October 08: INTERNATIONAL NEWS -- US Government takes control of mortgage giants

The lenders, which account for around half of US housing loans, reportedly have over US$5 trillion ($6.3 trillion) of outstanding mortgage debt.

Jim Lockhart, director of the Federal Housing Finance Agency, said the objectives of the US government’s ‘conservatorship’ were providing stability to financial markets, supporting the availability of mortgage finance, and protecting taxpayers.

“Fannie Mae and Freddie Mac are critical to turning the corner on housing,” he said. “[They] are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe.”

UK economy tipped to recover in late 2009

The UK economy may be in recession but it will not be as prolonged as the downturn experienced in the 1990s, the Confederation of British Industry (CBI) has claimed.

In its latest assessment of the UK economy, the CBI downgraded its growth forecasts for 2008 from 1.7 to 1.1 per cent, with economic output expected to shrink by 0.2 per cent and 0.1 per cent over the remaining two quarters. GDP growth forecast for 2009 was cut even more drastically, from 1.3 to 0.3 per cent.

But the Confederation said GDP should stabilise in 2009 ahead of a gradual economic recovery.  “This is not a return to the 1990s when job cuts and a slump in demand were far more prolonged,” said CBI director-general Richard Lambert.

BRIEFS

US banks launch $85b fund to mitigate liquidity pressures    

Ten international banks have announced plans to provide $US70 billion ($A85 billion) in funds to help offset the impact of the credit crisis, as the collapse of Lehman Brothers rocked Wall Street. The consortium, which includes Bank of America, Barclays, Citibank and JPMorgan Chase, said it had “initiated a series of actions to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets”. Under the plan, the ten banks will be able to tap into this facility, with any bank eligible for up to one-third of the fund.

UK house prices plummet     

UK house prices have fallen to their lowest level in 25 years as pressure on household incomes and dwindling availability of mortgage finance continues to hammer property markets. In August, UK house prices fell a further by 1.8 per cent, bringing the annual rate of decline to 10.9 per cent. The average UK house price is now hovering at around £174,178 (A$375,986).

GMAC US downsizes as credit crunch continues

GMAC Financial Services and subsidiary ResCap have announced dramatic initiatives to “optimise” the business as the downturn in the credit and mortgage markets persists. Among the measures the company has announced are the closing of all 200 GMAC Mortgage retail offices. Originations through the Homecomings wholesale broker channel will also cease.

Successive NZ rate cuts spark jump in consumer confidence   

Consumer confidence has risen to a five year high in New Zealand following the Reserve Bank of New Zealand’s decision to further ease monetary policy.  According to a Colmar Brunton poll for Television New Zealand, 50 per cent of respondents expect the economy to improve in the next 12 months – up from 44 per cent in August and just 28 per cent in July.

Barclays to acquire Lehman assets

Barclays has agreed to purchase Lehman Brothers’ North American investment banking and capital markets operations and supporting infrastructure. Under the deal, Barclays will acquire trading assets worth an estimated US$72 billion ($90 billion) and trading liabilities of an estimated US$68 billion ($85 billion).

No change to US cash rate

The US Federal Reserve left interest rates on hold when it met mid September, defying market expectations that Wall Street turmoil would prompt a quarter per cent cut.