Low Mortgage Rates Spur Buyers

Budget plan for 2010 approved

Barack Obama's $3.5 trillion budget plan was approved by the U.S. congress but not before the Republicans showered it with criticism. John Boehner (R - OH), the House Minority Leader, commenting on the "expansionary" budget that aimed at increasing spending, increasing taxes, and leading to increased public debt, called it "a roadmap to disaster." Incidentally, the fiscal deficit is expected to touch $1.8 trillion in 2009, for anyone still counting. Steny Hoyer (D - MD), the House Majority Leader, said, "Our budget lays the groundwork for a sustained, shared, and job-creating recovery." With all the Republicans voting against the budget, there was no sign of the bipartisanship Obama had hoped for. Obama was pleased with the outcome, calling it "an important step toward rebuilding our struggling economy."

Disclosing information on borrowers
The Federal Reserve, as the lender of the last resort, does not disclose the names of its borrowing banks on account of the concern that there could be a run on them. After all, public confidence could take a beating if it became known that a bank had to go to the Fed to tide over a liquidity situation. If the U.S. Senate has its way though, the Fed will be required to disclose the names of its borrowers in future. As part of an initiative to enhance the quality of regulation of the financial sector, the Senate introduced a budget amendment on April 3, 2009 requiring the Fed to disclose the names of its borrowers. While the Fed is not required by law to make the disclosure, it may not find it easy to ignore the budget amendment, particularly in the current financial crises. Can the Senate's writ be challenged by the Fed, and will the disclosure do more harm than good to the stability of the banking sector? We'll know in the days to come.

U.S. unemployment rate expected to hit a 25-year high
According to a Bloomberg News survey, ahead of the March jobs data to be released by the Labor department, the unemployment rate in the U.S. in March is estimated to be 8.5% (a 25-year high). The total number of job losses since the beginning of 2008 now stands at 5.1 million - 2 million of those in the first 3 months of 2009. Large companies like IBM have announced job cuts in the thousands and the situation is showing no signs of improvement. Given the slump in the manufacturing sector and the likelihood of bankruptcy for General Motors, analysts are talking about a significant increase in the unemployment rate. Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities, estimates that the unemployment rate could reach as high as 11 percent. Will the $3.5 trillion budget rein in job losses or just cause inflation on top of everything else?

Mortgage rates leading to a rebound in the home-loan market?
Freddie Mac announced that the 30-year mortgage (fixed) rate fell to 4.78% (lowest since 1971) in the last week of March. Ben Bernanke, Chairman of the Federal Reserve, in his testimony to the U.S. House of Representatives last November said, "It is imperative that all banking organizations and their regulators work together to ensure that the needs of creditworthy borrowers are met." The Fed's announcement in March 09 that it would buy $1.25 trillion in home-loan securities in 2009 is a clear sign of Bernanke walking his talk. How effective will the Fed's initiative be? The initial signs are encouraging, with mortgage applications on the rise. According to the National Association of Realtors (NAR), the sale of previously owned homes rose by 5.2% in March over the previous month, and the rise in "affordability index" (released by the NAR) in January indicates that the lower home values and mortgage rates are having an impact on the home market.

CEO Pay Falls
According to an analysis prepared by Hay Group for the Wall Street Journal, median cash salaries and bonuses for chief executives of 200 big U.S. companies fell 8.5 percent in 2008 to $2.24 million. CEO compensation decreased more sharply at banks and brokerages, and median annual cash compensation for CEOs in the financial industry fell 43 percent, to $976,000, while total direct compensation fell 14.2 percent, to a median $7.6 million. The decline was the first in seven years.