Stock Market Crash Expected In 2008 To Be Worse Than 1929

[Soldier4Christ]

Recession? Maybe worse.
Economy stumbles more
Expert says it could take years to recover
from financial crisis now going global

It was another gloomy day on the financial markets, as more economic indicators suggested America's financial crisis is deepening and spreading globally.

Chrysler told employees worldwide – not just factory workers – to take a mandatory two-week vacation in July.

    * The Carlyle Group announced creditors planned to seize the assets of its mortgage-bond fund after it failed to meet more than $400 million in margin calls on mortgage-backed collateral that has plunged in value.

    * Gold rose above $1,000 an ounce for the first time as mounting credit-market losses spurred demand for bullion as a haven from the sagging dollar and equities. Silver and platinum also advanced as the dollar dropped below 100 yen for the first time since 1995 and to a record against the euro. Gold is up 37 percent since the Federal Reserve began cutting interest rates in September, sending the dollar tumbling.

    * U.S. home foreclosure filings jumped 60 percent and bank seizures more than doubled in February as rates on adjustable mortgages rose and property owners were unable to sell or refinance amid falling prices.

    * Retail sales in the U.S. unexpectedly fell in February, indicating that declines in payrolls and home values and a surge in energy costs have pushed the economy into a recession. Sales dropped 0.6 percent, led by auto dealers and restaurants, after a 0.4 percent gain in January, the Commerce Department said. Meanwhile, the Labor Department said jobless benefits rolls climbed to a 2 1/2-year high, and import prices soared 13.6 percent from a year ago, reflecting higher energy costs.

    * U.S. import prices rose by a less-than-expected 0.2 percent in February as petroleum prices dipped while export prices increased by a surprisingly strong 0.9 percent as food prices soared, a government report showed today.

    * Global writedowns linked to the U.S. sub-prime crisis could reach $285 billion, $20 billion more than expected earlier this year, credit ratings agency Standard & Poor's said in a report published today.

    * The Dow and Nasdaq indexes were up slightly after a morning plunge.

Meanwhile, in the March-April edition of Foreign Policy magazine, the chairman of RGE Monitor warns that central banks cannot save the U.S. or the world from the worsening recession. Slashing interest rates is not enough, writes Nouriel Roubini, a professor of economics at New York University's Stern School of Business.

"Central banks don't have as free a hand (as they had in 2001)," he writes. "They are constrained by higher levels of inflation."

He also cautions that stimulus packages, like the one passed by Congress and signed by President Bush, will have little beneficial impact on the stalling economy.

"The United States is facing a financial crisis that goes far beyond the subprime problem into areas of economic life that the Fed simply can't reach," says Roubini. "The problems the U.S. economy faces are no longer just about having enough cash on hand; they're about insolvency, and monetary policy is ill equipped to deal with such problems."

Roubini points out the sorry details all too evident in the day's news – led by millions of households on the brink of default on mortgages.

"When the economy falls further, corporate default rates will sharply rise, leading to greater losses," he writes. "There is also a 'shadow banking system,' made up of non-bank financial institutions that borrow cash or liquid investments in the near term but lend or invest in the long term in non-liquid forms. Take money market funds, for example, which can be redeemed with just one month's notice. Many of these funds are invested and locked into risky, long-term securities. This shadow banking system is therefore subject to greater risk because, unlike banks, they don't have access to the Fed's support as the lender of last resort, cutting them off from the help monetary policy can provide."

Roubini concludes it will "take years to resolve the problems that led to this crisis."

In fact, it's hard to consider solutions when the problems seem to grow worse each day – especially in the area of mortgage foreclosures.

"With declining prices, there is a pervasive problem of not being able to refinance or sell,'' Susan Wachter, professor of real estate at the University of Pennsylvania's Wharton School in Philadelphia, told Bloomberg News. "I'm very concerned. This is continuing to worsen. It tells us that we are not at a bottom.'''

About $460 billion of adjustable-rate mortgages are scheduled to reset this year and another $420 billion will rise in 2011, according to New York-based analysts at Citigroup Inc. Homeowners faced higher payments as fourth-quarter home prices fell 8.9 percent, the biggest drop in 20 years as measured by the S&P/Case-Shiller home price index.

According to Rick Sharga, executive vice president of RealtyTrac, foreclosure filings are likely to be "explosive'' in May and June as more payments jump, after remaining at current levels this month and next. He said there may be between 750,000 and 1 million bank repossessions in 2008. '

February was the 26th consecutive month of year-on-year monthly foreclosure increases, Sharga told Bloomberg News.

[Soldier4Christ]

Carlyle Capital in default, on brink of collapse
Amsterdam company may have $16.6 billion in assets seized

An affiliate of U.S.-based buyout firm Carlyle Group has defaulted on about $16.6 billion of debt and expects its lenders to seize remaining assets as the global credit crunch tightens around leveraged investors.

The Carlyle Group said in a statement on Thursday that as Carlyle Capital Corp , a fund listed in Amsterdam, was unable to reach a deal with lenders it expected those lenders to take possession of the fund's remaining residential mortgage-backed securities assets.

Carlyle said it had worked "exhaustively" to assist Carlyle Capital and took "extraordinary measures" to help it through its liquidity crisis.

It stressed that Carlyle Capital Corp (CCC) was a separate legal and business entity, and that it believed CCC would not have a measurable impact on Carlyle's other funds, investments and portfolio companies. Carlyle Group said that Carlyle Capital's defaults did not trigger cross-defaults for any Carlyle borrowings.

The Carlyle Group, based in Washington, DC, has more than $75 billion under management. One of the world's largest private equity firms, it owns companies including TV ratings firm Nielsen, doughnut seller Dunkin' Brands and former General Motors unit Allison Transmission.

Carlyle Capital said in New York late on Wednesday that talks with lenders deteriorated after a decline in the value of its mortgage investments, which it said would result in margin calls of $97.5 million on top of the $400 million it was already facing.

A "successful refinancing is not possible," Carlyle Capital said, after trying for the past week to work out a deal with lenders to stave off bankruptcy.

The credit crisis, triggered last year when subprime mortgages made to risky U.S. borrowers went sour, has put increasing pressure on lenders to tighten credit and made it difficult to value collateralized debt, mortgage portfolios and other fixed-income securities -- the investments that Carlyle Capital was set up to invest in.

"We've been expecting, for a while, for the hedge funds to get into trouble," said Andrea Cicione, a credit strategist at BNP Paribas, one of Carlyle Capital's lenders.

"We are in a vicious spiral of unwinding years of increasing leverage in the space of a few weeks," he said, and no one can say how much leverage must be wrung out before the unwinding comes to an end.

Carlyle Capital, based in Britain's offshore dependency of Guernsey, said the only assets it has left are AAA-rated residential mortgage-backed securities, and it expected lenders to foreclose on that collateral.

"It has become apparent to the company that the basis on which lenders are willing to provide financing against the company's collateral has changed so substantially that a successful refinancing is not possible," Carlyle Capital said.

Its shares sank 87 percent to 35 cents, a fraction of their $20 debut price last July. Dutch market regulator AFM said it was monitoring developments closely.

SUPPLY WORRIES

Among the counterparties for Carlyle's repurchasing agreements, Deutsche Bank, Merrill Lynch & Co and Bear Stearns Cos have sold off assets, the Wall Street Journal reported.

A source familiar with the matter told Reuters that Credit Suisse has started selling its CCC assets.

CCC had invested in U.S. prime mortgage-backed securities of Fannie Mae and Freddie Mac, which are high-rated and carry the implicit backing of the U.S. government.

Spreads on these bonds have been widening, however, on fears that investors could dump supply into a saturated market.

Managers at U.S.-based buyout firm The Carlyle Group own about 15 percent of Carlyle Capital Corp, which listed in July 2007 as the credit crisis began spreading through the global financial system.

The Carlyle Group actively participated in the negotiations with lenders and last year extended a $150 million credit line to its affiliate.

According to CCC's annual report, counterparties for its repurchasing agreements as of the end of 2007 were Bank of America, Bear Stearns, BNP Paribas, Calyon, Citigroup, Credit Suisse, Deutsche Bank, ING, JP Morgan, Lehman Brothers, Merrill Lynch and UBS.

CCC is the latest fund or trading firm to encounter problems as a result of the credit market crisis.

New York-based fixed income trader Drake Management said on Wednesday it was considering liquidating all three of its hedge funds. Sources said on Tuesday that hedge fund Blue River Asset Management's main municipal bond fund was liquidating after a sell-off in the bond market.

London-based Peloton Partners, which had held $3 billion in assets, told investors earlier this month it was liquidating its two funds.

[Soldier4Christ]

Gas, Oil Rise to Records As Dollar Falls
Gas, Oil Prices Advance to Record Highs As the Dollar Weakens, Attracting New Investment

Gas and oil prices jumped again to new highs Thursday as the dollar weakened, although crude's advance was limited by fresh evidence of a U.S. economic slowdown.

At the pump, gas prices surged 2.1 cents overnight to a record national average of $3.267 a gallon, according to AAA and the Oil Price Information Service. Gas prices are likely to rise much higher this spring; estimates range from about $3.50 a gallon in the Energy Department's latest forecast to $3.75 or even $4 a gallon according to some analysts.

Diesel fuel, used to transport the vast majority of the nation's consumer goods, also hit a new record. Diesel prices rose another 3.3 cents overnight to a record average of $3.909 a gallon.

Gas and diesel are following crude, which has risen to records in 12 of the last 13 trading sessions. Analysts blame oil's ascent on weakness in the dollar, which dropped to yet another new low against the euro Thursday. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is weak. Interest rate cuts further weaken the dollar, and have helped fuel oil's rise, especially with another reduction expected next Tuesday at the Federal Reserve's regularly scheduled monetary policy meeting.

Light sweet crude for April delivery rose 41 cents to settle at a record $110.33 a barrel on the New York Mercantile Exchange Thursday after earlier surging to a new trading record of $111.

"This cocktail's been whipped up by the Federal Reserve," said James Cordier, founder of OptionSellers.com, a Tampa, Fla., trading firm.

Analysts said the Commerce Department's report that retail sales fell in February raised new worries that the economy is headed for recession, and might curtail demand for oil. Those concerns limited oil's gains, but analysts expect any oil price weakness to be short-lived, and for oil to maintain its upward track.

For consumers, that means pain at the pump — and in the form of higher prices for food and consumer goods, primarily related to rising fuel costs — will continue into the foreseeable future.

"There's really no end in sight to this," Cordier said.

Other energy futures were mixed Thursday. April gasoline futures fell 4.58 cents to settle at $2.6828 a gallon, while April heating oil futures rose 10.04 cents to settle at a record $3.1248 a gallon after earlier rising to a trading record of $3.1275 a gallon.

April natural gas futures rose 21.9 cents to settle at $10.23 per 1,000 cubic feet. The Energy Department reported that gas inventories fell by 86 billion cubic feet last week, slightly higher than the 83 billion cubic foot withdrawal analysts surveyed by Dow Jones Newswires were expecting.

In London, April Brent crude rose $1.27 to settle at $107.54 a barrel on the ICE Futures exchange.

[Soldier4Christ]

Stocks tumble on bank-liquidity concerns
Investors worried about plan to ease liquidity at Bear Stearns

Stocks plunged Friday as investors worried that a plan to ease a liquidity crisis at Bear Stearns Cos. indicates how severe credit troubles have become.

Investors were busy examining the plan from JPMorgan Chase & Co. and the New York Federal Reserve to provide secured funding to Bear Stearns for an initial period of 28 days. The move offers Bear Stearns relief from a sudden liquidity crunch and could help instill confidence in the stagnant credit markets.

Bear Stearns shares fell sharply, dragging down other financial companies. There has been speculation this week that Bear Stearns was struggling with liquidity problems.
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The Federal Reserve said Friday it has voted to endorse an arrangement to bolster troubled Bear Stearns Cos. and stands ready to provide extra resources to combat a serious credit crisis.

Stocks showed moderate gains in the early going after a Labor Department report showed the Consumer Price Index remained flat for February. Wall Street has been expecting inflation would show an increase.

But the gains quickly disappeared after investors learned more about how close Bear Stearns appeared to have come to financial implosion.

“The Bear Stearns news reversed the early positive sentiment from the inflation data,” said Peter Cardillo, chief market economist at Avalon Partners. “There had been nervousness about Bear Stearns for some time and now the market’s concerns about the company have been proven true.”

The Dow Jones industrial average was lately down 143.20 points, or 1.18 percent, having lost as much as 300 points earlier in the morning. The broader Standard & Poor’s 500-stock index was lately off 19.44 points, or 1.48 percent, while the Nasdaq composite index slumped 25.41 points, or 1.12 percent.

In economic news, the University of Michigan said its latest consumer sentiment index dipped 0.3 points to 70.5.

President Bush is expected to tell a gathering of economists in New York Friday. He is expected to say that the economy is slowing but nonetheless is fundamentally sound and poised to return to higher growth. No new initiatives should be expected, according to the White House press office.

On Thursday, an anxious stock market rebounded from an early plunge after Standard & Poor’s predicted financial companies are nearing the end of the massive asset write-downs that have pummeled the stock and credit markets for months. The S&P projection gave investors some hope that the seemingly unrelenting losses from the mortgage and credit crisis might indeed be bottoming out.

Stock market investors Friday will have to keep an eye on the dwindling dollar and events in the soaring commodities market, after both gold and oil futures set new records on Thursday and the dollar sank to record lows versus the euro.

There is mounting speculation in the currency markets that global central banks are set to intervene to prop up the ailing dollar. Many analysts are growing convinced that concerted intervention is the only remedy for the currency’s continuing slide.

U.S. interest rates have been cut repeatedly since last fall and the Federal Reserve is widely expected to put in place yet another rate cut on Tuesday, adding more pressure on the dollar.

The rate reductions series make the dollar less attractive to investors than the higher-yield euro. On Thursday new consumer price data from the euro zone made it all but certain that the European Central Bank will not reduce rates any time soon.

Investors also will want to learn the latest news about Carlyle Group’s $22 billion Carlyle Capital fund. On Thursday the fund moved closer to collapse and the co-founder of Carlyle Group, David Rubenstein, pledged to compensate investors.

[Soldier4Christ]

Fed Pledges to Supply Cash
Fed Endorses Rescue Effort for Bear Stearns and Pledges to Supply Cash to Financial System

The Federal Reserve invoked a rarely used Depression-era procedure Friday to bolster troubled Bear Stearns Cos. and said it will provide even more help to combat a serious credit crisis.
The action won praise from the administration, with President Bush saying that Fed Chairman Ben Bernanke was "doing a good job under tough circumstances."

The Fed announcement came in a brief two-sentence statement that was issued as stocks were plunging on Wall Street over worries that a plan to ease a liquidity crisis at Bear Stearns Cos. might not work. Federal Reserve Chairman Ben Bernanke, delivering a speech later Friday, told a housing group he had had a "busy morning." He did not elaborate on the Fed's action regarding Bear Stearns.

"The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system," the board said in its statement. It said members had voted unanimously to approve the arrangement, announced by JP Morgan Chase and Bear Stearns earlier.

Delivering a speech on the economy in New York, Bush voiced confidence in the Fed's actions to aggressively cut interest rates and the Fed announcement last week that it would supply up to $200 billion in loans to cash-strapped financial institutions.

"It was a strong action by the Fed and they did so because some financial institutions that borrowed money to buy securities in the housing industry must now repair their balance sheets before they can make further loans," Bush said. "Today's actions are fasting moving, but the chairman of the Federal Reserve and the secretary of the treasury are on top of them and will take the appropriate steps to promote stability in our markets."

The plan announced Friday will supply secured funding to Bear Stearns for an initial period of 28 days, seeking to provide short-term relief for Bear Stearns.

Senior Federal Reserve staffers said the arrangement allows JP Morgan Chase to borrow from the Fed's discount window and put up collateral from Bear Stearns to back up the loans. JP Morgan, a bank, has access to the discount window to obtain direct loans from the Fed, but Bear Stearns, an investment house, does not.

While JP Morgan is serving as a conduit for the loans, the Fed and not JP Morgan will bear the risk if the loans are not repaid, officials said.

This type of procedure, Fed officials said, dates back to the Great Depression of the 1930s but has rarely been used since that time.

In his speech, Bush said the administration had a plan to deal with the problems in credit and housing markets and said he opposed a number of measures pending in Congress to go further by allocating billions of dollars to purchase abandoned and foreclosed home and changing the bankruptcy code to allow judges to adjust mortgage terms.

However, Senate Banking Committee Chairman Christopher Dodd, D-Conn., said the problems at Bearn Stearns, one of the country's largest investment banks, highlighed the need for more aggressive efforts.

"Instead of cheerleading and reacting with tepid measures, the administration should act boldly and decisively to prevent the looming foreclosure crisis from having catastrophic consequences for our economy and our markets," Dodd said in a statement.

Treasury Secretary Henry Paulson praised the Fed's leadership and said that the country's financial system would be able to weather the problems.

"As we have been saying for some time, there are challenges in our financial markets and we continue to address them," Paulson said in a statement. "This is another challenge that market participants and regulators are addressing. We are working closely with the Federal Reserve" and the Securities and Exchange Commission.

Paulson said he appreciated the leadership of the Fed "in enhancing the stability and orderliness of our markets."

The action by the Fed board in Washington represented an endorsement of a rescue effort for Bear Stearns that had already been arranged by JPMorgan and the Federal Reserve's New York regional bank.

It was seen as a last-ditch effort to save the investment bank, which on Friday acknowledged its serious financial problems after a week of denials.

After the situation at Bear Stearns worsened late Wednesday, there were a series of conference calls throughout the day on Thursday with officials from the Fed, the New York Fed and the SEC to assess the potential impact on the broader economy, according to a Treasury official, who spoke on condition of anonymity because of the sensitive nature of the discussions.

This official said that Paulson had been keeping Bush updated on the proposed rescue effort.

JPMorgan Chase is providing an undisclosed amount of secured funding to Bear for 28 days, backstopped by the Federal Reserve Bank of New York.

The Securities and Exchange Commission issued a statement saying it has been "in close contact" with Treasury, the Federal Reserve and the Federal Reserve Bank of New York during discussions concerning an agreement by J.P. Morgan Chase & Co. to provide a secured loan facility to The Bear Stearns Companies.

"We will continue to work closely together in a way that contributes to orderly and liquid markets," the SEC said.

Last week, the Fed announced an industry-wide rescue package that would provide as much as $200 billion in loans to banks and investment houses and allow them to put up risky home-loan packages as collateral. It was the Fed's latest effort to stem a global credit crisis that began last August with rising loan defaults for subprime mortgages, loans provided to borrowers with weak credit histories.

[Soldier4Christ]

 Bear Stearns exposed as a bank saddled with toxic sub-prime debt

Big American finance houses have collapsed before. Continental Illinois required a $4.5bn (£2.25bn) bail-out in 1984 after coming to grief in Texas as the oil boom deflated.

The giant hedge fund Long Term Capital Management was saved by a club of banks in 1998 under the guidance New York Federal Reserve. The fund blew up after Russia's default, which ravaged its portfolio of Danish, Italian and Spanish bonds.

On both occasions the US economy was in rude good health. The damage was quickly contained.

The implosion of Bear Stearns is more dangerous.

A host of other banks, broker dealers, and hedge funds have played the same game, deploying massive leverage at the top of the credit bubble to eke out extra yield. Dozens of them are saddled with the same toxic debt - sub-prime property, credit cards, auto loans, and mountains of unsold paper from the merger boom.

This time the market for default insurance is flashing bright red warning signals across the entire spectrum of US finance.

The swap spreads on Lehman Brothers rocketed to 465 yesterday, mirroring the moves in Bear Stearns debt days before. Fannie Mae and Freddie Mac - the venerable agencies created by Roosevelt that underpin 60pc of the $11 trillion mortgage market - had a heart attack on Monday. Their bonds were in free-fall, threatening to set off another cascade of bank writedowns.

These are not sub-prime outfits. They sit at the apex of the US mortgage credit industry. Hence the dramatic move by the Fed this week to offer a $200bn lifeline, agreeing to accept Fannie Mae and Freddie Mac issues as collateral.

Had the Fed delayed, many traders believe Wall Street would have plunged through resistance levels risking a full-fledged crash.

The 'monoline' bond insurers - MBIA, Ambac, and others - that guarantee most of the $2,600bn market for US municipal bonds have seen their shares collapse by 90pc since the Autumn.

They are still battling to raise enough to capital to save their 'AAA' ratings. Should they fail, the insured bonds will be downgraded in lockstep. Pension funds would be forced to liquidate huge holdings. As New York Governor Eliot Spitzer said before his own liquidation, such an outcome is too dreadful to contemplate.

You have to go back to the banking crisis of the Great Depression to find a moment when the financial system as a whole seemed so close to the precipice.

Although 4,000 US banks failed in the early 1930s (mostly small ones), it was a long-drawn out affair. The bank runs began in the Prairies as falling food prices caused farmers to default in 1930. It seemed to be a local problem.

The crisis reached New York in December 1930 when the Bank of the United States succumbed to panic withdrawals. Legend has it that the 'WASP' clearing banks refused to back a rescue because of the bank's Jewish links.

In those days the contagion spread slowly to the rest of the world. It is much swifter now. The Swiss bank UBS has suffered US sub-prime losses on a scale to match Merrill Lynch and Citigroup, thanks to the curse of mortgage securities.

"We are now experiencing the first truly major crisis of financial globalisation," said the Swiss central bank governor Philipp Hildebrand this week.

"Never before have banks seen such destruction of their balance sheets in such a short time. Moreover, there are signs that the problems are spreading. The risk premiums on commercial property, consumer credit and corporate loans have risen sharply," he said.

Debt levels have been much higher than in the Roaring Twenties; the new-fangled tools of structured credit are more opaque: the $415 trillion nexus of derivative contracts is untested. Nobody knows for sure if the counter-parties are able to deliver on vast IOUs, or whether the construct is built on sand.

What keeps Federal Reserve officials turning at night is fear that the "financial accelerator" will now set off a vicious downward spiral. There is a risk of "very adverse economic outcomes," said Fed vice-chair Don Kohn.

Albert Edwards, global strategist at Societe Generale, said the toppling banks are merely a symptom of a deeper rot. "The banks are not the problem. Nor even the grotesquely leveraged funds. The problem is that an economic bubble financed by ridiculously loose monetary policy is unravelling," he said.

"US house prices have a lot further to fall, which will simply crush the global economy. The lesson from Japan in the early 1990s is that the death dance goes on and on and on," he said.

The Fed blundered badly in the Slump, delaying rate cuts for too long. It allowed the money supply to implode.

It is acting with breath-taking speed this time. Rates have already been cut from 5.25pc to 3pc, and will be slashed again this week. New means of showering liquidity on the banking system are being devised each week.

As luck would have it, the world's greatest expert on the financial causes of depressions - Ben Bernanke - happens to be chairman of the Federal Reserve.

[Soldier4Christ]

Did anyone else reading this article take note of the term "financial globalisation"?

[nChrist]

Did anyone else reading this article take note of the term "financial globalisation"?

I did catch it and just read this again. I have a hard time understanding this financial stuff. It appears that things may be much more than some of our big boys being greedy and stupid with predatory lending practices. If this means what I think it means, much larger stupidity involving multiple countries is involved. In plain terms, maybe we've been sold out and can be manipulated like a puppet on a string. Am I close?

[Soldier4Christ]

"Sold Out" would definitely be an appropriate term to use. Financial globalisation is wording used by the banks and governments when they are discussing world wide integration of all nations economies. Another step toward a one world government. Similar wording was used when the EU market was unified.

In July of 2006 there was a conference held in Frankfurt, Germany that was titled "Conference on financial globalisation and integration". I am not sure if this was the first of it's kind or if it was a continuation of other such conferences that may not have been as bold in announcing their objective. This conference was held in the European Central Bank's conference room. This conference discussed the then current world financial situation and the integration of the international finances, not just from the banking aspects or stock markets but also of the government level of finances.

The idea behind this was to stabilize the world economy to prevent any single nation from falling financially, to bring third world countries up out of poverty. What it does though is to set up the world's finances to be controlled by one entity and if the stock markets fail all nations will be in a financial crisis at the same time, which is what we are seeing today in the world wide financial situation that is teetering on the brink.

[Soldier4Christ]

Paulson: Government will act to aid economy
Says Bush administration will 'do what its takes' to stabilize chaotic markets

The Bush administration will "do what its takes" to stabilize chaotic markets and minimize the economic damage, Treasury Secretary Henry Paulson said Sunday after a tumultuous week capped by the government rescue of a teetering investment bank.

All eyes now are on Wall Street as leading financial advisers prepared for a Monday meeting with President Bush and the Federal Reserve weighs another deep interest rate cut Tuesday to stem even more deterioration.

Paulson, in a series of news show appearances, defended the Federal Reserve's extraordinary step Friday to provide emergency financing to one of Wall Street's most venerable firms, Bear Stearns Cos. The central bank's intervention was "the right decision," he said.

The treasury chief sidestepped questions about what would have happened if the Fed had not ridden to the rescue, whether other firms are on shaky ground and the possibility of additional bailouts similar to Bear Stearns'.

At the same time, however, Paulson sought to send a calming message that the administration is on top of the turbulent situation. "The government is prepared to do what it takes to maintain the stability of our financial system," he said. "That's our priority."

Bush planned to meet on Monday with his advisory panel on financial markets, whose members include Paulson and Fed Chairman Ben Bernanke. The panel on Thursday recommended stricter regulation of mortgage lenders as part of a broad effort to prevent a repeat of a credit crisis threatening to drive the country into the first recession since 2001.

Consultations about the Bear Stearns situation continued through the weekend and involved the Treasury Department, the Fed, financial institutions and others. "I've been very involved, you know, been on the phone for a couple days right now helping to work through this," Paulson said. He offered no details.

Economists increasingly believe the spreading fallout from a severe credit crisis has pushed the country into recession. The situation has led to record-high home foreclosures, forced financial companies to take multibillion losses from bad mortgage-linked investments and rocked Wall Street.

"No one is debating the fact that this economy has slowed way down," Paulson said. "We feel it, we know it, the American people know it."

To help shore things up, the Fed is poised to make a big cut to its key interest rate, now at 3 percent. Some economists are predicting a reduction of one-half a percentage point, while others are calling for a more hefty cut of three-quarters to a full percentage point.

The Fed used a Depression-era procedure to come to Bear Stearns' aid along with JPMorgan Chase & Co. Bear Stearns had made a fortune in mortgage-backed securities but faced a possible collapse after those investments soured. Wall Street nose-dived as fears spread about whether other big firms were in jeopardy.

"I really support the Fed's work here," Paulson said during one of his three broadcast appearances. "To me, this was not difficult because the priority in a time like this has got to be the stability of our financial system and minimizing the likelihood that this disruption spills over into the real economy.

Some critics contend the Fed's move was akin to a government bailout—something the administration has repeatedly said it is against.

"We're very aware of moral hazard," Paulson said. "But our primary concern right now—my primary concern—is the stability of our financial system, the orderliness of the markets. And that's where our focus is," he said.

The financial system, he said, is "more fragile than we would like right now."

Asked whether other financial companies may be in a situation similar to Bear Stearns', Paulson did not directly answer. He did seek to strike a confident tone. "Well, our financial institutions, our banks and investments banks are very strong," he said. "And I'm convinced that they're going to come out of this situation very strong."

The government will tackle any other problems that may arise, he said.

"From the beginning I have said, as we work through this period, if this was like other times in the past, there are going to be bumps in the road. There are going to be unpleasant surprises. You are going to find that an institution or so has problems. And when they do have problems, you work to deal with it," Paulson said.

On other matters, Paulson was cool to the need for additional economic stimulus, which congressional Democrats are promoting. A recently enacted aid plan includes tax rebates for people and tax breaks for businesses. Paulson said it should help bolster the economy and produce 500,000 to 600,000 jobs this year.

To Democrats, though, Bush is not doing enough to help.

"We're in the most serious economic problem we've been in in a very long time, much worse than 2001. The president's hands-off attitude is reminiscent of Herbert Hoover in 1929, in 1930," said Sen. Charles Schumer, D-N.Y. "There are lots of things that can be done, particularly on housing. Housing has been the bull's eye of this crisis."

House Speaker Nancy Pelosi, D-Calif., said, "Much of what the administration has done has been too late."

On the plunging value of the U.S. dollar, Paulson stuck to the position of past treasury chiefs when he said a strong dollar is in the national interest. The dollar has dropped to a new low against the euro and a fallen sharply against the Japanese yen. That helps sales of U.S. exports to foreign buyers because it makes U.S. goods less expensive. But the drooping dollar increases inflationary pressures.

Paulson appeared on ABC's "This Week," "Fox News Sunday" and "Late Edition" on CNN. Schumer was on Fox and Pelosi on ABC.

[Soldier4Christ]

Stocks tumble after Bear Stearns buyout
Bank's meltdown seen as sign that credit crunch worsening

Wall Street fell in temperamental trading Monday as investors grappled with news of JPMorgan Chase & Co. buying the stricken Bear Stearns & Co. in a deal backed by the government. The Dow Jones industrials, down nearly 200 points in the early going, fluctuated into positive territory and then sank again by more than 100 points.

A buyout of Bear Stearns was certainly more appealing than the alternative: letting the investment bank collapse and causing huge losses for anyone linked to it. And some unprecedented moves by the Federal Reserve gave the market a bit of solace on what many predicted would be a day of precipitous losses in the stock market.

Besides supporting the buyout, the Fed lowered the rate it charges to loan directly to banks by a quarter-point on Sunday night — two days before its scheduled meeting Tuesday. The central bank also set up a lending option for firms, including many non-bank financial services firms, to secure short-term loans for a broad range of collateral.
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“This removes the risk of further slides for these companies, the risk that a Bear Stearns incident would happen again,” said Robert Pavlik, portfolio manager at Oaktree Asset Management.

The Fed appears to be pledging to do everything in its power to keep the credit crisis from destroying the financial industry and the economy. Policy makers at the central bank are expected to reduce the target fed funds rate — the rate banks charge each other for overnight loans — by at least a half-point on Tuesday, and perhaps even a full point.

Still, the market remained extremely volatile. The sale of Bear Stearns — and the fact that JPMorgan valued the fifth-largest Wall Street investment bank at a minuscule $2 a share, or $236 million — stirred fear among investors worldwide about other banks’ exposure to the troubled credit markets.

“You’re going to have some very weak players pushed out of business,” said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co. He said JPMorgan’s buy of Bear Stearns and Bank of America Corp.’s acquisition of mortgage lender Countrywide Financial Corp. are probably not the only rescues the industry will witness during this credit crisis.

The Dow fell 128.63, or 1.08 percent, to 11,822.46, after venturing into positive territory.

Broader indexes also dropped in choppy trading. The Standard & Poor’s 500 index fell 24.45, or 1.90 percent, to 1,263.69, while the Nasdaq composite index fell 43.59, or 1.97 percent, to 2,168.90.

JPMorgan was by far the biggest gainer among the Dow components, rising $3.06, or 8.4 percent, to $40.60. The Fed essentially guaranteed JPMorgan that it would backstop any risk involved in taking over the 85-year-old Bear Stearns, which has 14,000 workers worldwide.

Bear Stearns shares fell 88 percent to $3.60 — still above the buyout price, implying that some shareholders believe the deal terms might change. About one-third of Bear Stearns stock is held by its employees.

The pain for stockholders in Bear Stearns, which succumbed to losing bets on souring mortgages for borrowers with poor credit, will be sizable. JPMorgan is buying Bear, including its midtown Manhattan headquarters, for about 1 percent of the investment bank’s worth little more than two weeks ago. Bear Stearns’ buyout arrives after a short-term bailout Friday that JPMorgan led and that the Fed backed.

Bond prices rose as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.34 percent from 3.44 percent late Friday.

The dollar sank to a record low against the euro and hit a 12 1/2 year low against the yen, while gold prices surged to another record high.

Light, sweet crude dropped $3.18 to $107.03 per barrel on the New York Mercantile Exchange, after rising to nearly $112 a barrel in premarket trading.

The market’s concern wasn’t limited to the Bear sale. DBS Group Holdings Ltd., a large bank based in Singapore, instructed traders via e-mail Monday to disregard an earlier e-mail barring new transactions with Lehman Brothers Holdings Inc., according to Dow Jones Newswires. Earlier Monday, DBS emailed traders and said not to engage in new transactions with Lehman or Bear, according to two people familiar with the situation, Dow Jones reported.

Lehman fell $11.15, or 28.4 percent, to $28.11.

This week, Lehman and other major investment banks are slated to report quarterly results. Investors will likely be focusing on comments from the companies for insights about their financial well-being.

While investors were focused on the financial sector, fresh economic news offered little solace. The Fed said output at the country’s factories, mines and utilities fell by 0.5 percent in February, the biggest decline last October. Many analysts had been expecting a slight increase of one-tenth of one percent.

The Commerce Department also said Monday the broadest measure of foreign trade fell slightly in 2007 as stronger growth in U.S. exports helped make up for a spiking foreign oil bill. The deficit in the current account, which covers not only goods and services but also investment flows between the United States and other countries, dropped by 9 percent last year to $738.6 billion.

Declining issues outnumbered advancers by 6 to 1 on the New York Stock Exchange, where volume came to 788.3 million shares.

The Russell 2000 index of smaller companies fell 14.35, or 2.16 percent, to 648.55.

Overseas, Japan’s Nikkei stock average fell 3.71 percent, while Hong Kong’s Hang Seng index fell 5.18 percent. In afternoon trading, Britain’s FTSE 100 fell 2.25 percent, Germany’s DAX index dropped 3.09 percent, and France’s CAC-40 lost 2.32 percent.

[Soldier4Christ]

Fed takes bold steps to ease crisis
Becomes lender of last resort for Wall Street investment houses

Urgently trying to restore confidence in panicked financial markets, the Federal Reserve on Monday became a lender of last resort for Wall Street investment houses.

The central bank, in an extraordinarily rare weekend move, took the bold action Sunday in an attempt to calm the markets. It also approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately.

"These steps will provide financial institutions with greater assurance of access to funds," Federal Reserve Chairman Ben Bernanke told reporters in a brief conference call Sunday evening.

The Fed acted just after JPMorgan Chase & Co. agreed to buy rival Bear Stearns Cos. for $236.2 million in a deal that represents a stunning collapse for one of the world's largest and most venerable investment houses. Just on Friday the Fed had raced to provide emergency financing to cash-strapped Bear Stearns through JPMorgan. Days earlier the Fed announced a set of other unconventional steps to thaw out a credit market in danger of freezing shut.

The Fed's actions come as fears have spread that other financial houses could also be on shaky ground.

"It seems as if Bernanke & Co. are pulling out all the stops to avoid a serious financial market meltdown," Richard Yamarone, an economist at Argus Research, said Sunday evening.

However on world financial markets, Asian stocks plunged Monday after the JPMorgan and Fed announcements. Markets in Australia and New Zealand were also off and European stocks fell in early trading.

Oil prices hit a record in Asian trading as the value of the dollar continued its free fall and U.S. stock index futures were down sharply, suggesting Wall Street would open lower after sinking Friday.

"There is persistent credit uncertainty. Market players have been repeatedly let down which shows the subprime mortgage problems are so deep-rooted," said Atsuji Ohara, global strategist of Shinko Securities in Tokyo.

President Bush has scheduled a White House meeting Monday afternoon with his Working Group on Financial Markets, which includes Bernanke, Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox.

Paulson said Sunday, "I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liquidity and orderliness of our markets."

The new lending facility—described as a cousin to the Fed's emergency lending "discount window" for banks—is geared to give major investment houses a source of short-term cash on a regular basis—if they need it.

That's important because those big investment houses have key roles in the financial system and if one fails or is having difficulty it could put the whole financial system in jeopardy, said Mark Zandi, chief economist at Moody's Economy.com. These big investment houses have complex relationships with many players in the system, including hedge funds, commercial banks and others.

The lending facility will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25 percent and a range of collateral—including investment- grade mortgage backed securities—will be accepted to back the overnight loans.

The "discount" rate cut announced Sunday applies only to the short- term loans that financial institutions get directly from the Federal Reserve. It doesn't apply to individual borrowers.

The Fed's actions are the latest in a recent string of innovative steps to deal with a worsening credit crisis that has unhinged Wall Street.

The action comes just two days before the central bank's scheduled meeting on Tuesday, where another big cut to a key interest rate that affects millions of people and businesses is expected to be ordered. That key rate is now at 3 percent and is expected to be cut by at least three-quarters of a percentage point on Tuesday.

The Fed said in a statement that the steps are "designed to bolster market liquidity and promote orderly market functioning ... essential for the promotion of economic growth."

Even with the Fed's aggressive moves, economic and financial conditions keep deteriorating. An increasing number of economists believe the country already has slipped into its first recession since Many economists think that the economy is shrinking now in the January-to-March quarter. The first government figures on first- quarter economic activity will be released in late April.

The Fed on Sunday also approved the financing arrangement through which JPMorgan will acquire Bear Stearns. JPMorgan said the Fed will provide special financing for the deal. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets, according to JPMorgan.

[Soldier4Christ]

Fed acts to prevent global bank run
Offers to lend money to longer list of firms than ever before

Acting quickly to prevent a run on major global financial firms, the Federal Reserve cut its discount rate by a quarter percentage point to 3.25% and offered to lend money to a longer list of firms than ever before.

 The extraordinary weekend moves came as J.P. Morgan Chase  sealed a deal to buy Bear Stearns Cos. for just $2 a share backed by up to $30 billion borrowed from the Fed. The Fed board gave its approval to that unique funding arrangement, which guarantees JP Morgan against losses from buying Bear.

The Fed board also approved the creation of a special lending facility through the New York Fed that would be available to members of its primary dealers list, which includes both commercial banks and investment banks. Investment banks, such as Bear Stearns, have not been allowed to borrow directly from the Fed.

JP Morgan has access to the discount window through its Chase Bank subsidiary, but Bear Stearns does not have direct access.

Events have unfolded at warp speed over the past week. On Tuesday, the Fed announced a new lending program for primary dealers in the bond markets, but that program won't go into effect for two more weeks. On Friday, the Fed allowed Bear Stearns to borrow money via JP Morgan in a desperate bid to save the firm, which has been pummeled by losses on exotic securities backed by subprime mortgages.

The Federal Open Market Committee meets on Tuesday. Analysts expect the FOMC to cut the target for the federal funds rate by as much as a full percentage point to 2%. Another cut in the discount rate is also likely.

The new lending program would operate for at least six months, and would offer loans for as long as 90 days, rather than 30 days under the regular discount window. Loans from the new program would be backed by a "broad range of investment-grade debt securities," the Fed said. The interest rate would be the same as the discount rate.

"The Federal Reserve, in close consultation with the Treasury, is working to promote liquid, well-functioning financial markets, which are essential for economic growth," said Fed Chairman Ben Bernanke, in a statement. "These steps will provide financial institutions with greater assurance of access to funds."

Robert Brusca, chief economist at FAO Economics, said the new lending facility created a general way to help other dealers.

"The Fed has more information now that it has seen what Bear Stearns had on its books," Brusca said in an interview.

President Bush will meet with Bernanke, Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Chris Cox on Monday at 2 p.m. Eastenr.
Earlier on Sunday, Paulson went on television to project an image of confidence in the U.S. financial market. He said Washington would do what it takes to foster stability on Wall Street.

Dean Baker, the co-director of the Center for Economic and Policy Research, criticized the Fed's "real turn to secrecy" in the new auction facilities.

The Fed does not reveal the names of firms that borrow funds in the auctions. The purpose was to get around the "stigma" of banks that didn't want to borrow at the discount window because of the questions it would raise about its balance sheet.

But, in an interview, Baker said "now is not the time to shut the doors and keep everything in the dark."

Baker said he sensed a whiff of panic at the Fed and in the Treasury Department.

"The main thing is that they [Fed and Treasury] are really really scared. Telling us that everything is great is an insult to intelligence. They should own up to it and talk seriously to people," Baker said.
Peter Morici, a professor of economics at University of Maryland, criticized the Fed for not imposing meaningful conditions on the financial institutions that it is providing cash.

As a result, banks continue to impose onerous conditions on their innocent customers, he said.

"Today's moves by the Federal Reserve are the desperate acts of failing men," he said.

Below is a list of primary dealers who will be able to borrow directly from the Fed's new program announced Sunday:

BNP Paribas Securities Corp.
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co., Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Countrywide Securities Corporation
Credit Suisse Securities (USA) LLC
Daiwa Securities America Inc.
Deutsche Bank Securities Inc.
Dresdner Kleinwort Wasserstein Securities LLC.
Goldman, Sachs & Co.
Greenwich Capital Markets, Inc.
HSBC Securities (USA) Inc.
J. P. Morgan Securities Inc.
Lehman Brothers Inc.
Merrill Lynch Government Securities Inc.
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
UBS Securities LLC. End of Story

[Shammu]

Foreign investors veto Fed rescue

By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 1:13pm GMT 17/03/2008

As feared, foreign bond holders have begun to exercise a collective vote of no confidence in the devaluation policies of the US government. The Federal Reserve faces a potential veto of its rescue measures.

Asian, Mid East and European investors stood aside at last week's auction of 10-year US Treasury notes. "It was a disaster," said Ray Attrill from 4castweb. "We may be close to the point where the uglier consequences of benign neglect towards the currency are revealed."

The share of foreign buyers ("indirect bidders") plummeted to 5.8pc, from an average 25pc over the last eight weeks. On the Richter Scale of unfolding dramas, this matches the death of Bear Stearns.

Rightly or wrongly, a view has taken hold that Washington is cynically debasing the coinage, hoping to export its day of reckoning through beggar-thy-neighbour policies.

It is not my view. I believe the forces of debt deflation now engulfing America - and soon half the world - are so powerful that nobody will be worrying about inflation a year hence.

Yes, the Fed caused this mess by setting the price of credit too low for too long, feeding the cancer of debt dependency. But we are in the eye of the storm now. This is not a time for priggery.

The Fed's emergency actions are imperative. Last week's collapse of confidence in the creditworthiness of Fannie Mae and Freddie Mac was life-threatening. These agencies underpin 60pc of the $11,000bn market for US home loans.

With the "financial accelerator" kicking into top gear - downwards - we may need everything that Ben Bernanke can offer.

"The situation is getting worse, and the risks are that it could get very bad," said Martin Feldstein, head of the National Bureau of Economic Research. "There's no doubt that this year and next year are going to be very difficult."

Even monetary policy à l'outrance may not be enough to halt the spiral. Former US Treasury secretary Lawrence Summers says the Fed's shower of liquidity cannot cure a bankruptcy crisis caused by a tidal wave of property defaults.

"It is like fighting a virus with antibiotics," he said.

We can no longer exclude a partial nationalisation of the American banking system, modelled on the Nordic rescue in the early 1990s.

But even if you think the Fed has no choice other than to take dramatic action, the critics are also right in warning that this comes at a serious cost and it may backfire.

The imminent risk is that global flight from US Treasury and agency debt drives up long-term rates, the key funding instrument for mortgages and corporations. The effect could outweigh Fed easing.

Overall credit conditions could tighten into a slump (like 1930). It's the stuff of bad dreams.

Is this the moment when America finally discovers the meaning of the Faustian pact it signed so blithely with Asian creditors?

As the Wall Street Journal wrote this weekend, the entire country is facing a "margin call". The US has come to depend on $800bn inflows of cheap foreign capital each year to cover shopping bills. They may have to pay a much stiffer rent.

As of June 2007, foreigners owned $6,007bn of long-term US debt. (Equal to 66pc of the entire US federal debt). The biggest holdings by country are, in billions: Japan (901), China (870), UK (475), Luxembourg (424), Cayman Islands (422), Belgium (369), Ireland (176), Germany (155), Switzerland (140), Bermuda (133), Netherlands (123), Korea (118), Russia (109), Taiwan (107), Canada (106), Brazil (103). Who is jumping ship?

The Chinese have quickened the pace of yuan appreciation to choke off 8.7pc inflation, slowing US bond purchases. Petrodollar funds, working through UK off-shore accounts, are clearly dumping dollars amid rumours that Gulf states - overheating wildly - are about to break their dollar pegs. But mostly likely, the twin crash in the dollar and US agency debt reflects a broad exodus by global wealth managers, afraid that America is spinning out of control. Sauve qui peut.

The bond debacle last week tallies with the crash in the dollar index to an all-time low of 71.58, down 14.6pc in a year. The greenback is nearing parity with the Swiss franc - shocking for those who remember when it was 4.375 francs in 1970. Against the euro it has hit $1.57, from $0.82 in 2000. Against the yen it has smashed through Y100. Spare a thought for Toyota. It loses $350m in revenues for every one yen move. That is an $8.75bn hit since June. Tokyo's Nikkei index is crumbling. Less understood, it is also causing a self-reinforcing spiral of credit shrinkage throughout the global system.

Japanese investors and foreign funds are having to close their yen "carry trade" positions. A chunk of the $1,400bn trade built up over six years has been viciously unwound in weeks. The harder the dollar falls, the further this must go.

It is unsettling to watch the world's reserve currency disintegrate. Commodities from gold to oil and wheat are taking on the role of safe-haven "currencies". The monetary order is becoming unhinged.

I doubt the dollar can fall much further. What is it to fall against? The spreading credit contagion will cause large parts of the globe to downgrade in hot pursuit - starting with Europe.

Few noticed last week that the Italian treasury auction was also a flop. The bids collapsed. For the first time since the launch of EMU, Italy failed to sell a full batch of state bonds.

The euro blasted higher anyway, driven by hot money flows. The funds are beguiled by Germany's "Exportwunder", for now. It cannot last. The demented level of $1.57 will not be tolerated by French, Italian and Spanish politicians. The Latin property bubbles are deflating fast.

The race to the bottom must soon begin. Half the world will be slashing rates this year to stave off credit contraction. The dollar will have a lot of company. Small comfort.

Foreign investors veto Fed rescue

[Soldier4Christ]

Fed abandons dollar in new round of rate cuts
Reacts to fall of investment giant Bear Stearns, Carlyle Capital Corp.

 Wall Street opened Monday nearly 200 points down after a weekend in which Bear Stearns, the 85 year-old securities firm, and Carlyle Capital Corp., an investment fund run by one of the country's largest private equity firms, each went bankrupt..

Over the frantic weekend, the Fed took unprecedented steps to provide almost unlimited lending to prop up anticipated widespread losses in bank asset portfolios.

Yesterday, J.P. Morgan agreed to acquire Bear Stearns for $2 a share, a deal that values Bear Stearns at a mere $236 million, compared to a market capitalization of $3.54 billion only last Friday. By midafternoon trading, the Dow was in positive territory, bolstered in part by J.P. Morgan, the biggest gainer among the index's 30 component stocks.

Bear Stearns continues to face a crisis in an asset portfolio of mortgage-backed securities that was leveraged as high as 30-1 by borrowing, with the borrowed funds also invested in mortgage-backed securities.

Carlyle Capital Corp. has faced much the same problem as its highly leveraged portfolio of $21.7 billion in mortgage-backed securities also faces enormous losses.

For every $1 in capital the Carlyle Capital Corp. raised from investors, another $30 was borrowed from banks to invest, largely in mortgage-backed securities issued by U.S. housing agencies Freddie Mac and Fannie Mae.

As the mortgage market has dropped in value nationwide, mortgage delinquencies and home foreclosures have increased, causing collateralized mortgage-backed securities to drop dramatically in value.

The highly leveraged portfolios held by Bear Stearns and the Carlyle Capital Corp. went into bankruptcy when neither could sell enough of the good mortgage-backed securities in their asset portfolios to pay off the debt service on the bad mortgage-backed securities.

Bear Stearns and the Carlyle Capital Corp. then defaulted when they each were faced with margin calls they could no longer meet, simply because they lacked sufficient capital to maintain the debt service on outstanding loans.

The Federal Reserve, in order to induce J. P. Morgan to acquire Bear Stearns, guaranteed J. P. Morgan it would compensate for any additional losses Bear Stearns incurs in its highly leveraged mortgage-backed securities asset portfolio.

In Carlyle Capital Corp.'s case, the investors in the fund and the banks lending to the fund have absorbed the losses.

Carlyle Group tarnished

The failure over the weekend of the Carlyle Capital Corp. is the most serious financial misstep by the Carlyle Group since its founding in 1987.

With over $81 billion under management, and 575 investment professionals operating out of 21 countries, the Carlyle Group is one of the nation's largest private equity firms.

In 2006, Carlyle Capital Corp. was created as a separate legal entity by the Carlyle Group.

Before the failure of Carlyle Capital Corp., the Carlyle Group had never had a fund go bankrupt.

Six Carlyle Group partners, including co-founder David Rubinstein, own 15 percent of the Carlyle Capital Corp.

The Carlyle Group, shaped largely by former chairman Frank Carlucci, has enjoyed top connections to the presidencies of Bill Clinton, George H. W. Bush and Ronald Reagan, for whom Carlucci served as secretary of defense.

The Carlyle Group has compensated former President George H.W. Bush and former Secretary of State James Baker III for participating in various Carlyle Group deals.

WND previously reported the Carlyle Group has established a team to invest in Mexico. The team includes Mark McLarty, the president of Kissinger McLarty Associates and former chief of staff and special envoy to the Americas for President Clinton.

Fed in dilemma

In an effort to stabilize the stock market, the Fed also took the extraordinary measure of lowering the discount rate by a quarter point, from 3.25 percent to 3.5 percent.

The discount window is a lending facility the Fed uses to lend money to banks on a short term basis, to meet liquidity needs.

Last night, the Fed announced money would be made available to the 20 large investment banks that serve as the "primary dealers" trading Treasury securities directly with the Fed, with no pre-determined limit on the amount of money a bank might borrow.

The idea is to allow the primary dealers to lend to banks on a short-term basis by holding as collateral hard-to-sell instruments in bank asset portfolios, including mortgage-backed securities that may have little or no true market value.

Banks are allowed to include funds borrowed from the Fed or from other banks as the legal reserve they are required to maintain to continue operating.

WND reported the non-borrowed reserves of U.S. banks has plummeted to a negative $18 billion in February, reflecting an apparently worsening situation from the negative $8.8 billion reported at the end of January.

A new Term Auction Facility opened by the Fed at the discount window resulted in $60 billion borrowing by banks in the two-week period ending Feb. 13.

The Fed's decision to make available to banks an almost unlimited amount of borrowed funds reflects the seriousness with which it views the current crisis in bank assets.

As WND reported in August, the Fed was headed for the dilemma it now faces.

If it lowers the federal fund rate, the dollar will suffer on world currency exchange markets. A dollar sell-off risks triggering a new stock market sell-off.

Yet, if the Fed holds or raises rates to support the dollar, it will almost certainly prompt a massive stock market sell-off.

A Fed policy of providing liquidity to banks is tantamount to a decision to abandon the dollar. The dollar was trading today at $1.57 to the euro, a new all-time low, following a close Friday of 71.67 on the U.S. Dollar Index, the lowest maker ever.

Futures markets are now predicting the Federal Open Markets Committee in its meeting tomorrow will lower the federal funds rate a full 1 percent, with the expectation of a cut as much as 1.25 percent before the end of the month.