Financial Technology

Financial Technology

August 08, 2011

Business Highlights

NEW YORK (AP) — ___

Stocks plunge worldwide — Dow's 6th–worst loss

The stock market buckled Monday under the weight of a crisis in Europe and danger of recession at home. Reeling from a downgrade of American debt, the Dow Jones industrials plunged 634 points.

It was the worst day for the market since the financial crisis in the fall of 2008 and extended Wall Street's sudden, sharp decline. Stocks have lost 15 percent of their value in just two and a half weeks.

Monday was the first trading day since Standard and Poor's downgraded the United States' risk–free credit rating, and the selling started at the opening bell. For the rest of the day, investors looked for safer places for their money. With few buyers left for stocks, the market could only drift lower.

In a bit of irony following the S&P downgrade, investors decided U.S. debt was one of the safest places to be. They also sought refuge in gold, which set a record price.


US debt downgrade could mean rate hikes for all

It is unclear what will happen to U.S. borrowing rates in the long term, because of the unprecedented nature of the Standard & Poor's downgrade and the decisions by Moody's and Fitch to keep their highest ratings for now.

Treasury prices are rising right now. But if investors get skittish and Treasury prices reverse course, that could send the interest rate on Treasury bonds up. Essentially, the rate, or yield, would climb in order to make the bonds more attractive to investors. That could lead to higher borrowing rates for consumers, because the rates on mortgages and other loans are often pegged to the yield on Treasury bonds.

Not every type of consumer borrowing has a direct tie to the government's credit rating, but there are potential ripple effects for individuals.


Investors resigned to more portfolio pain

Average investors are frustrated that the U.S. government is no longer among the world's most creditworthy, and fear Monday's stock plunge may not be the end.

And even though many suffered steep losses when the market tumbled three years ago, some now appear more willing to ride things out, figuring their portfolios will eventually recover.

The question is whether they'll be patient enough to stick with their plans. Any market rebound seems distant, given the spate of bad news about the economy, and debt problems here and in Europe.


AIG sues Bank of America for $10B over mortgages

More trouble piled up for Bank of America Corp. on Monday, as American International Group Inc. sued it for more than $10 billion, saying the bank cheated it by selling residential mortgage–backed securities that were overvalued.

The suit comes on top of similar suits, which together put the bank in a precarious position, analysts say. The bank's stock dove 20 percent, or $1.66, to $6.51, revisiting levels seen at the nadir of the recession, in March 2009.

AIG said Bank of America and two companies that were later gobbled up by the bank, Countrywide and Merrill Lynch, sold the insurance company $28 billion in securities backed by home mortgages between 2005 and 2007, at the height of the housing boom. It said it looked at more than 260,000 of the underlying mortgages, and found that the bank's "stated metrics" for 40 percent of the securities were false.


Verizon (News - Alert) workers hit picket lines from Mass. to Va.

Thousands of Verizon landline workers took to picket lines Monday from Massachusetts to Virginia, fighting management demands for contract givebacks and disputing that their work is unprofitable.

Verizon Communication Inc. countered that its 45,000 unionized workers in the East should not expect the kind of compensation they were paid when the phone company was a monopoly — and when no one questioned whether a household needed a land line.

Analysts said the strike came at a key point in the evolution of telecommunications: the beginning of the demise of the ordinary wired home phone.


Gold price tops $1,700 as investors seek refuge

The price of gold streaked past $1,700 an ounce for the first time Monday. Anxious investors sought safety in the metal as stocks tumbled around the world after the U.S. lost its AAA credit rating.

Gold's allure stems in part from fears that the world's major economies are dangerously indebted. Its value, unlike that of a currency, doesn't hinge on whether countries can make their bond payments.

Standard & Poor's on Friday cut the long–term credit rating for the U.S. by one notch to AA+, deepening investor fears about a weakening U.S. economy. The move may have been expected, but economists say its impact is still unclear, and the downgrade could hurt the economy. For example: Rates on mortgages could rise, further damaging the U.S. housing market.


ECB pledge gets Spain, Italy rates down

FRANKFURT, Germany (AP) — A risky European Central Bank decision to fight the continent's debt crisis by buying Spanish and Italian bonds on Monday started pushing down the soaring interest rates that were threatening those countries with financial disaster.

But some analysts cautioned that buying up the bonds of deeply indebted governments transfers significant risk to the balance sheet of an institution long reluctant to move beyond its traditional role controlling inflation.

Others expressed fears that the ECB could end its bond–buying too soon, leading rates to rise again. Bond yields and prices move in opposite directions; purchases that drive up the price also reduce the interest rate that countries face on new bonds.


Some big investors look to buy as markets buckle

Not since the financial crisis in 2008 has the Dow Jones industrial average fallen so far, so quickly. Yet for professional investors on Wall Street, the fears that have buckled financial markets over the past week are creating opportunities.

Some are buying U.S. stocks at levels they consider a steal. Some are looking at municipal bonds that can weather the current turmoil and will likely pay handsome yields.

Others are bolstering their portfolios with relatively safe, dividend–paying blue chips, bracing for a potential bear market.

And some are stockpiling cash, expecting things to get even cheaper.

Nearly all agree that what's behind the now seemingly daily huge point–drops in the Dow is growing concern that the global economy will not get better any time soon.


Fannie Mae 2nd quarter loss prompts $1.5B request for aid

WASHINGTON (AP) — Government–controlled Freddie Mac is asking for $1.5 billion in additional federal aid after posting a loss this spring.

The mortgage giant says it lost $4.69 billion, or $1.44 cents per share, in April–June quarter. That takes into account $1.6 billion in dividends paid to the Treasury Department. It compares with a loss of $6 billion, or $1.85 per share, during the same quarter in 2010.

The government rescued McLean, Va.–based Freddie Mac and sibling company Fannie Mae in September 2008 after massive losses on risky mortgages threatened to topple them.


By The Associated Press (News - Alert)(equals)

The Dow Jones industrials fell 634.76 points, down 5.6 percent at 10,809.85. It was the sixth worst point decline for the Dow in the last 112 years and the worst one–day drop since December 2008. Every stock in the Standard & Poor's 500 index declined Monday.

The S&P 500 fell 79.92, or 6.7 percent, to 1,119.46. The Nasdaq composite index fell 174.72, or 6.9 percent, to 2,357.69.

Benchmark West Texas Intermediate fell $5.57, or 6.4 percent, to settle at $81.31 per barrel on the New York Mercantile Exchange Monday. That is the lowest settlement price of the year for crude.

In other Nymex trading for September contracts, heating oil fell 14 cents to settle at $2.8017 per gallon, gasoline futures dropped 11.36 cents to settle at $2.6916 per gallon and natural gas rose 0.6 cent to settle at $3.935 per 1,000 cubic feet.


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