Fed action expected today
[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2008/images/12/16/art.fed.meeting.jpg caption="The Fed began its last meeting of 2008 today, where it is expected to announce another reduction in the key interest rate."]
Ali Velshi | Bio
CNN Chief Business Correspondent
The Federal Reserve is widely expected this afternoon to cut interest rates for the 10th time in just over a year, driving the rate it controls close to zero as it continues the most sweeping effort to stabilize the economy in the history of the central bank.
The federal funds rate, at which banks lend to each other, is already at 1 percent. The Fed is expected to drop it to half a percent, or even lower, at the end of its policymaking meeting today. That would be the lowest U.S. rate on record.
Here are some bullet points:
The Fed's extraordinary measures to calm the economy:
- Cut interest rates
- Inject funds into system
- Buy up short-term debt
- Bail out financial firms
Why does a rate cut matter?
- Money is cheaper to borrow
- Businesses expand, hire more
- People save on lower rates
- Consumers able to spend more
Interest rates right now:
- Fed Funds Rate: 1.0%
- Prime Rate: 4.0%
Stocks say recession, bonds say depression
[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2008/images/12/11/art.ustreasury.jpg caption="The U.S. Treasury building."]
John Curran
Time
Extraordinary things are happening in bond land lately. Tuesday's head-spinning news that Treasury bills had been auctioned off with negative interest rates is only the latest in a series of astonishing developments, surpassing even the more widely followed stock market swings.
While the Treasury auction grabbed headlines, corporate bonds are doing equally amazing things: The average yield on lower quality investment grade corporate bonds — triple-B rated — is hovering around 10%, an unusually rich 7.5 percentage point spread over Treasury bonds of similar maturity. (That spread has tripled over the past year.)
Or consider junk bonds, as measured by Merrill Lynch's High-Yield bond index, which yield a jaw-dropping 22%. Of course, junk bonds come from the riskiest borrowers, and a deep recession could drive up the default rate among those companies. But current lofty yields imply investor expectations that one fifth of these bonds will default, according to Moody's, even though the recent default rate in this sector has been around 3%. Notes Kirk Hartman, chief investment officer for Wells Capital Management, a division of Wells Fargo bank: "Spreads [over Treasuries] in the bond market are pricing in a depression scenario while the equity markets, despite a substantial decline, are pricing in a recession." (Read "The Recession Is Made Official — and Stocks Take a Dive")
Give Main Street a fair shake
[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2008/images/09/23/paulson.9.23.jpg caption="Treasury Secretary Paulson testified before the banking committee Tuesday."]Katrina vanden Heuvel
Editor, Publisher, The Nation
The Administration has put a corporate-led bailout on the table with the threat that Congress pass it as is or face a worldwide economic catastrophe. We've seen this kind of shock and awe, do it our way or else, fear mongering before. Yes, action is needed, but that action must be smart, just and effective. Action must ensure that this taxpayer-funded rescue doesn't reward the very people on Wall Street who created this mess while shafting the needs of Main Street.
The President, the Federal Reserve, SEC and Congressional committees responsible for regulation and oversight failed to act in the public or national interest and allowed this economic meltdown to reach crisis proportions. It's ironic that the same people and firms that preached free-market capitalism are the ones now demanding a speedy taxpayer bailout.
This bailout should be seized as an opportunity to start addressing the real economic crisis–the one on Main Street–where the struggle to make ends meet is increasingly more dire in an economy marked by job losses, crumbling infrastructure, the lowest levels of personal savings since the 1920s, Gilded Age inequality and the highest level of foreclosed homes since the Great Depression.
Bailouts will lead to rough economic ride
[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2008/POLITICS/09/23/paul.bailout/art.ron.paul.gi.jpg caption="Rep. Ron Paul says the government's solution to the crisis is the same as the cause of it - too much government."]
Editor's note: Ron Paul is a Republican congressman from Texas who ran for his party's nomination for president this year. He is a doctor who specializes in obstetrics/gynecology and says he has delivered more than 4,000 babies. He served in Congress in the late 1970s and early 1980s and was elected again to Congress in 1996. Rep. Paul serves on the House Financial Services Committee.
Rep. Ron Paul
(R) Texas
Many Americans today are asking themselves how the economy got to be in such a bad spot.
For years they thought the economy was booming, growth was up, job numbers and productivity were increasing. Yet now we find ourselves in what is shaping up to be one of the most severe economic downturns since the Great Depression.
Unfortunately, the government's preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention.
Ever since the 1930s, the federal government has involved itself deeply in housing policy and developed numerous programs to encourage homebuilding and homeownership.
Government-sponsored enterprises Fannie Mae and Freddie Mac were able to obtain a monopoly position in the mortgage market, especially the mortgage-backed securities market, because of the advantages bestowed upon them by the federal government.
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