College Cuts
Institutions of higher education will be cutting their budgets in response to Gov. Kaine’s $2.5 billion slash in the state budget. Old Dominion University, Norfolk State, and Tidewater Community college are all shutting down facilities, laying off employees and forming auditing committees to cut more than $10.1 million from their budgets. The Governor’s plan calls for a five to seven percent reduction in funding for public institutions of higher learning.
Oil
Light sweet crude oil has reached $64 a barrel. The effects are showing up at the gas pump but maybe not for long. Organization for Petroleum Exporting Countries held an emergency meeting on Oct. 24 to discuss production reductions in the face of falling oil prices. OPEC decided to reduce oil production by 1.5 million barrels a day. They will meet again in December and are scheduling to make further cuts if crude oil prices continue to fall. Analysts expect oil consumption to fall worldwide for the first time since 1983 due to a decrease in demand amidst the world financial crisis.
Greenspan in the Wrong
Former chairman of the Federal Reserve, Alan Greenspan, admitted the necessity of regulation in derivative markets to a congressional committee on Thursday, Oct. 23. Congressional representatives questioned Greenspan on his fundamental beliefs in an unregulated market. Greenspan said that the current crisis has caused him to reassess his understanding of basic market principles.
Market
A large sell-off in overseas markets, an across the board decrease in stock measures, caused the Dow to plummet over 300 points by the close of Friday. Analysts were more disappointed there was not a greater panic than recorded, claiming that a bottoming out would stimulate bargain hunters to move in and turn the market around.
Compiled from The New York Times, washingtonpost.com, The Virginia Pilot, and other wire sources.
Saturday, October 25, 2008
Friday, October 17, 2008
Week in Finance 10/12 - 10/17
Fairfax County’s Budget
Fairfax County is implementing cost cutting measures to handle the, ever bleaker, outlook of this year’s revenues. The county will ask employees to all take one, unpaid, day off in January, it has suspended construction projects, it has suspended the purchase of new county vehicles, and will vote in the near future about whether to withdraw $25 million from its reserves, money tapped in time of financial need. Fairfax county officials are also considering a reduction in campus police officers.
County officials are projecting a $58.2 million shortcoming in projected budget revenues and up to $500 million in 2010. The budget crunch is exacerbated by the cut in funding from the Virginia to local muncipalities.
The board of supervisors is currently conducting a thorough review of county assets and reevaluating their revenue projections. The county will hold town hall meetings in which officials will solicit the views and feedback from concerned citizens.
Virginia’s Economy
The ripple effect from the national budget crisis hit home this week with an announcement by Virginia Governor Tim Kaine that there would be major cuts in the state budget. The state will be short by almost $1 billion this year, requiring the downsizing of 570 government jobs, postponement of employee raises, and a hiring freeze on over 800 employment positions with the state. The cuts will also include cuts for college funding.
Virginia Lieutenant Governor, Bill Bolling, announced that he would work closely with governor Kaine to balance the budget.
“These are challenging economic times for Virginia, with the Commonwealth facing a potential budget shortfall of $2B to $3B in the remaining months of the current biennium… I applaud the Governor for his commitment to bring the budget into balance through spending reductions and not higher taxes. While we can discuss where and how these spending reductions should be made, I am committed to working with the Governor to reduce the budget where necessary, while preserving to the greatest extent possible the core services of state government. This will not be an easy task, but it is a necessary task. When times get tough families and businesses must tightened their budgets and spend within their means, and state government should do the same,” said Bolling through a press release on his website.
The Virginia Small Business Financing Authority announced Wednesday, Oct. 16, that it will work with banks to help preserve Virginia’s jobs. VSBFA will give support in the form of guarantees or portfolio insurance to banks that restructure existing loans for qualified businesses.
The Housing Market
Stocks continued their downward turn as companies earning reports showed less than adequate performance and the housing profile from September showed construction nearly ground to halt. Housing starts fell from 872,000 to 817,000. Those were the same numbers reflected by the commerce department when the U.S. market was going through a housing price readjustment back in 1991.
Housing prices are set to fall steadily through 2009 and in to the indefinite future according to economists. It seems to be caused be a domino effect: banks and homeowners bet that the price of housing would continually rise—that’s logical, a rising population requires more housing, more construction, and great real estate investment—but defaults on mortgages rose simultaneously making banks with large reserves in mortgaged backed securities more and more insolvent.
Interest rates on mortgages continue to rise, reflecting fears that the Treasury will have to borrow heavily to finance the banking sector rescue. Unoccupied home numbers are as high as they were fifty years ago. Unemployment is on the rise while those who retain their jobs have seen wage increases barely commensurate with inflation making people wary about purchasing new homes.
Oil
Prices fell below $70 a barrel for crude oil for the first time in 14 months making gas prices for the consumer more affordable. The price drop caused Organization for Petroleum Exporting Countries to call an emergency meeting to discuss the price drop after months of rising prices. It has been a more than $40 a barrel price drop in the past three weeks. OPEC was created in 1960 as a cartel that would consort to raise oil revenues. It meets periodically to adjust production to prop up prices or keep them from collapsing.
OPEC is expected to curb production of oil in order to blunt the sharp fall of prices. Many of the oil producing nations that comprise OPEC require high oil revenues to balance their national budgets.
Some economists view the drop in oil prices as a stimulus for unstable economies, making it cheaper for consumers to fill up at the gas tank, keep the extra cash, and spend it elsewhere. Some economists predict that oil prices will drop below $50 a barrel in the coming months. The drop in price will lower gas prices this winter. Drop and oil prices and market indicators that inflation will remain steady could all have been contributing factors to the markets rebound of 400 points on Thursday, Oct 17.
The Bailout
Bush defended federal intervention in the financial markets at a press conference on Friday, Oct 17th. He claimed that the bail out package was necessary to stave off a wider scale financial meltdown but would take time to fully take effect.
Federal intervention began back when Countrywide announced that a large portion of its holdings were in high risk subprime mortgages. At that time the Federal Reserve brokered an agreement between major banks and Countrywide. The larger banks would absorb the sub-prime mortgages at a reduced cost to lessen the liability acquired on their balance sheets.
On Sept. 7 the government extended $200 billion to Fannie Mae and Freddie Mac, purchasing unsecured debt and keeping the organizations solvent. Freddie Mac and Fannie Mae either own or back $5 trillion in mortgage debt, half of the countries total mortgage debt.
Later in the month, the government was unmoved by cries of help from Lehman Brothers trading company.
The government took a 79.9% stake in insurance company AIG, through two extensions of credit, $85 billion on Sept. 26 and $37.8 billion on Oct. 8 for a total of $122.8 billion.
Bush emphasized in the press conference that government intervention would not be a nationalization of the banking system but simply a tax payer investment in the banking system.
Source Data: The Washington Post, The New York Times, The Fairfax Times, and other wire sources.
Fairfax County is implementing cost cutting measures to handle the, ever bleaker, outlook of this year’s revenues. The county will ask employees to all take one, unpaid, day off in January, it has suspended construction projects, it has suspended the purchase of new county vehicles, and will vote in the near future about whether to withdraw $25 million from its reserves, money tapped in time of financial need. Fairfax county officials are also considering a reduction in campus police officers.
County officials are projecting a $58.2 million shortcoming in projected budget revenues and up to $500 million in 2010. The budget crunch is exacerbated by the cut in funding from the Virginia to local muncipalities.
The board of supervisors is currently conducting a thorough review of county assets and reevaluating their revenue projections. The county will hold town hall meetings in which officials will solicit the views and feedback from concerned citizens.
Virginia’s Economy
The ripple effect from the national budget crisis hit home this week with an announcement by Virginia Governor Tim Kaine that there would be major cuts in the state budget. The state will be short by almost $1 billion this year, requiring the downsizing of 570 government jobs, postponement of employee raises, and a hiring freeze on over 800 employment positions with the state. The cuts will also include cuts for college funding.
Virginia Lieutenant Governor, Bill Bolling, announced that he would work closely with governor Kaine to balance the budget.
“These are challenging economic times for Virginia, with the Commonwealth facing a potential budget shortfall of $2B to $3B in the remaining months of the current biennium… I applaud the Governor for his commitment to bring the budget into balance through spending reductions and not higher taxes. While we can discuss where and how these spending reductions should be made, I am committed to working with the Governor to reduce the budget where necessary, while preserving to the greatest extent possible the core services of state government. This will not be an easy task, but it is a necessary task. When times get tough families and businesses must tightened their budgets and spend within their means, and state government should do the same,” said Bolling through a press release on his website.
The Virginia Small Business Financing Authority announced Wednesday, Oct. 16, that it will work with banks to help preserve Virginia’s jobs. VSBFA will give support in the form of guarantees or portfolio insurance to banks that restructure existing loans for qualified businesses.
The Housing Market
Stocks continued their downward turn as companies earning reports showed less than adequate performance and the housing profile from September showed construction nearly ground to halt. Housing starts fell from 872,000 to 817,000. Those were the same numbers reflected by the commerce department when the U.S. market was going through a housing price readjustment back in 1991.
Housing prices are set to fall steadily through 2009 and in to the indefinite future according to economists. It seems to be caused be a domino effect: banks and homeowners bet that the price of housing would continually rise—that’s logical, a rising population requires more housing, more construction, and great real estate investment—but defaults on mortgages rose simultaneously making banks with large reserves in mortgaged backed securities more and more insolvent.
Interest rates on mortgages continue to rise, reflecting fears that the Treasury will have to borrow heavily to finance the banking sector rescue. Unoccupied home numbers are as high as they were fifty years ago. Unemployment is on the rise while those who retain their jobs have seen wage increases barely commensurate with inflation making people wary about purchasing new homes.
Oil
Prices fell below $70 a barrel for crude oil for the first time in 14 months making gas prices for the consumer more affordable. The price drop caused Organization for Petroleum Exporting Countries to call an emergency meeting to discuss the price drop after months of rising prices. It has been a more than $40 a barrel price drop in the past three weeks. OPEC was created in 1960 as a cartel that would consort to raise oil revenues. It meets periodically to adjust production to prop up prices or keep them from collapsing.
OPEC is expected to curb production of oil in order to blunt the sharp fall of prices. Many of the oil producing nations that comprise OPEC require high oil revenues to balance their national budgets.
Some economists view the drop in oil prices as a stimulus for unstable economies, making it cheaper for consumers to fill up at the gas tank, keep the extra cash, and spend it elsewhere. Some economists predict that oil prices will drop below $50 a barrel in the coming months. The drop in price will lower gas prices this winter. Drop and oil prices and market indicators that inflation will remain steady could all have been contributing factors to the markets rebound of 400 points on Thursday, Oct 17.
The Bailout
Bush defended federal intervention in the financial markets at a press conference on Friday, Oct 17th. He claimed that the bail out package was necessary to stave off a wider scale financial meltdown but would take time to fully take effect.
Federal intervention began back when Countrywide announced that a large portion of its holdings were in high risk subprime mortgages. At that time the Federal Reserve brokered an agreement between major banks and Countrywide. The larger banks would absorb the sub-prime mortgages at a reduced cost to lessen the liability acquired on their balance sheets.
On Sept. 7 the government extended $200 billion to Fannie Mae and Freddie Mac, purchasing unsecured debt and keeping the organizations solvent. Freddie Mac and Fannie Mae either own or back $5 trillion in mortgage debt, half of the countries total mortgage debt.
Later in the month, the government was unmoved by cries of help from Lehman Brothers trading company.
The government took a 79.9% stake in insurance company AIG, through two extensions of credit, $85 billion on Sept. 26 and $37.8 billion on Oct. 8 for a total of $122.8 billion.
Bush emphasized in the press conference that government intervention would not be a nationalization of the banking system but simply a tax payer investment in the banking system.
Source Data: The Washington Post, The New York Times, The Fairfax Times, and other wire sources.
Finance in the week 10/1-10/7
This Week in Finance
By Noah Martin
The Credit Crunch and Student Loans
Frozen credit markets may restrict the availability of student loans say financial experts. After a tumultuous week on Wall St. more lenders are pulling out of the student loan business which may make it more difficult for students to qualify for loans in the future. Students may have to offer provide more detailed information and accept higher interests rates in order to obtain loans.
Congress has passed legislation that protects student loans through 2010 and increases government funds available for government subsidized loans.
Emergency Economic Stabilization Act
The final version of the $700 billion bailout passed Friday, Oct. 3, with a 263 to171 vote, looks drastically different than the original three page proposal put forth by the Bush Administration over a week ago. The final version passed by the House of Representatives, the Emergency Economic Stabilization Act, is 451 pages and contains numerous additions and qualifications to the initial bill.
The final version will still give unprecedented powers to the Treasury secretary, Henry Paulson, to buy $700 billion in troubled assets from large firms and provide credit to stimulate markets frozen by a halt in intra-bank lending but it added two oversight committees to monitor the allocation of funds: a Financial Stability Board, comprised of the Federal Reserve chairman, the Federal Home Finance Agency director, the Securities and Exchange Commission chairman, the Housing and Urban Development secretary and the Treasury secretary, and a bipartisan congressional oversight committee with five members appointed from both the House of Representatives and the Senate. Paulson has 45 days to design a plan for purchasing the troubled mortgage backed assets that will then be reviewed by the oversight committees.
In the new version, limits were placed on executive pay for firms selling assets to the government, it raised the Federal Deposit Insurance Corp. limit from $100,000 to $250,000, it allows the government to take ownership stakes in firms taking advantage of the bailout, and inserted provisions for homeowners to avoid foreclosure.
$150 billion dollars of expenditures were added to the bill in the second and final version: tax breaks for teachers that spend their own money on school supplies; tax relief for disaster victims; tax credits for hybrid car owners, tax credits for the skyrocketing costs of research and development.
The house also approved a separate measure to extend unemployment benefits to send a message of relief to citizens concerned about their economic future.
The party breakdown of Friday’s vote was 172 to 63 from Democrats and 91 to 108 from Republicans.
Greater financial regulations on Wall St will not be considered until after Congress reconvenes following the fall campaign.
Citigroup’s negotiations with Wachovia
Only a week after the buyout of Washington Mutual, Citigroup announced that it would purchase Wachovia’s banking operations for $2.16 billion dollars in stock in a deal coordinated by the two financial institutions and the Federal Deposit Insurance Corp. The news furthered public fears about the current state of the United States economy.
On Friday, however, Wells Fargo issued a statement claiming that it would purchase the entirety of Wachovia’s assets for $15.6 billion in stock.
Now a New York judge has halted the merger between Wells Fargo and Wachovia and is requesting that representatives from Citigroup and Wachovia appear in front of his bench this coming Friday over claims that Citigroup had entered into an exclusivity agreement with Wachovia.
If purchased by Citigroup, losses on Wachovia’s banking assets beyond $42 billion would be covered by the FDIC. Wells Fargo would ask for no assistance from the FDIC and cover its own losses, relieving the liability burden placed on the tax payer.
All information was taken from The Washington Post, The New York Times, and other wire sources.
By Noah Martin
The Credit Crunch and Student Loans
Frozen credit markets may restrict the availability of student loans say financial experts. After a tumultuous week on Wall St. more lenders are pulling out of the student loan business which may make it more difficult for students to qualify for loans in the future. Students may have to offer provide more detailed information and accept higher interests rates in order to obtain loans.
Congress has passed legislation that protects student loans through 2010 and increases government funds available for government subsidized loans.
Emergency Economic Stabilization Act
The final version of the $700 billion bailout passed Friday, Oct. 3, with a 263 to171 vote, looks drastically different than the original three page proposal put forth by the Bush Administration over a week ago. The final version passed by the House of Representatives, the Emergency Economic Stabilization Act, is 451 pages and contains numerous additions and qualifications to the initial bill.
The final version will still give unprecedented powers to the Treasury secretary, Henry Paulson, to buy $700 billion in troubled assets from large firms and provide credit to stimulate markets frozen by a halt in intra-bank lending but it added two oversight committees to monitor the allocation of funds: a Financial Stability Board, comprised of the Federal Reserve chairman, the Federal Home Finance Agency director, the Securities and Exchange Commission chairman, the Housing and Urban Development secretary and the Treasury secretary, and a bipartisan congressional oversight committee with five members appointed from both the House of Representatives and the Senate. Paulson has 45 days to design a plan for purchasing the troubled mortgage backed assets that will then be reviewed by the oversight committees.
In the new version, limits were placed on executive pay for firms selling assets to the government, it raised the Federal Deposit Insurance Corp. limit from $100,000 to $250,000, it allows the government to take ownership stakes in firms taking advantage of the bailout, and inserted provisions for homeowners to avoid foreclosure.
$150 billion dollars of expenditures were added to the bill in the second and final version: tax breaks for teachers that spend their own money on school supplies; tax relief for disaster victims; tax credits for hybrid car owners, tax credits for the skyrocketing costs of research and development.
The house also approved a separate measure to extend unemployment benefits to send a message of relief to citizens concerned about their economic future.
The party breakdown of Friday’s vote was 172 to 63 from Democrats and 91 to 108 from Republicans.
Greater financial regulations on Wall St will not be considered until after Congress reconvenes following the fall campaign.
Citigroup’s negotiations with Wachovia
Only a week after the buyout of Washington Mutual, Citigroup announced that it would purchase Wachovia’s banking operations for $2.16 billion dollars in stock in a deal coordinated by the two financial institutions and the Federal Deposit Insurance Corp. The news furthered public fears about the current state of the United States economy.
On Friday, however, Wells Fargo issued a statement claiming that it would purchase the entirety of Wachovia’s assets for $15.6 billion in stock.
Now a New York judge has halted the merger between Wells Fargo and Wachovia and is requesting that representatives from Citigroup and Wachovia appear in front of his bench this coming Friday over claims that Citigroup had entered into an exclusivity agreement with Wachovia.
If purchased by Citigroup, losses on Wachovia’s banking assets beyond $42 billion would be covered by the FDIC. Wells Fargo would ask for no assistance from the FDIC and cover its own losses, relieving the liability burden placed on the tax payer.
All information was taken from The Washington Post, The New York Times, and other wire sources.
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