The U.S. economy’s three musketeersFederal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox — paid a Valentine’s Day visit to the Senate Banking Committee and gave us everything but the R-word.
Bernanke: “The outlook for the economy has worsened . . . and the downside risks to growth have increased.”
Paulson: “After years of unsustainable home-price appreciation, our economy is undergoing a significant and necessary housing correction.”
Cox: “U.S. and overseas markets have been roiled by the deterioration of credit and liquidity conditions in the U.S. residential mortgage market.”
It’s nice to see our leaders almost acknowledging the problem.
Bernanke told senators the Fed has lowered its key interest rate by 225 basis points since September and is prepared to crank it down more, as needed. The Fed, however, must balance its need to keep us out of a recession against the risk of runaway inflation.
The Fed’s “inflation-fighting credibility” could be lost if it cuts too far, Bernanke warned, and this could “reduce the central bank’s policy flexibility to counter shortfalls in growth in the future.”
Paulson praised Congress and President Bush’s plan to give 130 million Americans $300 to $1,200 in emergency tax rebates. “The payments,” he said, “will help create more than half a million jobs by the end of this year.”
He also praised Bush initiatives to slow the rash of foreclosures that has been sweeping the nation. He said HOPE NOW, a consortium of subprime-loan service companies, assisted 869,000 troubled homeowners last year.
Cox also told the committee the SEC has about three dozen ongoing investigations into the sub prime-lending debacle: how the loans were made, then turned into securities and sold to investors; whether there were proper disclosures or illegal trades; and whether the credit-ratings agencies turned a blind eye.
“The resulting large losses . . . have led to a more risk-averse environment,” he said, “and have contributed to a slowdown in the . . . nation’s economic growth.”
All three stopped short of declaring a recession — which is what prudence demands in their positions — but just watch what they do. It’s one big bailout after the next, and the U.S.S. Enterprise is still taking on water.
Even as they spoke, UBS AG announced a fourth-quarter loss of more than $11 billion, thanks to its investment in U.S. subprime mortgages. It was reportedly dubbed the St. Valentine’s Day Massacre at the Swiss investment-banking giant. The loss was even bigger than at Merrill Lynch & Co. ($9.9 billion) and Citigroup Inc. ($9.8 billion).
It looks like these losses may keep coming, too. “UBS expects 2008 to be another difficult year,” the firm said in a statement.
One piece of good economic news, though: Bernanke, Paulson and Cox seem fresh out of ways to sugarcoat the economy. This may be a sign that the economy will take a turn for the better.
These guys are what I call lagging indicators.
Respond to Al Lewis at , 303-954-1967 or alewis@denverpost.com.
