The economy: The Fed cuts a key rate
The Federal Reserve this week cut its key interest rate by a quarter of a point and was prepared to make further cuts to keep the economy from sliding into recession, said Paul LaMonica in CNNmoney.com. In lowering the Fed funds rate, which banks charge one another for overnight loans, from
4.5 percent to 4.25 percent, the Fed was responding to signs that the U.S. economy was weakening faster than previous forecasts had predicted. Changes in the Fed funds rate affect “how much interest consumers pay on credit cards, home equity lines of credit, and auto loans.”
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The question is whether banks will now shake off their “reluctance to lend,” said Louis Uchitelle in The New York Times. Fed officials are worried that problems in the mortgage market have led many banks to curtail other kinds of consumer and business lending. Unfortunately, said Mark Hulbert in Marketwatch.com, “a loose-money policy often has just the opposite effect from what is intended.” By signaling the Fed’s alarm about the economy, the cut may cause companies and consumers “to pull back even further,” making a recession more likely.
Banking: Battered UBS gets a lifeline
UBS, Switzerland’s largest bank, warned investors this week it would reduce the value of its mortgage portfolio by $10 billion, “potentially wiping out all its profits for the year,” said Simon Kennedy in Marketwatch.com. The write-down comes on top of a $3.4 billion hit in October. “In a bid to soothe the bad news,” UBS also announced that it would receive an $11.5 billion injection of capital from the government of Singapore and an unnamed Middle Eastern investor.
Corporate profits: The gloom gathers
Corporate earnings reports signal that a U.S. recession is imminent, said Timothy Aeppel in The Wall Street Journal. “Businesses ranging from makers of artificial hips to surf-wear retailers to overnight-delivery services” are reporting lower profits, as falling housing prices hit consumers and business customers feel the pinch of tighter credit. Merrill Lynch economist David Rosenberg estimates that third-quarter profits of the companies comprising the Standard & Poor’s 500-stock index fell 8.4 percent from the year earlier, and that still-lower earnings are ahead.
White-collar crime: Conrad Black sentenced
A federal judge in Chicago this week sentenced fallen press baron Conrad Black to six and a half years in prison for defrauding investors in his Hollinger International newspaper holding company. Black was convicted last July of taking funds from former Hollinger properties that were rightly due shareholders. He was also convicted of obstruction of justice after being videotaped removing subpoenaed documents from his office. “I frankly cannot understand how someone of your stature could engage in the conduct you did,” said U.S. District Court Judge Amy St. Eve. Black is appealing his conviction.
Retailing: CompUSA to close
Once the nation’s computer-retailing powerhouse, CompUSA is closing its doors, said Maria Halkias in The Dallas Morning News. Gordon Brothers, a Boston firm specializing in retail liquidations, acquired the chain last week from Mexican industrialist Carlos Slim and promptly announced a shutdown plan. Gordon Brothers said it would close all 103 CompUSA stores after holding holiday sales to reduce inventory. “CompUSA’s woes began when longtime allies changed their business models.” Apple, for instance, now sells through its own retail stores, while Dell and HP emphasize online sales.
