Bush sez US economy is in no danger of recession

[TithonusSyndrome]

All the hubbub about recession had to reach even his insulated ears sometime.

WASHINGTON - President Bush said Thursday the country is not recession-bound and, despite expressing concern about slowing economic growth, rejected for now any additional stimulus efforts. "We acted robustly," he said.

"We'll see the effects of this pro-growth package," Bush told reporters at a White House news conference, acknowledging that some lawmakers already are talking about a second stimulus package. "Why don't we let stimulus package 1, which seemed like a good idea at the time, have a chance to kick in?"

Bush's view of the economy was decidedly rosier than that of many economists, who say the country is nearing recession territory or may already be there. "I'm concerned about the economy," he said. "I don't think we're headed to recession. But no question, we're in a slowdown."

The centerpiece of government efforts to brace the wobbly economy is a package Congress passed and Bush signed last month. It will rush rebates ranging from $300 to $1,200 to millions of people and give tax incentives to businesses.

On one issue particularly worrisome to American consumers, there are indications that paying $4 for a gallon of gasoline is not out of the question once the summer driving season arrives. Asked about that, Bush said "That's interesting. I hadn't heard that. ... I know it's high now."

Bush also telegraphed optimism about the U.S. dollar, which has been declining in value.

"I believe that our economy has got the fundamentals in place for us to ... grow and continue growing, more robustly hopefully than we're growing now," he said. "So we're still for a strong dollar."

Bush also used his news conference to press Congress to give telecommunications companies legal immunity for helping the government eavesdrop after the Sept. 11 terrorist attacks.

Bush criticized the Democratic presidential candidates over their attempts to disassociate themselves from the North American Free Trade Agreement, a free-trade pact between the U.S., Canada and Mexico. Bush said the deal is contributing to more and better-paying jobs for Americans.


Following his news conference, Bush traveled to the Labor Department to meet with his economic advisers.

Afterward, he expressed confidence in the nation's ability to weather the economic downturn.

"We'll make it through this period just like we made it through other periods of uncertainty during my presidency," Bush said.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Bolded for emphasis. Good lord, if he thinks history can validate his actions, then he must think history is one cheap whore.

[J]

Bush's view of the economy was decidedly rosier than that of many economists, who say the country is nearing recession territory or may already be there. "I'm concerned about the economy," he said. "I don't think we're headed to recession. But no question, we're in a slowdown."

If recession is changed to depression and slowdown to recession, he might have a point.

"I believe that our economy has got the fundamentals in place for us to ... grow and continue growing, more robustly hopefully than we're growing now," he said. "So we're still for a strong dollar."

Yeah, in 5-10 years, after all the faults and shady aspects of the current economy are ripped out and properly fixed. Assuming the energy crunch doesn't finish off what the subprime fiasco started.

[Winston Blake]

"Why don't we let stimulus package 1, which seemed like a good idea at the time, have a chance to kick in?"

I wonder if future history books with start the section on George W. Bush with a portrait subtitled "It seemed like a good idea at the time."

[Executor32]

Egad, he's gone straight into Mohammed Saeed al-Sahaf territory here. From now on, I'm calling him Baghdad Bush.

[PainRack]

For a moment there, I thought this was an Onion article.

It wasn't so much the topic in particular, just the speech pattern. George Bush was just giving off "I'm not serious" vibes.

[J]

Telegraph article

US economy risks a 'lost decade' like Japan
By David Litterick in Munich
Last Updated: 9:18am GMT 28/02/2008


The US could be facing a "lost decade" like that suffered by Japan in the 1990s as the markets fail to respond to interest rate cuts and the US Federal Reserve runs out of options, the head of one of the leading private equity firms said today.

Tim Collins of Ripplewood Holdings, said the Fed was "running out of policy alternatives" as it attempted to prevent a long recession in the US.

A debate is raging about the extent of the US slowdown
Mr Collins, whose firm has significant expertise in Japan after leading the buyout and turnaround of Japan Telecom, said he believed a "sharp repricing of assets" was the most likely outcome.

But he said: "My fear is that we will prolong it and suffer a death of a thousand cuts after we have exhausted all the options."

"Even without a recession and with all of the policy tools available we still have hundreds of billions of dollars of losses."

Japan has only recently emerged from a period of zero interest rates.

He said the future would not be clear until a recession had laid bare the true state of the financial system. "You have to wait for the tide to go out to see who is wearing a bathing suit," he said.

But the chairman of Ripplewood, which last year completed the $2bn buyout of Readers Digest, rejected the argument, put forward by some at this year's SuperReturn private equity conference in Munich, that Sovereign Wealth Funds would replace struggling banks to provide debt to private equity companies.

"The financial markets operate on the basis of the multiplier effect in the banking system and you cannot replicate that with what is effectively equity, not debt, from sovereign wealth funds."

So the people who've actually handled similar situations, as opposed to the talking heads on TV, are saying that the US is at risk for a world of hurt.

Then there's this, the subprime fallout which the Feds and talking heads on TV claim is contained, isn't.

Bloomberg link

Alt-A Mortgage Securities Tumble, Signaling Losses (Update2)

By Jody Shenn

Feb. 28 (Bloomberg) -- Securities backed by Alt-A mortgages and other home loans to borrowers with better-than-subprime credit tumbled this month, causing investment funds to unwind or meet margin calls and signaling larger losses for Wall Street.

London-based Peloton Partners LLP, which owns debt tied to home loans considered safer as well as bets against subprime, is liquidating a $1.8 billion hedge fund. UBS AG and Merrill Lynch & Co., which reported some of the largest of the more than $160 billion of mortgage losses at the world's biggest banks, also hold the securities, according to company statements.

Valuations for AAA rated securities backed by Alt-A loans, deemed between prime and subprime in terms of expected defaults, slumped 10 percent to 15 percent this month, partly because it's so difficult to trade or find prices for them, Thornburg Mortgage Inc., the Santa Fe, New Mexico-based lender and investor, said in a securities filing today.

``There really hasn't been an orderly two-sided market in 2008,'' Arthur Frank, a mortgage-bond analyst in New York at Deutsche Bank AG, said today in a telephone interview.

Alt-A securities began tumbling on Feb. 14, when UBS disclosed its holdings and speculation began spreading that the Zurich-based company would sell a large amount, Thornburg President Larry Goldstone said in a Bloomberg Radio interview today. Mortgage debt would generally sell for less today than in August, when Thornburg sold $20.5 billion of mostly AAA bonds backed by prime ``jumbo'' adjustable-rate mortgages at a loss of about $930 million to meet margin calls, he said.

Douglas Morris, a UBS spokesman, declined to comment.

Alt-A, Subprime

Lenders made Alt-A home loans to borrowers who wanted atypical terms such as proof-of-income waivers, delayed principal repayment or investment-property collateral, without having to offer sufficient compensating attributes including larger down payments. Subprime loans were made to borrowers with poor or limited credit records or high levels of debt.

The Alt-A bond market is diverse, with collateral ranging from fixed-rated loans to ``option'' ARMs, whose lower minimum payments lead to growing balances and potential obligation spikes.

Typical 6 percent securities rated AAA and backed by 30-year fixed-rate Alt A loans of more than $417,000 on Feb. 22 fell to 12 cents less per dollar of principal than similar ``agency'' securities guaranteed by government-linked entities such as Fannie Mae, according to a report this week by JPMorgan Chase & Co. That was up from 5.5 cents on Jan. 25.

Trading Lower

AAA bonds with 6 percent coupons backed by 30-year, fixed- rate ``jumbo'' prime loans of more than $417,000 probably traded for 2.5 cents per dollar less than similar agency securities, the report said, compared with 2.25 cents last month. Agency securities have also declined, with Washington-based Fannie Mae's 6 percent, 30-year fixed-rate bonds falling from $102.66 per $100 on Jan. 31, to $101.86 today, Bloomberg data show.

About $950 billion of Alt-A mortgage securities are outstanding, compared with about $650 billion of subprime securities and $500 billion of prime-jumbo securities, according to Frank. Potential losses stemming from subprime-backed bonds are larger because of two-sided derivative contracts linked to the debt, many of which have been packaged into collateralized debt obligations and turned into securities.

UBS owned $21.2 billion of top-rated Alt-A securities on Dec. 31, which the bank said it marked down by $800 million last quarter. In trading accounts, New York-based Merrill owned $2.7 billion of Alt-A debt, mainly securities, and $28 billion of prime loans, according to a securities filing. Merrill's banks, whose positions don't get regularly revalued, owned $7.1 billion of Alt A bonds and $4.2 billion of prime-loan securities.

Portfolios Balloon

The portfolios of banks and securities firms have ballooned, partly because of their bailouts of structured investment vehicles, support for certain municipal-bond funds and the difficulty placing buyout loans.

Some potential investors don't want to buy the securities until prices stabilize, partly because of the risk of margin calls.

The volatility is ``unacceptable even for buy and hold investors, particularly given intense scrutiny by risk management'' departments, according to JPMorgan analysts. Investors who might boost their returns by using money borrowed from banks or buyers of short-term paper are also finding they can only do so under more stringent terms.

`Feeds on Itself'

``You're not willing to put on a trade if you think your financing can go away in three months, because then you may have to sell into the worst-case scenario,'' said Shawn Matthews, co- head of mortgage trading at New York-based Cantor Fitzgerald LP. ``Because if you can't finance that position anymore, that means neither can anybody else. It sort of feeds on itself.''

Thornburg, the mortgage investor, said it may need to sell securities again after using $300 million of cash to meet margin calls on loans secured by top-rated Alt-A bonds. Peloton, run by former Goldman Sachs Group Inc. partners, has told investors it owned AAA securities backed by ``prime'' loans.

Peloton faced a squeeze from lenders, founders Ron Beller and Geoffrey Grant said in a letter to investors today.

``Because of their own well-publicized issues, credit providers have been severely tightening terms,'' they wrote.

Alt-A mortgages and the investment instruments based upon them are also in trouble. The subprime mess hasn't been contained as claimed, and it's spreading into the rest of the mortgage sector. And it's only going to get worse since the peak month of Alt-A mortgage resets is March, the rates go up, a whole bunch more people default and/or decide to walk away from their homes, and countless billions of dollars gets wiped out just like that. There's a reason the FDIC is hiring extra workers for its Resolutions & Receiverships division, they know there's a good chance a bunch of banks are going to go insolvent thanks to this mess. But the markets are down only 1.5% today so it's not that bad, nothing to worry about, everything will be fine by election day.