 1%

Wednesday, 02 Apr 2008 13:07

The US faces its greatest financial crisis since the Great Depression, claims the International Monetary Fund (IMF), as the chance of world recession grows.
The IMF's latest outlook states there is a 25 per cent chance of a global recession as the US economy looks downwards.
An IMF statement, obtained by Bloomberg, read: "The financial shock that originated in the US subprime mortgage market in August 2007 has spread quickly, and in
unanticipated ways, to inflict extensive damage on markets and institutions at the core of the financial system.
"Global expansion is losing momentum in the face of what has become the largest financial crisis in the US since the Great Depression."
Meanwhile, forecasts from Capital Economics for the UK economy have slipped to one per cent in 2009.
Julian Jessop at Capital Economics said: "Recent news on the UK economy has been upbeat in comparison with the dreadful state of the US.
"But this is unlikely to last very long. Most major downturns in the US have been accompanied, or followed shortly after, by equally severe or even sharper
slowdowns in the UK."
He added: "The very problems which have hit the US economy look likely to hit the UK just as hard.
"Although the UK does not have the same subprime problems, the wider housing market looks just as overvalued as that in the US, if not more, and households are
just as overstretched."
Mr Jessop also predicted with the slow growth UK interest rates could fall to 3.5 per cent by 2009.
"It seems clear official interest rates need to come down considerably further. We now expect UK rates to fall to four per cent by the end of this year – implying one
quarter point cut every two months – and further to 3.5 per cent in 2009."
Capital Economics predicts UK growth of 1.7 per cent in 2008 and one per cent in 2009, comparing with forecasts in the Budget of growth between 1.75 per cent
and 2.25 per cent this year.

U.S. Economy: Employers Cut Most Workers Since 2003

By Bob Willis
April 4 (Bloomberg) -- Employers in the U.S. cut the most workers in five years last month, signaling that the economic contraction is deepening and that the Federal
Reserve will continue to lower interest rates.
Payrolls shrank by 80,000, more than forecast and the third monthly decline, the Labor Department said today in Washington. The jobless rate rose to 5.1 percent,
the highest level since September 2005, from 4.8 percent.
``This is the final blow,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``It's clear the U.S. economy is in a
recession. That's going to shake the confidence of investors and companies across the world and cause people to curtail spending in other countries.''
Traders raised bets the Fed will cut its benchmark rate half a point this month after central bankers already enacted the deepest reductions in borrowing costs in two
decades last quarter. Officials signaled increasing concern about the economy and credit markets this week, with Chairman Ben S. Bernanke saying for the first time
the U.S. may enter a recession.
Treasuries climbed, with 10-year note yields falling to 3.50 percent at 11:10 a.m. in New York, from 3.59 percent late yesterday. Odds of a half-point rate cut at the
Fed's April 29- 30 meeting rose to 38 percent from 20 percent yesterday, futures show. Stocks dropped.
Economists' Estimates
Workers' average hourly wages were 3.6 percent higher than a year earlier, the smallest increase since March 2006.
In a sign that investor concern about inflation is diminishing, U.S. debt that adjusts to inflation outperformed regular Treasuries. Regular 10-year notes yielded 2.30
percentage points more than similar-maturity Treasury Inflation Protected Securities, the least since March 27. The so-called breakeven rate reflects the rate of
inflation that traders expect for the next decade.
The loss of jobs in February was revised to 76,000 from 63,000. Economists had projected payrolls would fall by 50,000 in March, according to the median of 79
forecasts in a Bloomberg News survey. Economists' forecasts ranged from a decline of 150,000 to a gain of 65,000.
``If you're ever going to ring a bell on a recession, these numbers do it,'' Stuart Hoffman, chief economist at PNC Financial in Pittsburgh said in a Bloomberg
Television interview. ``You have had job losses all year.''
IMF Meeting
The job figures come a week before Bernanke and Treasury Secretary Henry Paulson meet their counterparts from the Group of Seven major industrial nations
alongside the spring meetings of the International Monetary Fund in Washington.
IMF Chief Economist Simon Johnson said yesterday in a statement that the U.S. economy has slowed to a ``virtual standstill,'' hurting global growth prospects. A
document featuring IMF forecasts obtained by Bloomberg News this week showed the fund characterized the U.S. financial crisis as the worst since the Great
Depression.
Gains in government jobs prevented a deeper drop in payrolls last month as private employers cut 98,000 workers, the fourth straight monthly decline. A survey from
ADP Employer Services issued yesterday had projected private payrolls would rise by 8,000.
Labor revisions subtracted 67,000 jobs from the originally reported total figures for January and February. The last time the economy lost jobs for at least three
months coincided with the start of the Iraq War in 2003.
Unemployment Forecasts
The jobless rate was forecast to rise to 5 percent from 4.8 percent in February, the Bloomberg survey said.
President George W. Bush's chief economist said he's not paying too much attention lately to the unemployment rate.
``I don't focus too much on the monthly unemployment rate because it has been a bit volatile,'' Edward Lazear, chairman of Bush's Council of Economic Advisers,
said in a Bloomberg Television interview. By historical standards, Lazear said joblessness isn't that high compared with past recessions.
Factory payrolls shrank by 48,000 workers, the biggest decrease since July 2003, Labor said. The drop included a loss of 24,000 jobs in the auto manufacturing and
parts industries, which the government said ``largely'' reflected the effects of a strike at a supplier for General Motors Corp. Economists had forecast a decline of
35,000 in manufacturing jobs.
The walkout by workers at American Axle & Manufacturing over pay and benefits that started on Feb. 26 has idled almost half of GM's North American workforce.
Ford Cuts
Ford Motor Co., which lost $15.3 billion in the past two years, may cut more jobs in North America, Chief Executive Officer Alan Mulally said last month.
``We must continue to downsize and simply will not have enough jobs for all of our current hourly workers,'' Joe Hinrichs, Ford's manufacturing chief, and Marty
Mulloy, vice president of labor affairs, said in a March 19 commentary sent to newspapers in communities where Ford has plants.
Builders eliminated 51,000 jobs after a decline of 37,000 in February.
Service industries, which include banks, insurance companies, restaurants and retailers, added 13,000 workers last month after an increase of 6,000 in February, the
report showed. Retail payrolls decreased by 12,400 after dropping 46,700 in February.
Payrolls at financial firms decreased by 5,000, after declining 11,000 the prior month, Labor said. Job losses in the industry are mounting following the collapse in
subprime lending.
Wall Street Losses
Wall Street banks hit by mortgage losses and writedowns have cut more than 34,000 jobs in the past nine months, the most since the dot-com boom fizzled in 2001,
according to the Securities Industry and Financial Markets Association.
This year, financial firms including Lehman Brothers Holdings Inc., Citigroup Inc. and Morgan Stanley have reduced staff in fixed income trading, securitization and
investment banking. Lehman has eliminated 18 percent of its workforce, Morgan Stanley has cut 6.2 percent, and Merrill Lynch & Co. has trimmed 4.5 percent.
The average work week lengthened to 33.8 hours from 33.7 hours. Average weekly hours worked by production workers increased to 41.3 from 41.2, while
overtime increased to 4.1 hours from 4 hours. That brought average weekly earnings up by $3.47 to $603.67 last month.
Hourly Wages
Workers' average hourly wages rose in line with forecasts to $17.86, up 5 cents, or 0.3 percent. Hourly earnings were 3.6 percent higher than a year earlier.
Economists surveyed by Bloomberg had forecast a 0.3 percent increase from the prior month and a 3.6 percent gain for the 12-month period.
Economists are increasingly forecasting a prolonged recession. Martin Feldstein, the Harvard economics professor who heads the research group that determines
when downturns begin, said last month that a contraction had begun.
Stephen Roach, chairman of Morgan Stanley's Asia division, said in a Bloomberg Television interview today in Cernobbio, Italy, that the U.S. ``will stay in recession
long after'' the current financial crisis ends.
``It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly,'' Bernanke said in
testimony to Congress April 2. He said he expected unemployment to move ``somewhat higher,'' in line with recent data showing a ``softer labor market.''
Bernanke told lawmakers yesterday that the central bank is ``ready to respond to whatever situation evolves,'' and cited ``considerable stress'' in markets. New York
Fed President Timothy Geithner said policy makers must ``continue to act forcefully.''
Last Updated: April 4, 2008 11:51 EDT

Treasuries Advance After Job Losses in March Exceed Forecasts
By Deborah Finestone and Sandra Hernandez
April 4 (Bloomberg) -- Treasuries rose, led by longer- maturity debt, after a government report showing the U.S. lost more jobs in March than analysts forecast
reinforced speculation the economy is in a recession.
The gains pushed down yields on two-year notes as traders raised bets the Federal Reserve will cut the central bank's target lending rate by as much as a half-
percentage point this month. Debt due in 10 years and more rallied as average hourly earnings increased by the smallest amount since March 2006, easing concern
that inflation will accelerate.
``We're seeing weak employment and job losses in the services side of the economy and not just in manufacturing,'' said Michael Materasso, co-chairman of the
fixed-income policy committee at Franklin Templeton Investments in New York, which manages $141 billion of bonds. ``The economy does need lower short-term
rates and the Fed will go along with that.''
The yield on the two-year note fell 7 basis points, or 0.07 percentage point, to 1.84 percent at 10:54 a.m. in New York, according to bond broker Cantor Fitzgerald
LP. The price of the 1 3/4 percent security due in March 2010 rose 6/32, or $1.25 per $1,000 face amount, to 99 26/32.
The 10-year note's yield fell 9 basis points to 3.59 percent, the biggest drop since March 19. The difference in yields with two-year notes was 164 basis points, the
least since Feb. 4.
The premium investors demand to hold inflation-linked securities compared with nominal debt declined for a third day. The so-called breakeven rate on 10-year
Treasury Inflation Protected Securities dropped 4 basis points to 230 basis points.
`Back Into Play'
U.S. employers eliminated 80,000 jobs in March, compared with a revised 76,000 decrease in February, the Labor Department said in Washington. Economists had
expected a loss of 50,000, according to the median of 79 forecasts in a Bloomberg News survey. The jobless rate rose to 5.1 percent from 4.8 percent.
Traders see a 38 percent chance the Fed will lower the target rate for overnight lending between banks a half- percentage point to 1.75 percent at their next
scheduled meeting on April 30, up from 20 percent yesterday. The rest of the bets were on a quarter-point reduction, according to interest-rate futures on the
Chicago Board of Trade.
``It puts the Fed a little more back into play,'' said James Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York, one of the 20 primary dealers
that trade with the central bank. ``It looks more and more likely the Fed's going to 1.75 and I would say the two-year note should probably stay anchored around
that level.''
`Significant' Risks
Fed Chairman Ben S. Bernanke acknowledged for the first time on April 2 that a recession is possible because homebuilding, employment and consumer spending
will deteriorate.
San Francisco Fed Bank President Janet Yellen said late yesterday the economy faces ``significant'' risks and officials must be ready to respond.
Yields on two-year notes rose to a five-week high April 2, jumping 10 basis points to 1.895 percent, after a private report by ADP Employer Services showed
companies unexpectedly added 8,000 jobs in March. Yields on 10-year notes climbed to a three- week high of 3.55 percent after the release, which doesn't reflect
hiring by government agencies.
Two-year yields increased 21 basis points the previous day, when UBS AG and Lehman Brothers Holdings Inc. said they would raise capital. Banks and securities
firms have raised $136 billion by selling stakes or announcing plans to do so amid $232 billion of losses on subprime-related securities since the start of 2007.
``Himalaya-Like Guestimates''
Writedowns among the world's biggest financial institutions won't match ``Himalaya-like guestimates'' of more than $600 billion and will slow in the second and third
quarters of this year, according to Lehman.
Financial firms will likely announce another $100 billion in writedowns by the year's end, Lehman Brothers analysts led by New York-based Jack Malvey wrote in
the note.
Treasuries have returned 3.4 percent so far this year, the best gain since 2000, as credit-market losses drove investors to the relative safety of government debt. The
biggest decline in yields so far this year was Jan. 22, the day policy makers cut the benchmark rate in an emergency decision. Two-year rates fell 35 basis points and
10-year rates fell 20 basis points.
The Fed last cut its rate by three-quarters of a percentage point March 18. Two days before that, it said it would lend cash directly to investment banks, and reduced
the interest rate on direct loans by a quarter-percentage point. In an emergency decision March 16, the Fed also voted to authorize a loan against $29 billion of Bear
Stearns Cos. assets so JPMorgan Chase & Co. would buy the company.
Bill Rates
Rates on three-month bills, considered among the safest securities because of their short maturities, dropped 5 basis points to 1.34 percent. They surged 80 basis
points last week, the biggest increase in a five-day period since 1982. They touched 0.387 percent March 20, the lowest level since at least 1954, as investors lost
confidence in financial markets.
The rise in bill rates narrowed the difference between what banks and the U.S. government pay for three-month loans, a gauge of credit risk. The gap is 1.38
percentage points, compared with a three-month high of 2.03 percentage points March 19.

Profits at U.S. Companies Probably Fell

By Peter J. Brennan
April 4 (Bloomberg) -- U.S. corporate earnings probably fell for a third straight quarter as the subprime-mortgage meltdown hammered banks and consumer
spending slowed.
Profit at Standard & Poor's 500 Index companies may have dropped an average of 10.7 percent from a year earlier in the first quarter, according to data compiled
by Bloomberg. The three straight quarters of decline would be the longest such streak in six years.
U.S. financial firms, led by Citigroup Inc., have absorbed more than $230 billion in writedowns and losses on subprime- related assets since the beginning of 2007,
while consumers have curbed spending in response to record gasoline prices and the worst housing slump in a quarter century.
``The financials have had huge losses; they are largely the ones to blame'' for the S&P 500 profit decline, said Milton Ezrati, a market strategist at Lord Abbett &
Co., a Jersey City, New Jersey, investment company. ``Consumers are cutting back on discretionary items like furniture, clothing, vacations and cars, and the earning
predictions are showing that.''
The S&P 500 index dropped 9.9 percent in 2008's first three months, the worst quarterly performance since September 2002.
Citigroup, Merrill
The previous longest decline in profits of S&P 500 companies was five quarters, a streak that ended in March 2002 as the U.S. was emerging from a recession.
S&P 500 earnings fell 23 percent in the fourth quarter of last year, following the third period's 2.5 percent drop. The fourth-quarter decline was the biggest in six
years.
Profits of financial companies in the S&P 500 slumped 54 percent in the first quarter, according to figures compiled by Bloomberg. In the last four weeks, analysts
have reduced their earnings estimates for the group by 29 percent.
Citigroup's loss may reach 81 cents a share, according to analysts surveyed by Bloomberg. A year earlier, Citigroup, the biggest U.S. bank by assets, had profit
excluding some costs of $1.18 a share. Goldman Sachs Group Inc. analysts say Citigroup may take a writedown of as much as $12 billion on debt securities.
Merrill Lynch & Co., the world's largest brokerage, may report a loss of $1.29 a share, analysts predict, compared with a profit of $2.26 a year earlier.
Fed Rescue
Earnings of Bear Stearns Cos., which was close to bankruptcy before a pending acquisition by JPMorgan Chase & Co. in a rescue arranged by the Federal Reserve,
fell to 88 cents a share from $3.82, according to the average analysts' estimate. JPMorgan profit slumped to 75 cents from $1.24, analysts predict.
Banks' writedowns from the current credit crisis may reach $460 billion, Goldman Sachs estimated on March 25. ``There is light at the end of the tunnel, but it is still
rather dim,'' Goldman economists including Andrew Tilton wrote in a note to investors.
Investment banks also have been hurt by a 35 percent drop in merger-and-acquisition fees as the value of announced takeovers fell to $656 billion in the first quarter
from $971 billion a year earlier, according to Bloomberg data.
Consumer Companies
Companies from Black & Decker Corp., the biggest U.S. power- tool maker, to General Motors Corp., the world's largest automaker, are being hurt as the housing
slump and gasoline prices force consumers to rein in spending. Consumer confidence fell to the lowest level since 2003 last month, according to the Conference
Board, a New York-based research group.
``The consumer is getting scared,'' said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York-based retail consulting firm. The depressed
housing market ``is going to kill retailers who don't offer real value.''
Profits of consumer discretionary companies such as Mattel Inc., the world's largest toymaker, probably fell 15 percent, according to data compiled by Bloomberg.
Automobiles and auto- parts suppliers will post a collective loss, analysts predict.
In the last four weeks, analysts' estimates for a loss at GM widened to $1 a share from 66 cents. GM on April 1 reported a 19 percent drop in U.S. sales for March.
J.C. Penney Co., the third-largest U.S. department-store chain, cut its first-quarter sales and earnings forecasts on March 28 because of slower consumer spending.
Brunswick Corp., the maker of Bayliner Boats, may report profit of 10 cents a share, less than a third of the year-earlier figure, according to analysts' estimates.
Rate Cuts
U.S. home prices may decline as much as 20 percent by the end of 2008 from their peak in 2006, S&P said March 20. Gasoline rose to a record $3.287 a gallon
for regular unleaded on March 30, more than 61 cents above the year-earlier price, according to AAA, the national automobile-driver group.
To spur spending, the Fed has cut the benchmark federal funds rate two percentage points this year to 2.25 percent, the fastest reduction in two decades.
Energy companies led the quarter's winners, propelled by a jump in U.S. oil futures to a record $111.80 a barrel last month. Earnings of the group probably rose 23
percent, according to Bloomberg data.
Exxon Mobil Corp., the world's largest oil company, may report per-share profit of $2.08, up from $1.62 a year ago, analysts estimate.
Last Updated: April 4, 2008 06:08 EDT