BusinessWeek Logo
March 24, 2008 Issue Posted March 13, 2008, 5:00PM EST

News You Need to Know

The Fed Unveils a New Weapon

The jobs number was the clincher: A recession is upon us. On Mar. 7 the government said private payrolls plummeted by 101,000 jobs in February, the third straight drop. That probably helped nudge the Fed to wheel out a new weapon against the credit crunch that's worsening the downturn. The "term securities lending facility," unveiled on Mar. 11, will let big banks borrow a cool $200 billion in low-risk Treasury securities from the Fed, using high-rated mortgage-backed paper as collateral. Wall Street cheered, sending the Dow up 416 points.

—Edited by Harry Maurer & Cristina Linblad

Clobbered by the Crunch

Cheap credit made highfliers out of companies that leveraged cash into hefty returns. Now credit is scarce, and some mortgage lenders, debt traders, and private equity funds are up against a wall. Thornburg Mortgage (TMA), a consumer lender, on Mar. 12 was teetering as it was forced to liquidate securities for ready cash. Carlyle Capital, a listed investment fund associated with private equity fund Carlyle Group, plummeted in value as it struggled with margin calls from worried banks. And mighty Blackstone Group (BX), the publicly traded private equity fund, on Mar. 10 reported a fourth-quarter loss of $170 million as red ink from mortgage insurer FGIC and failed deals clipped the bottom line.

—Edited by Harry Maurer & Cristina Linblad

Banks in a Bind

The banking sector just reported its worst earnings in 16 years and its highest level of loan losses since 1984. But the worst-case scenario keeps getting worse: Some hard-nosed number crunchers figure banks haven't come up with nearly enough to cover bad loans and vastly overstated profits in the past. That will cloud earnings for the foreseeable future.

—Edited by Harry Maurer & Cristina Linblad

Probing Countrywide

How much funny business lies beneath the mortgage mess? The FBI is deep into a criminal probe of Countrywide Financial (CFC), looking into whether the nation's largest home lender disclosed all it should have to investors in its mortgage-backed securities, according to The Wall Street Journal on Mar. 11. News of the probe sent Countrywide stock down to a 13-year low of $4.30 as investors wondered whether the company's planned sale to Bank of America (BAC) would go through. Countrywide and BofA didn't respond to requests for comment, but Countrywide has denied wrongdoing in response to lawsuits alleging securities fraud.

—Edited by Harry Maurer & Cristina Linblad

Spitzer Steps Down

Eliot Spitzer resigned as New York's governor on Mar. 12 after federal agents discovered he was a client of a high-end prostitution ring. It marked a shocking end for a man who made his name exposing shady dealings in the financial community. During his days as New York attorney general, Spitzer laid low crooked analysts, exposed abuses in the mutual-fund industry, targeted New York Stock Exchange (NYX) chief Dick Grasso for excessive pay—and busted prostitution rings. Now, Wall Street gets to revel in the humiliation of its onetime antagonist.

—Edited by Harry Maurer & Cristina Linblad

Gas Guzzles Dollars

Vroom! Gasoline prices reached a record national average of $3.24 per gallon on Mar. 12. The Energy Dept. predicts gas will cost $3.50 as the summer driving season revs up in May and June, meaning $4 in some pricey local markets. The record highs are surprising given that gasoline demand has been weak and supplies above average. The main culprit, natch: crude oil, which hit an intraday trading high of $110 a barrel on Mar. 12.

—Edited by Harry Maurer & Cristina Linblad

A Raid at SocGen

As Société Générale (SCGLY) celebrated a vastly oversubscribed $8.4 billion share sale, which could help it fend off a takeover, police raided its Paris headquarters on Mar. 12, collecting evidence and taking a broker into custody in the investigation of a rogue trading scandal. The equities trading broker was held for questioning about transactions by Jérôme Kerviel, who has admitted losing more than $7 billion on unauthorized bets on European markets. Investigators so far have reported no evidence of accomplices; a broker at another SocGen unit who had handled some of Kerviel's trades was questioned and released last month.

—Edited by Harry Maurer & Cristina Linblad

BW Mall - Sponsored Links