This morning Ben Bernanke tried on a new role, that of a voice of reason to the financial markets. In testimony before Congress, Bernanke warned that the economy is still probably headed into a recession and that the American economy probably won't see growth until 2009. In pointing out the potential problem areas, the Fed Chairman rattled off a list of the biggest sections of the credit market. To be fair, his calculations account for a wide degree of volatility in the markets and an inability to forecast the future amidst this turmoil.
Treasury Secretary Henry Paulson, while in his sixth visit to China to address outstanding economic issues between two largest economies in the world, took a step back from policy brinkmanship and indicated flexibility in using government money in addressing the crisis in the housing market. However, he revealed his true feelings on the matter in his disregard of those homeowners who are now suffering the phenomena "negative equity" in their homes. It remains to be seen whether this change of heart is a result of recognizing the benefits of government intervention in the marketplace or the windfall benefits the financial industry will receive in the event of any government intervention.
In perhaps some strange sort of April Fool's joke, the markets reacted exuberantly to UBS and Deutsche Bank writing down a combined $19 billion dollars and will seek to elicit almost as much capital investment. And the good news doesn't end there. The Commerce Department announced factory orders decreased 1.3% in February. When one considers the recent rise in unemployment, these numbers can be expected to go down further with a shrinking labor force. The IMF is predicting a significant downturn in the global economy, to understate the conclusion. Cleveland-based National City bank appears to be headed down the road to failure in the wake of the ongoing financial crisis. If they're hoping for a turnaround in the greater Cleveland area to cleanse their balance sheets to make a takeover more appealing, they can probably sooner expect a deux ex machina to show up at their headquarters in the form of a flying pig. The crux and source of the entire problem, the financial industry, is facing a slowdown for the entire year of 2008, in case that wasn't obvious.
In other news, it would appear that homeowner relief has gotten a rider of tax breaks for home builders. The only good side to this is that the provision probably won't cost the government much, as it will be shrinking revenue from a shrinking sector.
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