â€¢ U.S. Treasury to Spend Up to $1 Trillion on Toxic Debt
â€¢ U.S. Existing Home Sales See Strong Rebound
â€¢ BOE's Blanchflower says UK Recession May be Worse Than Expected
U.S. Treasury to Use Up to $1 Trillion to Support Toxic Debt Market
The U.S. Treasury announced Monday morning it will spend up to $1.0 trillion in a bid to provide support to the balance sheets of financial institutions and support the toxic debt market, which includes mostly mortgage-backed securities.
The U.S. Treasury will invest between $75 billion to $100 billion from its existing Troubled Asset Relief Program, and it plans to set up a separate initiative which will use the Federal Reserve's Term Assets Backed Securities Lending Facility and FDIC funding to finance the highly anticipated Private Public Investment Program (PPIP).
Five different private public funds will bid on toxic assets and sell them to the broader public. Meanwhile, the Federal Deposit Insurance Corporation will guarantee private-sector loans for these purchases, while the U.S. Government will invest side by side with private equity using taxpayer capital.
In a press conference following the official announcement, Geithner said he expects significant interest from the private sector, a sentiment which was confirmed by PIMCO's Bill Gross following the announcement.
Geithner said that while there is no doubt that the U.S. government is taking risk with the PPIP, the taxpayer stands to make substantial returns on the investments. He also said that the Treasury should be able to implement the PPIP quickly.
U.S. Existing Home Sales Climb Beyond Expectations
U.S. existing home sales climbed well above expectations on Monday, a welcome respite from the mostly dismal news on the U.S. housing sector.
Existing home sales grew 5.1% in February against expectations for a 0.9% decline, and following a 5.3% drop in January, according to the National Association of Realtors.
Sales of single-family homes rose 4.4% following a 4.7% decrease in January, while sales of condos and other multiple-family units climbed 11.4% against a 10.2% decrease the month prior.
The average price of a single-family home in February was $209,600.
White House Advisor Summers Says Investors Eager to Share in Toxic Debt Plan
White House Economic Advisor Lawrence Summers said Monday that there is substantial private investor interest in the government's public and private partnership plan to take bad assets off banks' balance sheets.
Stocks rallied following the announcement Monday morning, and Summers reacted by saying, we're gratified by the market reaction.
Summers said U.S. Treasury Secretary Timothy Geithner's plan is aimed at thawing frozen credit markets. As markets stabilize, the taxpayer's role in financial markets will diminish, Summers said, adding that investors participating in the bad debt plan will not be subject to salary caps.
Fed's Rosengren Says Programs Will Lower Consumer, Business Loan Costs
Recent actions by the Federal Reserve should help lower the cost of credit to consumers and businesses, according to Boston Fed President Eric Rosengren speaking before the House Financial Services Committee on Monday.
While credit availability continues to be a significant source of concern for the Federal Reserve, the Fed has acted proactively and creatively to address these concerns, said the central banker.
Rosengren also reminded attendees that in addition to agreeing to buy U.S. Treasuries at last week's FOMC meeting, the central bank also committed to spending an additional $750 billion to buy agency mortgage-backed securities.
Canada's Leading Economic Index Declines for Sixth Month in a Row
Statistics Canada's composite leading indicators continued to come under pressure in February, falling 1.1% for the month. This constitutes the data point's sixth consecutive month of contraction.
The pullback was worse than both the 0.9% contraction expected by economists and the previous month's revised 0.9% decline.
According to Statistics Canada, nine out of ten sub-components contracted, including an 8.0% decline in the housing component, a 7.5% fall in equities and a 4.8% pullback in new orders. The only sub-component of the index which improved was the M1 money supply, which advanced 1.8% compared to last month.
BOE's Blanchflower says UK Recession Could be Worse Than Expected
The Bank of England's David Blanchflower said Monday the recession in the UK could last longer than most are expecting. Forecasters in a recession tend to be overly optimistic, he said, speaking at an event in London.
The BOE policymaker said England requires a large fiscal stimulus in the short term, which should be aimed at creating jobs. Blanchflower added there will be a massive climb in unemployment in coming months, especially June, when school and university students graduate and begin looking for work.
He also said that the falling value of the pound has done nothing to boost demand for manufacturing products out of the UK.
ECB's Orphanides Sees Room to Lower Rates, Extend Non-Conventional Measures
The European Central Bank has room to lower its key policy rate, ECB Governing Council member Athanasios Orphanides said.
Monitoring the economy of the euro zone, we unfortunately observe a general worsening of the situation and there is room for a further reduction in interest rates, Orphanides said at a press conference on Monday.
Orphanides also said that there was room to extend the use of other unconventional tools, including the provision of liquidity at low rates.
This could be continued beyond 2009, the central banker said. These sorts of measures could be extended.
By Ernest Hoffman, email@example.com, with contributions from Megan Ainscow, firstname.lastname@example.org, Erik Kevin Franco, email@example.com and Todd Wailoo, firstname.lastname@example.org, edited by Megan Ainscow, email@example.com