Headache

LONDON, March 12 (Reuters) - The United States is now likely near or already in recession and, along with a slowing Europe, faces tougher inflation pressures, setting up rough conditions for central bankers in coming months, Reuters polls showed.

In findings taken mostly ahead of the U.S. Federal Reserve's $200 billion-plus liquidity injection with other central banks on Tuesday into parched money markets, economists now forecast a median 60 percent chance of a U.S. recession this year.

That is up sharply from the 40-45 percent probability polled over the past three months.

But the 2.25 percentage points of Federal Reserve rate cuts since September to 3 percent and analyst expectations of another 1.0 percentage point stand in stark contrast to the European Central Bank's lack of action as it emphasises record high inflation.

Economists have revised down 2008 U.S. GDP forecasts for the eighth consecutive month and raised 2008 core inflation expectations for a second month in a row to 2.4 percent from 2.3 percent. They have also raised inflation forecasts for the euro zone to 2.7 percent from 2.5 percent previously.

Yet while Fed chief Ben Bernanke has more cutting to do this month, ECB President Jean-Claude Trichet will only trim rates by a half-point in total this year from the current 4 percent and the first quarter-point cut probably won't come until June.

A debate is raging over which approach is best and whether Trichet will eventually have to cut rates as aggressively as he has provided money markets with extra liquidity over the past several months. So far he isn't budging.

"As far as rates are concerned, clearly the main issue is still elevated inflation, and the high oil price may prevent the ECB from cutting quickly," said Laurent Bilke, economist at Lehman Brothers.

Indeed, economists only put a median 15 percent chance of a recession in the euro zone this year. But oil prices are near record highs above $100 a barrel and the low point for the euro zone isn't likely to be reached until next year.

The divergence between the two approaches is reflected on the foreign exchanges, where the euro appears to have shrugged off the major central banks' liquidity injection and is retesting lifetime highs against the dollar just below $1.55.


JAPAN FALTERING

Japan, meanwhile, is looking ever more likely to return to a period of very sluggish growth after only just emerging from more than a decade of deflation.

The Bank of Japan is now likely to hold the already miniscule overnight cost of borrowing in the world's second largest economy at 0.50 percent for more than a year.

For the UK, economists also stuck to their unfavourable outlook, with growth at 1.8 percent this year, markedly lower than the 3.1 percent expected for 2007 and also with inflation averaging above the Bank of England's 2.0 percent target.

A median one in four chance of a UK recession sets a challenging backdrop for Chancellor of the Exchequer Alistair Darling's first budget, due later on Wednesday, given already high public borrowing.

It also leaves the BoE limited room to cut rates from the current 5.25 percent -- three times by year-end, in quarter point moves.

(Reporting by Bangalore Polling Unit, Nigel Davies and Jonathan Cable in London, Burton Frierson in New York, Leika Kihara in Tokyo; Editing by Ruth Pitchford)

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Mvh spear of destiny

Inte läst #0 än men jag ska. Gjorde det lite smalare så hoppas nu man slipper scrolla så värst. In med #0 igen

David Hilder, a banking analyst at Bear Stearns, last week cut his 2008 and 2009 earnings estimates for
National City Corp., SunTrust Banks Inc., Washington Mutual Inc. and Wells Fargo, citing rising home-equity losses.
Each of those lenders has 12% to 19% of its total assets tied up in home-equity loans.

Fitch Ratings, a unit of Fimalac SA of Paris, predicts that "banks will significantly ratchet up loan-loss provisions against
home-equity loans in 2008."

Projected losses from home-equity loans aren't anywhere close in size to the carnage caused by the declining
value of mortgage-related securities. (Those losses now total more than $150 billion.) But the cascading delinquencies
and charge-offs represent one more piece of the U.S. banking industry that is in big trouble after years of
bumper-crop profits.

Originally used to finance home-improvement projects, borrowers increasingly turned to home-equity loans to pay off
other debts, such as credit cards. Home-equity loans also became a popular way to fund vacations and expensive electronics
-- or to buy a house with little or no money down without paying for private mortgage insurance.

Now, the steep decline in housing prices and weak economy are turning the home-equity business upside down.
About 4.65% of fixed-rate home-equity loans were delinquent in the fourth quarter of 2007, up from 3.11% a year earlier,
according to Equifax Inc. and Moody's Economy.com.

"We will continue to see banks increasing reserves for their home-equity portfolios and tightening their home-equity policies,
changing their credit standards in response to price declines," said Doug Duncan, chief economist of the
Mortgage Bankers Association.

While banks can foreclose on a first-lien mortgage, lenders often have little recourse when trying to collect a delinquent
home-equity loan, especially if another bank holds the primary mortgage. Banks holding home-equity loans generally can only
seize the collateral -- a house -- after the mortgage is paid off.

When another bank holds the mortgage and the mortgage payments are current, the home-equity lender is effectively powerless
to collect the debt.

Unfortunately for home-equity lenders, many borrowers understand that pecking order, concluding there are few repercussions
if they stop making payments on their home-equity loan. "Lenders are seeing people go delinquent on home equity
who by all rights wouldn't be expected to go delinquent," said Dan Balkin of Wholesale Access, a Maryland research and
consulting firm that specializes in the mortgage industry.

Other types of consumer loans also are souring, including credit cards and auto loans. But delinquent home-equity loans
are rising faster, representing 12.5% of all delinquent loans in the fourth quarter at Bank of America Corp.,
the largest U.S. bank in stock-market value. That was up from 9.4% in last year's first quarter, according to research firm
SNL Financial.

Leaning on outside mortgage brokers for home-equity business was "one of the biggest mistakes we've made," said Mr. Scharf.
Those loans have performed worse than home-equity loans generated by J.P. Morgan.

J.P. Morgan, Wells Fargo and other banks are now backing away from brokers to focus on home-equity loans offered
through their own retail branches, where customers already have a relationship with the bank.
Citigroup Inc. has slashed the number of home-equity loans originated through brokers by 90%.

Meanwhile, financial institutions are refusing to provide home-equity loans to homeowners whose residences are already
weighed down by big mortgages in states like California and Florida where home values are falling fast.

"This product was meant to help people do construction on their house, [and] do debt consolidation -- not to take out every
last dollar of equity in their home to finance a different kind of lifestyle," Mr.
Scharf said. J.P. Morgan is "rolling our changes back to represent that kind of product."

Mvh Jamenvisst

#2

Tack för den insatsen. Går inte av för hackor. 

Mvh Corpsee

#3

Om vi låter bli att tilltala Dig from nu, låter Du oss vara då? 

Mvh spear of destiny

#4

 Du kommer säkert tillbaka med glada tilltal när det vänder ner. 

Mvh Corpsee

#5

Varför det. Nu skall det ju upp.

Men då bestämmer vi som i #4. 

Mvh spear of destiny

Jag kommer att sakna Dina fröjdig inlägg. Men undrar fortfarande vilka Vi är?

Mvh Corpsee

Letters to the FT
From Prof Robert Wade and Mr Marshall Auerback

Bernanke should take bolder action, along Swedish lines

Sir, Gillian Tett argues that the solution to the savings and loans crisis - conduct firesale auctions of S&L assets - will not work this time, and concludes despairingly: "Let us all hope the Group of 10 have some amazing new tricks up their sleeves" ("The vicious trap that haunts the debt markets", Insight, March 7).

It is true that the S&L solution does not provide a template for this one. At that time many of the biggest financial organisations were in good shape and became buyers for the "good bank" franchises and assets, leaving speculators to pick up the pieces. Today, thanks to the model of "slice and dice" securitisation, damage is occurring across swathes of sectors in conditions of murky financial transparency, and private sector buyers are scarce everywhere.

Governments have to take a stronger role. The Swedish government's approach to the crisis of the early 1990s does provide a useful template for what should be done in the US. The government coped with a banking crisis that cost 6 per cent of gross domestic product between 1990 and
1993 by using a combination of government capitalisation for the stronger financial organisations, nationalisation of others, followed by closure of those found to be beyond reconstruction, under the direction of a newly created Bank Support Authority - see
www.riksbank.se/templates/speech.aspx?id=1722

We urge Mr Bernanke to spend less time looking at Japan and more at Sweden. Unless bolder action is taken along Swedish lines (including temporary nationalisation of some of the banks, followed by privatisation under new rules), the prospect is for a complete seizure of the commercial paper market, which would set in motion forces like the debt deflation of the 1930s.

Robert Wade,
Development Studies Institute,
London School of Economics,
London WC2A 2AE, UK 
 

Mvh spear of destiny