Treasury Secretary Henry Paulson says he's not proud of the mistakes made leading up to the biggest financial crisis in seven decades, but he insists the administration is pursuing the correct course now to end the crisis. Paulson expressed regret, saying a failure of market discipline and the failures of regulation led to the crisis. In a round of television interviews, Paulson said he was confident the $700 billion rescue plan will help to mitigate the impact of the market meltdown on the real economy. He cautioned that the country was in for a rough period before things begin to turn around.
Anxiety that the world economy is plunging into a deep and protracted recession has investors selling on overseas markets. European stocks headed lower today after Japan's Nikkei tumbled more than 11 per cent overnight. The latest bout of selling is being stoked by Wednesday's record percentage fall on Wall Street after a weaker-than-expected U.S. retail sales data and a downbeat assessment of the economy from the Federal Reserve. The benchmark indexes in England, France and Germany have all been down 2.5 per cent or more. The renewed selling is leaving that the world's stock markets more or less back where they were at the start of the week. And the signs of relief as governments unveiled a series of bank rescues earlier this week is giving way to fresh fears.
Like many U.S. households, Houston plans to tighten its belt because of the country's ongoing financial crisis. City leaders announced a three-part plan to weather the financial crisis. It includes delaying some city projects and using cash reserves to finance short-term debts. While Houston is in good financial shape, officials say they are taking several steps to ensure the crisis doesn't hurt the city in the future.
Social security benefits for 50 million people will be going up by 5.8 per cent next year, the largest amount in more than a quarter-century. The increase, which will start in January, was announced by the Social Security Administration. It will mean an additional $63 per month for the average retiree. The increase is the largest since a 7.4 per cent jump in 1982 and is more than double the 2.3 per cent rise that retirees got in their monthly checks starting in January of this year.
The slide in crude oil prices translated to a more than ten per cent drop in retail gasoline prices across Texas this week. AAA Texas reports the average price per gallon statewide declined 39 cents, to settle at $2.89. Nationally, gasoline prices tumbled 32 cents, reaching $3.08. AAA Texas says the cheapest price at the pumps was in Corpus Christi, at $2.61 per gallon. The highest average price per gallon was $3.21 in El Paso. Association spokesman Dan Ronan says the dramatic drop is a "continued rollback of price increases driven by oil speculators earlier this year."' Ronan also says part of the decrease in gasoline prices is tied to the nation's economic turmoil.
The government reports that consumer prices were flat in September. Retreating costs for gasoline, clothes and new cars helped to offset rising prices for food, medical care and other things. The Labor Department report says the flat reading on the consumer price index, the government's most closely watched inflation barometer, came after prices actually dipped by 0.1 per cent in August.
Energy prices fell 2.7 per cent in the Houston area in September, according to the Bureau of Labor Statistics. That's the second monthly decline. Prices for food at home also fell slightly by 0.4 per cent, while shelter costs increased 1.4 per cent.
The Federal Reserve's Beige Book indicates the Texas economy began to weaken in September. Disruptions caused by Hurricanes Ike and Gustav and payroll reductions contributed to the decline. Residential housing construction-related manufacturers and auto dealers reported layoffs.
The National Association of Home Builders says its housing market index hit a record low this month as the U.S. financial crisis shook builders' confidence in the prospect for improved sales of new homes. The Washington-based trade association said the index tumbled by three points to 14 in October. The index stood at 17 last month, a one-point increase from August. Index readings higher than 50 indicate positive sentiment about the market. The report reflects a survey of 446 of residential developers nationwide, tracking builders' perceptions of market conditions. Builders' gauge of foot traffic by prospective buyers fell two points to 12, while sales expectations over the next six months plunged nine points to 19.
New claims for jobless benefits dropped more than expected last week as the impact of two hurricanes in September faded. The Labor Department says initial claims for unemployment insurance last week fell 16,000 to a seasonally adjusted level of 461,000. That's below analysts' expectations of 475,000. Despite the decline, the total remains at levels economists associate with a recession and is high by historical standards. Last year, claims stood at 338,000.
General Motors says it will lay off 1,600 workers at three factories in the coming months as the automaker keeps working to control its inventory amid a growing U.S. sales slump. The indefinite layoffs affect 700 workers at GM's Pontiac, Michigan, pickup truck plant, according to spokesman Chris Lee. Another 500 workers at the Detroit-Hamtramck car assembly plant, and 400 at a two-seat sports car assembly plant in Wilmington, Delaware, will also be out of work. Workers were notified of the layoffs September 29th. GM says it will reduce assembly line speeds at the Pontiac plant starting February 1st, and at Detroit-Hamtramck on January 12th. The Wilmington plant will see its two shifts cut to just one on December 8th.
The Federal Reserve reports that industrial production in September posted its biggest drop since late 1974, mostly reflecting disruptions from Hurricanes Gustav and Ike. The Federal Reserve said industrial production at the nation's factories, mines and utilities plunged 2.8 per cent in September, on top of a one per cent drop in August. September's decline was the largest since December 1974, when industrial production fell 3.5 per cent. The latest showing on industrial activity was worse than economists expected. They were forecasting a decline of 0.8 per cent.
Kinder Morgan Energy Partners says it has successfully tested a transmarket ethanol pipeline, according to the Houston Business Journal. The Houston-based firm says clients can begin shipping ethanol through the Central Florida pipeline by mid-November. Ethanol is highly corrosive when mixed with oxygen, but Kinder Morgan bathes neat ethanol in with gas for the trip through the 106-mile line.
The Bush administration is releasing $5.1 billion in heating fuel assistance, nearly doubling federal money to help poor people cope with high home heating bills expected this winter. Despite oil price drops in recent months, lawmakers from cold weather states said that high energy prices and the slumping economy are leaving many families struggling to pay to keep warm. The increased fuel aid was included in a stopgap budget bill that Congress passed and President Bush signed last month. About two million more families are expected to get fuel aid this winter. About 5.8 million families got help last winter.
European Union leaders have agreed to stick to their plan to cut greenhouse gases despite concern about the impact on industries struggling with the global market meltdown. French President Nicolas Sarkozy told a news conference at the end of the Brussels summit that the deadline on global warming is so important that the financial and economic crisis can not be used as a pretext for dropping it. Seven Eastern European nations had infuriated other EU member states with a surprise demand that the bloc drop a December target for agreeing on details of the plan to reduce greenhouse gas emissions by 20 per cent by 2020. Together with Italy, they were concerned that the costs of going green, combined with the looming economic downturn sparked by the turmoil on financial markets, would be too much for European industry to bear. All 27 leaders agreed in the end to stick to the objectives. To help industry, the EU leaders agreed to consider a stimulus package for the economy. Sarkozy said European car makers might need a state cash injection, similar to the U.S. government's $25 billion low-interest credit line for GM, Ford and Chrysler. Meanwhile, the EU's environment agency says that 15 EU nations are on track to meet a target to cut greenhouse gas emissions by eight per cent by 2012.
The Environmental Protection Agency is setting a new health standard for lead. It will slash the amount of the toxic metal allowed in the nation's air by 90 per cent. EPA officials, who were under a federal court order to set a new standard by midnight Wednesday, said the new limit would better protect health, especially children. The new limit — 0.15 micrograms per cubic meter — is the first update to the lead standard since 1978, when it helped phase out leaded gasoline. The new standard would require the 16,000 remaining sources of lead, including smelters, metal mines, and waste incinerators, to reduce their emissions.
An Iraqi official says Iraq believes that the $100 a barrel is a "fair and acceptable" oil price for both producers and consumers. Oil Ministry spokesman Assem Jihad says that if crude prices continue to fluctuate, OPEC will cut its production. Last Monday, Iraq Oil Minister Hussain Al-Shahristani told reporters in London that production of oil at its current levels could not be justified if demand slackened. Oil for November delivery was trading around $73 per barrel on Thursday--far below a record $147 in July. Current estimates put Iraq's proven oil reserves at 115 billion barrels. Its daily production stands near 2.4 million barrels a day. OPEC, meanwhile, has announced that it's moving up by almost a month an emergency meeting to discuss oil's drop in value.
Food and Drug Administration officials say the agency will establish its first FDA office in China before the end of the year. It's part of a broader plan to assure the safety of imports from the developing world. FDA Commissioner Andrew von Eschenbach says the government plans to place more than 60 food and drug regulators worldwide over the next year, with a particular focus on India, Latin America and the Middle East. The plan for permanent outposts marks a break from the agency's current practice of sending inspectors abroad on individual assignments. The FDA has been criticized for lax oversight after a string of safety problems with imported products, including contaminated blood-thinning drugs.
The Federal Reserve reports commercial banks borrowed in record amounts from its emergency lending facility over the past week. Investment banks drew loans at a brisk--though slightly lower--pace. The Fed's report shows commercial banks averaged a record $99.7 billion in daily borrowing over the past week. That surpassed the old record--a daily average of $75 billion--from the prior week. For the week ending Wednesday, investment firms drew $131.1 billion. That was down a bit from $134 billion in the previous week. This category was broadened last week to include any loans made to the U.S. and London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley and Merrill Lynch.
The Federal Reserve says the amount of commercial paper in the market fell for the fifth straight week. Commercial paper outstanding has shrunk by $40.3 billion to a seasonally adjusted $1.51 trillion in the week ended Wednesday. In the summer of 2007, the amount of commercial paper outstanding was above $2.2 trillion. The most recently weekly decline is not as big as the drops in previous weeks. But it indicates continually waning demand for commercial paper, the short-term unsecured loans that companies get to finance their day-to-day operations. The Fed recently said it would buy commercial paper from highly-rated companies unable to sell their paper on the market.
It might seem to be an irrational response to the financial crisis--unless you lived through the Great Depression. Some elderly Americans are pulling their money out of the bank, out of fear that the money will be lost if the bank collapses. Marcelle Uptain, who's 83 and lives in a Florida senior center, says she was thinking about taking the cash and putting it in "a little steel box with a key." She says her son had to talk her out of it. There aren't any hard numbers available, but banking officials say more seniors are asking to withdraw their savings. And the leading manufacturer of safes reports that its sales are up by as much as 50 per cent in the past three weeks. When the depression began, the federal government didn't guarantee bank deposits. So, many people in their 80s and 90s can recall arriving too late and seeing their savings disappear.
Southwest Airlines says it posted its first loss in 17 years as it had to write down the value of its fabled fuel-hedging transactions. Southwest says it lost $120 million. A year earlier it had net income of $162 million. The company took $247 million in charges, mostly to write down fuel-hedging deals that are less valuable when oil prices fall, as they have in recent weeks. Revenue rose 12 per cent, to $2.89 billion. Analysts had predicted $2.83 billion.
Continental Airlines says it swung to a $236 million loss in the third quarter from a year-ago profit as it battled high fuel costs and weather disruptions. For the three months ended September 30th, Houston-based Continental has reported a loss of $2.14 per share, compared with year-ago earnings of $241 million. Continental says jet fuel, one of its top expenses, cost it $606 million more in the latest quarter that in the 2007 period, and Hurricane Ike trimmed $50 million from operating profit. Revenue rose nearly nine per cent to $4.16 billion, beating Wall Street's $4.11 billion estimate.
Entergy Corporation guided its third-quarter earnings below Wall Street's expectations, citing the effects of Hurricanes Ike and Gustav earlier this year. The company earned $2.30 per share in the year-ago period. The company says the expected increase in this year's earnings comes from higher income at the company's nuclear unit, while utility results are "essentially unchanged." Entergy says the hurricanes caused power outages, and subsequently lower sales. Entergy is scheduled to report its quarterly results on October 28th. The New Orleans-based holding company owns regulated electric utilities in Louisiana, Mississippi, Arkansas and Southeast Texas.
Citigroup is suffering its fourth straight quarterly loss due to credit-related missteps, and has cut another 11,000 jobs. The bank lost $2.8 billion in the third quarter compared with a profit of $2.2 billion a year ago. Citi wrote down $4.4 billion in investments, recorded $4.9 billion in credit losses, and took a $3.9 billion charge to boost reserves. The big four U.S. banks — Citigroup, JPMorgan Chase, Bank of America and Wells Fargo — are each slated to receive $25 billion from the government. Citi recently lost a bid for Wachovia to Wells Fargo.
Merrill Lynch says it third-quarter loss widened as it took more than $12 billion in charges from the sale of mortgage-related investments and fallout from the continued credit crisis. Merrill lost $5.2 billion compared with a loss of $2.2 billion a year earlier. Merrill took a $5.7 billion write-down on the sale of complex financial instruments known as CDOs. It recorded another $3.8 billion loss tied to investments in financial firms that failed in September. New York-based Merrill also lost $2.6 billion on sales tied to additional mortgage exposure. Merrill was sold last month to Bank of America.