The Wall Street Journal-20080117-The Afternoon Report- Ben in the House- Online edition
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The Afternoon Report: Ben in the House; Online edition
Fed chief Ben Bernanke this morning parried questions from lawmakers on the proper prescription for fiscal stimulus, as Democrats and Republicans readied for negotiations on a bill to give the economy a jolt.
Mr. Bernanke, appearing before the House Budget Committee, cataloged the economy's pressure points in a brief opening statement, while forecasting slower growth this year, but not a recession. "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," he said, repeating recent pronouncements pointing to more interest rate cuts. Then came questions from committee members. Representatives all along the ideological spectrum would love to have Mr. Bernanke's blessing for particular stimulative measures. For their part, Democrats hope to extend unemployment-insurance benefits and offer tax rebates to some individuals. Republicans, while also interested in rebates, say they'd like additional incentives for businesses while avoiding a tax boost to offset the cost of the package. Indeed, tax issues, specifically the extension of the Bush tax cuts scheduled to expire at the end of 2010, could bog down the progress of the bill. Democratic leaders in Congress have signaled that Republican efforts to link a stimulus package with an extension of the tax cuts would mean a prolonged fight.
While Mr. Bernanke avoided endorsing specifics of any stimulus plan, he told the committee that such a plan should be implemented quickly and made temporary so that it won't complicate longer-term fiscal challenges. When asked about the extension of the tax cuts, Mr. Bernanke said efforts that involve "putting money into the hands of households and firms would be more effective" in terms of short-term stimulus than other provisions, such as making the Bush tax cut permanent. Responding to another question, he said that "tax cuts do not pay for themselves," perhaps in a swipe at supply-side gospel. Mr. Bernanke tossed at least one bone to Republicans, suggesting that making dividend tax cuts permanent would offer some near-term stimulus by boosting financial markets. At any rate, hashing out the details of a stimulus package remains the purview of politicos, not policy wonks and central bankers. And haggling could start soon, especially since today the White House signaled support for such a package. "The president does believe that over the short term that to deal with this softening in the economy that some boost is necessary," White House spokesman Tony Fratto said, adding that Mr. Bush plans to hold a conference call this afternoon with congressional leaders from both parties to discuss ideas about how to best stimulate the economy.
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Bernanke Speaks, Rally Fades
An equities rally faltered in the morning amid troubling economic news, a fresh round of subprime write-downs and potential downgrades of mortgage insurers' credit ratings. The Dow Jones Industrial Average opened modestly higher but just before midday was down 143.64 points, or 1.15%, at 12322.52. The blue-chip average slipped into the red shortly after Mr. Bernanke's testimony began. The Standard & Poor's 500 was off 21.17, or 1.54%, to 1352.03. The Nasdaq Composite Index was down 18.35, or 0.8%, at 2376.24. Treasurys moved higher. Crude oil futures slipped. The dollar weakened. Shares in Europe and Asia rose.
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Housing 'Freefall,' Happier Jobs Data
Home construction plunged 14% in December, tumbling to its lowest point since 1991, while a sign of future groundbreakings also dropped sharply. Builders face weak sales for new homes while the supply of unsold homes hovers high. Ahead of the Commerce Department's release of those numbers, Federal Reserve Bank of Cleveland President Sandra Pianalto described residential investment "in freefall" and said the Fed's rate-setting committee would need to be "highly flexible" at its meeting at the end of the month. In a somewhat encouraging sign, the Labor Department today reported that new jobless claims last week unexpectedly fell to their lowest level in nearly four months.
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Write-Downs Hurt Merrill
Merrill Lynch swung to a $9.83 billion loss in the fourth quarter, as the investment-banking giant capped a miserable second half by recording a total of $16.7 billion in losses related to subprime mortgages and complex debt instruments. The losses include, among others, a $9.9 billion write-down on collateralized debt obligations, or CDOs, a $1.6 billion write-down in subprime, and a $3.1 billion write-down related to exposure to shaky bond insurers. Also, Merrill announced it has hired former Goldman Sachs executive Noel Donohoe as its chief risk officer.
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Bond Insurer Stocks Plunge
Speaking of bond insurers, shares of MBIA and Ambac sank on news that major credit agencies were considering downgrades of their AAA ratings on bond insurers. Bond insurers have been rocked by concerns they could be hurt by guarantees they've written on complex debt securities that have plunged in value. Around midday, MBIA was off 34% and Ambac was down 49%.
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Google Ramps Up Philanthropy
Google's philanthropic arm said it will dole out nearly $30 million to do-good projects such as tapping solar power, preventing plagues and improving public services for the poor. Google's push into philanthropy is being watched closely because of its size and its effort to erase the usual boundaries between the for-profit and nonprofit worlds. Philanthropy experts consider Google to be among the leading edge of donors who are experimenting with this hybrid model.
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Suicide Bomber Targets Mosque in Pakistan
A suicide bomber targeted a Shiite mosque in the northwestern Pakistan city of Peshawar, killing at least three people and injuring 20. The blast comes as minority Shiite Muslims prepare to mark the Ashoura festival, which in previous years has been marred by sectarian violence involving rival Sunnis.
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Finance Firms' Earnings Filter In
CIT Group Inc. swung to a fourth-quarter loss due to previously announced decisions to boost loan-loss provisions and write off the remaining goodwill from its student-loan business venture. PNC's net income slumped 53% on charges related to Visa and BlackRock, and surging credit losses. BB&T's quarterly net grew 64%, due to year- earlier charges, but the company experienced increased levels of non- performing assets and credit losses in the fall and its provision for credit losses more than doubled. BlackRock's quarterly earnings jumped 90% as the investment-management firm benefited from strong demand for its advisory and alternative-investment services.
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Protesters, Police Clash in Nairobi
Kenyan police clashed with demonstrators in Nairobi amid protests called by an opposition politician, while demonstrations across the country appeared to be losing steam. Opposition leader Raila Odinga called for three days of demonstrations that began Wednesday. Turnout has been low, though, and there were few of the serious clashes and home burnings that characterized protests immediately after results from the disputed Dec. 27 election were announced.
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Attacks Mount Between Israel, Gaza
Militants in Gaza escalated rocket attacks on southern Israel, who pounded back with air and ground fire, declaring it would not back off until the assaults on Israeli border communities halt. ---
The Associated Press contributed to this report.
