US FED: Bernanke Says Government Needs to Back MBS in Periods of Stress

Washington, October 31 - US Federal Reserve Board Chairman Ben Bernanke said the federal government will probably always need to play some role in the process of mortgage securitization in times of high financial stress, but declined to say he has a preference for any of several possible options he outlined.

Speaking in California today, Bernanke said one lesson learned from the current credit crisis was that Fannie Mae and Freddie Mac were able to continue securitizing mortgages even when the crisis took hold, and said this shows the importance of the implicit government guarantee of these two GSEs.

'That experience suggests that, at least under the most stressed conditions, some form of government backstop may be necessary to ensure continued securitization of mortgages,' Bernanke said in his prepared remarks.

Bernanke defended the concept mortgage securitization by saying it expands the funds available to write mortgages and reduces the originator's exposure to risks associated with holding mortgages. But he stressed that the government's role in backing the securitization must be made clear.

Bernanke offered several different ways the government could remain involved in the securitization process, but declined to offer an explicit preference for any option other than to point out the flaws of the current system.

Under that system, Fannie and Freddie were private companies with public-sector missions, something that led to inherent conflicts. One example was the public need for the GSEs to raise capital, which conflicted with the private-sector preference for not watering down existing shares.

Another option would be to privatize the GSEs, which would likely eliminate these sorts of conflicts. But then, he said, privatized GSEs might not securitize mortgages under stressed conditions.

Bernanke suggested that one way around this problem would be to offer government insurance for all financing used to support the mortgage market. This, he said, would 'clearly limit the government's exposure while making the benefits of explicit government support available to the market.'

Another possibility is to have lenders raise new funds for mortgages by issuing covered bonds. Bernanke said this would support the goal of prudent lending, since mortgage originators would continue to hold the mortgages they write.

But while this system is used widely in Europe, Bernanke said it faces major hurdles in the US because of the ease with which funding can already be found in the markets by the Federal Home Loan Banks, which lend funds to regular banks to support the mortgage market.

Bernanke said another option is to tie the GSEs more closely to government, perhaps by having them overseen by a public board, either with or without private shareholders.

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Crude Oil Closed Rebound In October, but Declines 33%

(Vibiznews-Commodity) - The price of crude oil trading on the Nymex exchange in the early hours yesterday (01/11) to be Rebound. The price of crude oil stronger at the end of the trading session yesterday evening. Increase the price of crude oil this happens due to the position of the float on the maturity date of the transaction contract for November gasoline and heating oil.

The price of crude oil began to show strengthening the 10 minutes before trading finished. This increase in commodity prices caused by the purchase of gasoline contract again. Contracts must be purchased gasoline is back on the maturity date because if you have experienced the maturity of the contract required the seller to send goods to the real buyers.

Prices for crude oil contract in December to 1.85 dollars strengthening of (2.8%) and on the position closed 67.81 dollars per barrel. In the evening trading session was the price of crude oil was plummet of 2.84 dollars (4.3%).

In October crude oil price has experienced a monthly decrease of 33%. This is a monthly decrease of the largest throughout history. The question in the credit sector, which has raised a threat of recession has spread to the whole world so that crude oil demand is reduced. The price of oil to trade in November is estimated to increase will not mean that.

Japan: Data Inflation Slowed, Employment Decreased

(Vibiznews-Economy) - Data-level inflation period of September and reported slowing labor, to provide pressure for the Central Bank of Japan (BoJ) to lower interest rates.

Consumer Price beyond the level of fresh food increased 2.3 percent compared to the same period the previous year, after the period increased 2.4 percent in August, released this by Central Statistics Agency of Japan. Data unemployment rate fell to the level of 4 percent from 4.2 percent level of the impact of diminishing employment opportunities amidst the growth of the Japanese economy experienced a slowdown. Data on the number of workers (work force) reported decreased levels to 200,000 and employment data (employed) decreased 110,000, a decrease fourth time in the last 5 months.

Japanese Central Bank is expected to be lower interest rate loans (lending rate) to 0,25 percent level that is scheduled on this day (31/10), together with the central bank to other countries, lower-level tribal loan to a global recession. The Government of Japan on this day will be promising to inject a much as 5 trillion yen (U.S. $ 51 billion) to help the economy in the household industry and small industries in the financial crisis.

Masaaki Shirakawa, and members of the board of the Japanese Central Bank, the other under pressure to take action after the Japanese Yen appreciating to Strongest levels after 13 years in this week. The economists estimate the BoJ will lower interest rates with the possibility of 60 percent, which is the first decrease since last 17 years.

Japan Stated Financial Stimulus Program U.S. $ 275 billion, for SMEs and Consumers

The weakening global economic conditions are also providing a negative impact on countries in Asia, including Japan. In (30/10) make a policy to help economy sectors. Certainty about the policy is stated directly by the Prime Minister of Japan, Taro Aso, after closed meeting with ministers in the cabinet.

Taro Aso mentioned that the government will provide assistance to the economic stimulus of U.S. $ 275 billion. The amount is beyond the level of allegations, many of the previous prediction the government will only provide stimulus funds of U.S. $ 200 billion. According to the Aso, the policy taken himself aims to accelerate the program In the economic recovery.


Worst crisis in the Last 100 Years

The economic crisis experienced by the Japanese according to the Aso is a tragedy the worst economy in the last 100 years, or overcome the crisis that occurred in World War II. In the stimulus package including aid to the sector and households that spend U.S. $ 20 billion.

Fund is planned to be flowed in the form of capital services per head of the family. These funds will be directed to the businessman-entrepreneur or small exporters affected directly from the global economic crisis.

This step also aims to prevent the occurrence of bad debts that may be where the businessman-entrepreneur to borrow funds to the financial sector, which can increase the risk of occurrence of bad debts. This is another positive, this policy can also prevent the efficiency of the company in the form of firing workers.


Opossum Reject Group Policy Stimulus

Policy stimulus to the economy, the government's refusal to get a challenge from the opposition party Democratic Party of Japan. Yukio Hatoyama, head of the party is to put that policy by the government will not be held for a further lack of fiscal policy the increase of taxes. According to Hatoyama will exhaust the funds of the country this year. He also explained that if the policy is implemented then automatically will spend about 11.7 trillion yen.

Rejection also come from the Japanese Communist Party stronghold. Of the leader, Kazuo Shii stressed that the policy conducted by the government can not violate the provisions because they get full approval from the parliament. Without approval, the government can be prosecuted by the law because the country already use the money.


Impact of Crisis, elections will Postponed

The crisis that occurred in Japan has now spread to the political sector. Tight competition between political parties add hot "temperature" In political country. Every political party equal-race do machinate political nature positive and negative. This condition is likely not profitable for the Japanese position that the current economic crisis is being made.

By the creation of a conducive situation, the government stated that the election will be held in September 2009 will likely postponement schedule. Time of certainty has not been discussed further. This policy aims to provide enough time for the government to be more focus in restoring the economy of Japan. This is based on predictions by many parties that the impact of the financial sector crisis experienced by the U.S. will take a long time, even until next year.

This policy directly supported by the majority of the population of Japan. Based on the results of a poll conducted by one TV station, some 85% of voters want the election to that schedule Postponed.


From various sources
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Is Trillion Dollar Fund disappeared from the Stock Market?

The fall of stock market in recent weeks raises the question, where the actual flight of money? Is not one cent out of any funds from the stock market.

Fall of the market share that has been started since September would have been to the world. Starting from Asia, Europe, the United States, even the Middle East all experienced dramatic fall. On average, stock markets around the world to decline to 30-50 percent compared to the year 2007.

The Fall begins from the sub-prime mortgage crisis in the U.S., which trigger the drag of liquidity that the financial sector fell.

However, according to John Sloman, economics professor from the University of Bristol, the market actually experienced a loss only 'paper' and not directly related to the loss of funds in cash. And this is related to decreasing value of the 'paper' itself.

"When we say trillion dollars have been lost, so this is actually the words of one," said Sloman in the interview with AFP on Tuesday (21/10/2008).

"What we should say is: trillion dollar value of capital markets has been destroyed. And this is really different because this is not the money, but value, which is the basis of the actual price that people would pay at a time," he explained.

Robert Shiller, economics professor from Yale University explained not compare with the decrease in the price of the house.

"For example, one day you ask property agents to estimate the value of your home if you will be sold. But the next day, ask your agent to estimate the value of the property both your home, and the two agents to estimate the lower 10 percent," said Shiller.

"What that means you lose money? Of course not, because the money that you have not changed so as the money in your account," he added again.

"But you will feel more poor. And the same is the case with the stock market. No one lost 'money' in the sense that the term, but they have lost their value," added Professor Shiller.

However, investors speculator can actually lose money if they try speculate in the middle of stock market turmoil that is very terrible.

A broker usually buy a stock with a poor performance because they speculate that the price of the shares have reached the lowest point, with the hope that they will sell it again after the price rise. However, sometimes it seemed stock prices slide down further.

"If you need to sell assets and the value of your assets are down, then you can lose money from the price you pay for this asset," said Sloman.

"You must distinguish assets, such as shares or cash from the house. Cash can vanish, but the value of assets such as the 'paper' (shares) and physical (home) down because they can depend on the demand and supply. But that does not mean no money is missing," Professor Sloman.