Financial Headline News for Friday 9/30

Stock market closes out its worst quarter since the peak of the financial crisis in fall 2008. Just another September of the markets tanking.

More bad news regarding the housing market as the chickens are still coming home to roost for the inflated housing prices of the late 1990's and 2000's caused by unqualified people getting loans from banks and other lending institutions to buy houses they couldn't afford.

The economic impact of stagnant salaries will continue to impact the economy.

Here are the top financial stories of the day:

1) Stocks end gloomy 3rd quarter on a weak note-From the AP

The worst quarter for the stock market since the financial crisis ended on another down note.

Stocks fell broadly Friday on fresh signs that Europe's debt problems and the U.S. economy continue to languish. Makers of raw materials, industrial companies and banks -- which would have the most to lose if the economy turns sour -- had the biggest losses.

The Dow Jones industrial average dropped 240.60 points, or 2.2 percent, to 10,913.38. Hewlett-Packard Co. fell the most of the 30 stocks in the average, 5.6 percent. Aluminum maker Alcoa Inc. was close behind with a 4.9 percent decline. JPMorgan Chase & Co. fell 4.1 percent.

The broader S&P 500 index shed 28.98, or 2.5 percent, to 1,131.42. All 10 industry groups in the S&P 500 index fell.

The Nasdaq composite index fell 65.36, or 2.6 percent, to 2,415.40.

Markets have been wracked this summer by growing fears about a possible default by Greece and the increasing likelihood of a global recession. Uneven economic data have touched off sudden bouts of buying and selling. The Dow, S&P 500 and Nasdaq each lost more than 12 percent this quarter, the first time that's happened since the financial crisis crested at the end of 2008.

The S&P 500, the benchmark for most U.S. stock mutual funds, has lost 14.3 percent since July 1, the start of the third quarter. That's the biggest quarterly drop since the three months ended Dec. 31, 2008, when global financial markets seized up. Excluding that period, the S&P has not dropped that much in a quarter for nine years. The Dow dropped 1,500.96 points, or 12.1 percent, over the same time frame.

"The market has really seen some damage this quarter," said Mike Hurley, portfolio manager of Highland Trend Following Fund.

The weakness appears to be the start of a longer decline, Hurley said, because bonds are increasing in value and interest rates are low. Traders also are selling commodities such as oil, which would lose value in an economic downturn.

"Lower interest rates and commodity prices are definitely an indication that the market thinks economic activity is going to be weak," Hurley said.

Stocks in France, England and Germany fell on the latest signs of discord among European leaders. Germany and France proposed managing the region's shared currency through meetings of national leaders, rather than by centralized institutions. The head of the European Commission balked at the proposal.

Persistent squabbling over financial policy has been a major obstacle to achieving a lasting solution to Europe's debt crisis. France and Germany, the currency union's strongest economies, want countries to coordinate their spending and borrowing more closely. Other countries see that as a threat to their sovereignty.

Many European leaders and traders believe Greece will default in the coming weeks or months. Greece's lenders and neighbors are preparing as best they can to prevent that from causing a worldwide financial panic.

As a result, traders have reacted strongly to news and rumors out of Europe about how the crisis is being addressed. Markets gyrated wildly this summer in some of the most volatile trading on record. The Dow Jones industrial average swung more than 100 points in more than half of the trading days this quarter.

Traders also have made big moves in response to U.S. economic data, which has mostly suggested a slowdown. A recession in the U.S. looks increasingly likely, mainly because of Europe's struggles and signs of weakness in developing countries like China that have been driving global economic growth.

The government said Friday U.S. consumers spent slightly more in August, but earned less for the first time in nearly two years. That suggests that people are tapping their savings to pay for costlier gasoline and to offset lost wages. The savings rate fell to its lowest level since late 2009.

Micron Technology Inc. plunged 14 percent, the most of any company in the S&P 500 index, after the chipmaker disappointed investors with a quarterly loss. Analysts had expected a profit. Sales were hurt as the company transitions to selling a newer array of memory chips.

Ingersoll-Rand dove 13 percent after cutting its profit forecast for the third and fourth quarters. The machinery maker said North American sales of climate-control and security products have been weaker than expected.

Bank of America Corp lost 3.6 percent after Warren Buffett told Bloomberg Television that the bank's problems will take longer than a year to clean up.

Four stocks fell for every one that rose on the New York Stock Exchange. Volume was above average at 4.7 billion shares.

2) No Rise in Home Prices Until 2020: Bankers-From CNBC 

Home prices are unlikely to recover before 2020 and mortgage defaults will persist for years, says a survey of bank risk managers out Friday.

The survey conducted by the Professional Risk Managers’ International Association for FICO, found that 49 percent of respondents do not expect housing prices to rise back to 2007 levels for another nine years.

Only 21 percent of respondents said they would.

The findings, which authors called “a decidedly pessimistic outlook”, are a sharp reversal from cautious optimism the survey respondents expressed late last year and in early 2011.

In addition, 73 percent of surveyed bankers say they expect mortgage defaults to remain elevated for at least another five years. And 46 percent believe mortgage delinquencies will increase over the next six months.

Only 15 percent of respondents expect mortgage delinquencies to decline during that period.

“While the housing sector will almost certainly gain strength during the next nine years, many bankers clearly believe prices will remain depressed for half a generation,” said Andrew Jennings, chief analytics officer at FICO.

Bankers concerns spread beyond the housing market.

A large number of respondents says they also expect to see an uptick in delinquencies on auto loans, credit cards and student loans.

Small businesses are expected to continue face a challenging credit environment. More than one-third of respondents forecast an increase in delinquencies on small business loans.

Bankers also appear to be pessimistic about recovery in consumer spending, with 64 percent of respondents expecting credit card usage to remain below pre-recession levels for at least five more years.

Half of the respondents expect credit card balances to increase over the next six months, due to higher spending by some households and smaller monthly payments by others.

3) Smaller Paychecks Having a Big Impact-From The Wall Street Journal

Sluggish U.S. income growth isn't necessarily new. It just stings more these days.

On Friday, the Commerce Department is out with a potpourri of personal income, spending, saving and inflation figures for August. It could be a pungent mix: after-tax income is barely expected to grow, so even modest inflation will wipe out income growth in real terms.

No wonder spending is only expected to inch up about 0.2% for the month after a hefty 0.8% gain in July.

Households, after all, are far more reliant on paychecks (and government benefits) now than during the credit-fueled boom. Consumer credit as a percentage of personal spending, for example, rose from 18.4% in the early 1990s to a peak of 26.3% in December 2008.

It has since dropped sharply, notes Omair Sharif of RBS Securities. But with the level still at 22.8% as of July, "we're probably not even halfway through" the household debt-shedding process, he says.

That has two broad implications for consumer spending and, in turn, U.S. growth.

For one, consumption—still about 70% of the economy—is unlikely to grow any quicker than incomes for the foreseeable future. And income growth is anemic.

That isn't just a function of the recession. Real disposable income growth has been slowing for decades. It averaged 4.5% annual growth in the 1960s, 3.7% in the 1970s, about 3% in the '80s and '90s, and only 2.5% last decade. As of July, this measure was up just 1.2% from a year earlier.

Second is that while income growth will keep a lid on spending growth, the debt-shedding process acts as a drain. Every dollar of income that households use to pay down debt is a dollar that could have been spent.

That isn't to say it should have been; the quicker households lower their debt burdens, the better for the long-term health of the economy. For now, though, it means consumption will likely remain below its historical trend.

Indeed, RBC Capital Markets notes the stock-market swoon could even push spending into negative territory in the current third quarter.

That points to a weak trajectory for economic growth as well, which isn't encouraging for the labor market.

Further proof that there are no smelling salts to quickly revive the debt-laden economy.

Inspirational Quotes @Inspire_Us from Twitter

The reputation of a thousand years may be determined by the conduct of one hour. -Japanese proverb

Financial Headline News for Thursday 9/29

It was a roller coaster day on Wall Street today as an early rally on the stock market faded Thursday afternoon. However, indexes then moved up from the day's lows to finish mixed.

Economic reports show improvement, but not enough to suggest lower unemployment ahead. However the unemployment number for first time filers came in at 391,000 this morning, 37,000 less than last week, which was the lowest figure since April.

Hopefully this is not a sign of things to come but I doubt it-Bank of America is going to charge $5 a month fee for debit cards. I can't wait to hear what Dave Ramsey will say about this.

Here are the top financial stories of the day:

1) Dow ends up 1.3%: Stocks come off lows, finish mixed-From USA Today

An early rally on the stock market faded Thursday afternoon, but indexes then moved up from the day's lows to finish mixed.

The Dow Jones industrial average closed up 1.3%, gaining 143.08 points to finish at 11,153.98. The Standard & Poor's 500 index gained rose 9.34, or 0.8%, to 1,160.40, while the Nasdaq composite index fell 10.82, or 0.4%, to 2,480.76.

Technology stocks fell more than the rest of the market, pulling down the Nasdaq.

Analysts said stock trading was likely to remain volatile until investors got more certainty about Europe's debt crisis and the U.S. economy. "Until we start to see more clarity on policy intervention, we'll continue to see this intraday, manic market reaction," said James Dailey, chief investment officer of TEAM Financial Managers.

Stocks rose sharply in early trading after the government reported that first-time applications for unemployment benefits fell to a five-month low. The government also raised its estimate of economic growth in the April-June period. The Commerce Department said the economy grew at a 1.3% annual rate in the second quarter, up from its previous estimate of 1%.

Other economic reports came in relatively weak. A trade group survey showed that chief executives of the nation's largest companies are more pessimistic than they were just three months ago. Also, fewer Americans signed contracts to buy homes in August, the second straight month of declines.

In Europe, German lawmakers voted to expand the powers of the region's bailout fund. The measure must be approved by all 17 countries that use the euro. The plan will allow the bailout fund to buy government debt and lend money to troubled European countries. Finland approved the measure Wednesday.

Banks, which would have the most to lose if Europe's debt crisis gets worse, rose more than the rest of the market. Analysts cautioned that bank stocks remain vulnerable if Europe stumbles in its efforts to contain its debt crisis. "Investors need to be very careful, because there is still a vast labyrinth of potential challenges that remain to be cleared with regard to Europe," said Frank Barbera, a portfolio co-manager of the Sierra Core Retirement Fund.

2) Economy gaining but not enough to cut unemployment-From the AP

The economy is showing signs of modest improvement -- not enough to reduce high unemployment but enough to ease fears that another recession might be near.

Fewer people applied for unemployment benefits last week, though some of that was due to technical factors. And the economy grew slightly more in the April-June quarter than previously estimated.

Growth is also expected to tick up in coming months.

Investors initially drew some hope from the latest data, as well as from news that Germany's government approved a plan to bolster Europe's response to its debt crisis. The Dow Jones industrial average surged more than 200 points in morning trading before erasing all its gains by mid-afternoon.

Some of the news Thursday wasn't encouraging. Chief executives of the nation's largest companies are more pessimistic than they were just three months ago, according to a survey by a trade group, the Business Roundtable.

Only about one-third of the CEOs said they plan to hire or boost spending in the next six months. That's down from about half who said so in June.

And fewer Americans signed contracts to buy homes in August, the second straight month of declines.

The economy expanded at an annual rate of 1.3 percent in the April-June quarter, up from an estimate of 1 percent a month ago, the Commerce Department said. The improvement reflected modestly higher consumer spending and a bigger boost from trade.

Even so, the economy grew at an annual rate of just 0.9 percent in the first six months of the year. That's the weakest six-month performance since the recession ended more than two years ago.

Many Americans are spending less because they're paying off debt. That trend is likely to hold back the economy in the months ahead.

Michelle Fregoso, 32, and her husband recently put off buying a new car, and they canceled a gym membership. They're focused on paying off their credit cards.

All the talk of slow growth and a possible recession has made Fregoso, who lives and works outside Chicago, more cautious.

"Obviously the economy stinks," she said. "We just want to be careful about how we're spending our money."

Weak consumer spending, high unemployment and financial market turmoil could slow growth for the rest of this year.

Most economists don't expect another recession. But they also don't see growth accelerating much.

Many foresee a rebound to between 2 percent and 2.5 percent growth in the current quarter.

A forecasting panel for the National Association for Business Economics predicts that growth for all of 2011 will be just 1.7 percent.

Many economists expect similarly tepid growth in 2012 and 2013. The economy would need to grow consistently at 4 percent to 5 percent to generate enough hiring to lower unemployment significantly.

"Growth remains sluggish and insufficient to reduce the unemployment rate," Ryan Sweet, an economist at Moody's Analytics, said in a note to clients.

The unemployment rate was stuck at 9.1 percent in August for the second straight month. Employers didn't add any jobs in August -- the weakest showing in nearly a year.

Economists expect little if any improvement in hiring for September. Sweet thinks employers will have added 50,000 jobs this month. More than twice as many jobs would be needed just to keep up with population growth.

Others are gloomier. Capital Economics predicts that the economy in September will have failed for a second straight month to create any jobs. The main problem, the firm says, is that businesses don't think their customer demand justifies additional workers.

Though growth has probably strengthened a bit in the July-September quarter, the economy suffered shocks that will restrain growth in the final quarter of this year, economists say.

In early August, for example, Congress fought to the final hours before raising the nation's borrowing limit.

That delay, in part, led to a downgrade of long-term U.S. debt by Standard & Poor's. Stocks tumbled in response.

In addition, consumer confidence plunged last month to its lowest level since April 2009, when the economy was officially in recession.

And retail sales were flat in August, a sign that the turmoil caused consumers to pull back.

Businesses and investors are also worried that Europe won't be able to prevent Greece from defaulting and worsening the region's debt crisis. If Greece defaults, it could destabilize other indebted countries, such as Portugal, Ireland and Italy. It could also harm many of Europe's banks, which own Greek debt.

And if European banks hoard cash to make up for their losses and stop lending to their U.S. counterparts, that could restrict credit in the United States and slow the economy. A financial crisis in Europe would also reduce U.S. companies' exports and sales to the region.

Last week, applications for unemployment benefits dropped 37,000 to a seasonally adjusted 391,000. That was the fewest since April 2.

Some of the improvement was due to technical factors related to the seasonal adjustment of the data, a

Labor Department spokesman said. The spokesman also said some states had reported higher applications in previous weeks due to Hurricane Irene.

As a result, the drop in applications for benefits "may not be as encouraging as it looks," said Paul Dales of Capital Economics. "Further falls will be needed before we can conclude a downward trend is underway."

3) Bank of America to charge $5 debit card fee-From the AP

Bank of America plans to start charging customers a $5 monthly fee for using their debit card to make purchases. The fee will be rolled out starting early next year.

A number of banks have already either rolled out or are testing such fees. But Bank of America's announcement carries added weight because it is the largest U.S. bank by deposits.

Anne Pace, a Bank of America Corp. spokeswoman, said Thursday that customers will only be charged the fee if they use their debit cards for purchases in any given month. Customers won't be charged if they only use their cards at an ATM.

The fee will apply to basic accounts and will be in addition to any existing monthly service fees. For example, one of the bank's basic accounts charges a $12 monthly fee unless customers meet certain conditions, such as maintaining a minimum average balance of $1,500.

A fee for using debit cards is still a novel concept for many consumers and was unheard of before this year. But there are signs it may soon become an industry norm.

SunTrust, a regional bank based in Atlanta, began charging a $5 debit card fee on its basic checking accounts this summer. Regions Financial, which is based in Birmingham, Ala., plans to start charging a $4 fee next month.

Chase and Wells Fargo are also testing $3 monthly debit card fees in select markets. Neither bank has said when it will make a final decision on whether to roll out the fee more broadly.

The growing prevalence of the debit card fee is alarming for Josh Wood, a 32-year-old financial adviser in Amarillo, Texas.

Wood relies entirely on debit cards to avoid interest charges on a credit card. If his bank, Wells Fargo, began charging a debit card fee, he said he would take his business to a credit union.

If a debit fee became so prevalent that it was unavoidable, Wood said he's not sure how he'd react.

"I might use all cash. Or go back to writing checks," he said.

The debit card fee isn't the only unwelcome change for checking account customers are seeing either.

The banking industry has been raising fees and scaling back on rewards programs as they adjust to new regulations that will limit traditional revenue sources.

Starting Oct. 1, a regulation will cap the fees that banks can collect from merchants whenever customers swipe their debit cards. Those fees generated $19 billion in revenue for banks in 2009, according to the Nilson Report, which tracks the payments industry.

There is no similar cap on the fees that banks can collect from merchants when customers use their credit cards, however. That means banks may increasingly encourage customers to reach for their credit cards, reversing a trend toward debit card usage in the past several years.

An increasing reliance on credit cards would be particularly beneficial for Bank of America, which is a major credit card issuer, notes Bart Narter, a banking analyst with Celent, a consulting firm.

"It's become a more profitable business, at least in relation to debit cards," Narter said.

This summer, an Associated Press-GfK poll found that two-thirds of consumers use debit cards more frequently than credit cards. But when asked how they would react if they were charged a $3 monthly debit card fee, 61 percent said they'd find another way to pay.

If the fee were $5, 66 percent said they would also change their payment method.

Bank of America's debit card fee will be rolled out in stages starting with select states in early 2012. The company would not say which states would be affected first.

Bank of America shares rose 9 cents, or 1.5 percent, to $6.25 in afternoon trading.

Quote of the Day from Dave Ramsey.com:
Deuteronomy 30:19 — Choose life that both you and your descendants may live.

Financial Headline News for Wednesday 9/28

The Stock market snapped a three-day winning streak on worries about Europe yet once again. After starting the day up, the Dow fell 180 points.

Analysis shows that credit-default swaps, a popular indicator of market health, are thinly traded.

Unemployment rates fell in two-thirds of US cities last month, despite slowdown in hiring.

Here are the top financial stories of the day:

1) Dow drops 180 points, ending 3-day winning streak-From the AP

Stocks are closing lower, ending a three-day winning streak, as investors worry about Europe's ability to contain its debt crisis.

Traders focused on remarks from German Chancellor Angela Merkel suggesting that the second Greek bailout package might have to be renegotiated. Several European leaders want banks to take bigger losses on Greek bonds. France and the European Central Bank oppose the idea.

The Dow Jones industrial average fell 180 points, or 1.6 percent, to close at 11,011. Bank of America fell the most, 4.9 percent.

The Standard & Poor's 500 fell 24, or 2.1 percent, to 1,151. The Nasdaq fell 55, or 2.2 percent, to 2,492.

Five stocks fell for every one that rose on the New York Stock Exchange. Trading volume was average at 4.3 billion shares.

2) A Fear Gauge Comes Up Short-From the Wall Street Journal 

Wall Street is glued to a gauge of trading fear that has surprisingly few trades behind it.

In recent years, credit-default swaps—contracts that give the buyer the right to collect a payment from the seller if a borrower defaults on its obligations—have risen from obscurity to an avidly tracked barometer of the financial health of everything from Bank of America Corp. to Greece.

In some cases they have even come to serve as a stand-in for stock quotes when U.S. exchanges are closed.

Before stock markets opened in New York on Aug. 23, for example, the price quoted for the cost of insuring against a default on Bank of America rose sharply, hitting a record high. A Nomura Securities trader sent out an email alert citing the derivatives price: "Ugly out there this morning."

Yet a Wall Street Journal analysis shows that actual trades in these widely cited derivatives are few and far between—and the quotes that market observers bandy about often aren't based on actual trades at all.

While the swaps can help investors hedge risks and bet on market trends, the thin trading underlines a key shortcoming of an instrument that has a huge influence on risk perceptions. During periods of stress, the actions of a few traders can have an outsize impact on delicate market psychology.

"The market does not fully understand the limitations in trading, or the lack of liquidity, as CDS spreads are often quoted as readily as the DJ industrial average nowadays," said Hong Yan, a professor of finance at Shanghai Advanced Institute of Finance who is on leave from the University of South Carolina. "This could be potentially dangerous in a very volatile and uncertain market since CDS spreads are used much more frequently and prevalently."

The Journal analyzed data compiled by Depository Trust & Clearing Corp., a central warehouse that collects swaps trading information from investment banks. That analysis shows that even for the most popular credit-default swaps, such as those for Bank of America debt, daily trading is dwarfed by that in the stock market and often, too, in bonds.

For the week ending Sept. 16, the most recent data available, the gross notional value of swaps referencing Bank of America—that is, the value of the contracts outstanding—rose from the prior week by $700 million, according to Depository Trust.

By comparison, some $8.5 billion of the Charlotte, N.C., company's stock traded during the same week.
Despite the thin trading, investment banks and media outlets frequently point to swaps pricing as an indicator of the health of the global financial system's constituent parts.

On Tuesday, the limited trading was further highlighted in a Federal Reserve Bank of New York paper that analyzed three months of swaps data for both single-name corporate bonds and baskets of swaps. New York Fed officials sought to better understand how frequently the derivatives trade amid regulatory efforts to require investment banks to report real-time transaction data.

The study found little actual trading.

"A majority of the single-name reference entities traded less than once a day, whereas the most active traded over 20 times per day," the New York Fed paper said.

"The CDS market, in general, is not like the fast-trading stock market," said Darrell Duffie, a derivatives expert and finance professor at Stanford University.

That isn't to say there is no money at stake in the credit-default swap market. The net notional value of swaps outstanding on Bank of America, for instance, was $5.8 billion at Sept. 23, a similar level from the start of the year, according to Depository Trust. That is the maximum amount of money that would be exchanged in the event of a default.

The contracts have been used for years by banks to unload risks they don't want and by hedge funds and other investors to bet on changing market trends. But since the financial crisis of 2008, they have been best known as a measure of market stress, following the warning signals they flashed ahead of the problems at Bear Stearns Cos. and Lehman Brothers Holdings Inc.

In the case of credit-default swaps for corporate bonds, a buyer pays a sum quarterly for the derivative. If a bond defaults, the losses are covered by the seller of the contract.

Costs of the protection can rise if investors believe the underlying debt is getting riskier. Those trading the swaps often are big banks or, to a lesser degree, hedge funds.

Data vendors such as Markit Group Ltd. and CMA, a unit of CME Group, use computer systems to extract swaps prices—including quotes—from electronic messages between investment banks and investors.

The companies aggregate that pricing data, which makes its way to a wider audience seeking a gauge of default risk—an audience that may not recognize the limitations of the data they are looking at and the nature of how the derivatives trade.

3) Unemployment rates fell in majority of US cities-From the AP

Unemployment rates fell in roughly two-thirds of U.S. cities last month, despite zero job growth nationwide.

The Labor Department said Wednesday that unemployment rates dropped in 237 of the nation's largest metro areas in August from July. They rose in 103 and stayed the same in 32. That's an improvement from July, when rates fell in 193 areas and rose in 118.

Some areas with large agricultural sectors added jobs to coincide with the start of the harvest. Auto companies boosted hiring in several other cities.

Rates also fell in Jackson, Miss., and other cities because thousands of people gave up looking for work.

People who are no longer searching for jobs aren't counted as unemployed.

Unlike national and state data, metro unemployment figures are not adjusted for seasonal changes.

The U.S. economy added no net jobs in August, the least amount of hiring in almost a year. The national unemployment rate remained 9.1 percent for the second straight month.

Businesses pulled back on hiring this summer after the government said the economy barely expanded in the first six months of the year.

Most of the cities that reported sharp improvement still suffer from steep unemployment rates.

Unemployment dropped the most last month in Yuba City, Calif., a heavily agricultural area in Northern California. The city's rate fell from 18.6 percent in July to 17 percent last month.

Another big decline was in Modesto, Calif., home of the E. & J. Gallo Winery, the largest winemaker in the
world. The rate there dropped from 17.3 percent in July to 16 percent last month.

The unemployment rate in Mansfield, Ohio fell from 11.4 percent to 10.1 percent, mostly because the city added manufacturing jobs.

El Centro, Calif. and Yuma, Ariz. had the highest unemployment rates among cities, at 32.4 percent and 29.4 percent, respectively. They are adjacent counties with heavy farm economies and large contingents of migrant labor. Yuma's rate fell while El Centro's ticked up.

Bismarck, N.D. reported the nation's lowest unemployment rate, at 3 percent. Lincoln, Neb. had the next lowest rate, at 3.6 percent, followed by Fargo, N.D., at 3.9 percent.

Among the 49 cities with populations of 1 million or more, Las Vegas had the highest unemployment rate, at 14.2 percent. Riverside-San Bernardino, Calif. had the second highest, 14.1 percent. Both were hit by huge housing bubbles and haven't yet recovered.

Oklahoma City, Okla. had the lowest rate among big cities, at 5 percent

Quote of the Day from Dave Ramsey.com:
The quality of a person's life is in direct proportion to their commitment to excellence, regardless of their chosen field of endeavor. — Vincent Lombardi

Financial Headline News for Tuesday 9/27

Nearly all asset classes rose in the US and stocks soared through much of the day, until the major indexes dipped off their highs in the final 30 minutes of trading. The Dow was up over 300 at one point but settled at 146.83 when the closing bell sounded.

There was some good news regarding housing today, however it is only minuscule in the grand scheme.

Fund managers are starting to restock their portfolios with stocks as the last few days rally is showing

Here are the top financial stories of the day:

1) Dow's Rally Loses Steam-From The Wall Street Journal

A sharp afternoon downdraft prompted U.S. stocks to erase more than half of their earlier gains, as investors fretted over a report that highlighted a potential split in the euro zone over the terms of Greece's second bailout.

The Dow Jones Industrial Average finished the session up 146.83 points, or 1.33%, to 11190.69, after surging as much as 325 points. The gains came a day after the blue-chip index climbed 272 points.

The Standard & Poor's 500-stock index gained 12.43 points, or 1.07%, to 1175.38. Each of the 10 sectors in the index finished in positive territory. The technology-oriented Nasdaq Composite closed up 30.14 points, or 1.2%, to 2546.83.

Stocks pared gains in the final trading hour after the Financial Times reported a split has developed in the euro zone over the terms of Greece's second bailout package. As many as seven of the bloc's 17 members are arguing for private creditors to swallow a bigger writedown on their Greek bond holdings, the FT said, citing senior European officials.

"This shows more indecision and a lack of something definitive getting done," said Tom Donino, co-head of trading at First New York Securities. "Everyone keeps thinking we're getting closer and closer to getting something done in Greece. But then we get word that we're not as close as we thought."

Traders pointed to this report as one of the main catalysts that prompted profit taking from investors and the major indexes to finish well off session highs.

The report came after Greece's parliament Tuesday approved a new property tax law in a closely watched vote, taking a key step in the country's efforts to secure further aid from its international creditors and avoid default.

The vote was a crucial test to enact fresh austerity measures in coming weeks and meet budget goals for this year and 2012.

Still, the market action in the final trading hour highlighted how jittery traders and investors have become in this turbulent trading environment.

"Any little blip on the news horizon tends to cause an overreaction in the trading pit these days," said Stephen Leuer, floor trader at X-FA Trading.

Stocks have gyrated sharply on a daily basis in recent weeks. The Dow plunged 6.4% last week, its biggest drop since October 2008. But it gained 4.7% in the previous week, underscoring how the market is moving wildly in either direction without true fundamentals supporting the moves.

"We're hanging on to every word coming out of Europe," said Elliott Roman, managing director at Direct Access Partners.

In the U.S., fears of a potential government shutdown were assuaged after a deadlock on budget talks was broken, leading the Senate to approve of a bill late Monday to fund the government through Nov. 18. The House is likely to approve the bill as well.

Investors largely overlooked another bleak reading on consumer sentiment. The Conference Board, a private research group, said its index of consumer confidence edged up to 45.4 in September from a revised 45.2 last month. The level is down sharply from July's 59.2 reading.

"The black clouds are still out there," said Daniel Morgan, portfolio manager at Synovus Securities, who described Tuesday's bounce as more of a "technical rebound" as opposed to a sign of sustainable optimism that the European debt crisis is coming to a head.

2) Spring buying boosts home prices, market still sluggish-From USA Today

Home prices rose for a fourth straight month in most major U.S. cities in July, buoyed by the peak buying season. But the housing market remains depressed, and prices are expected to decline in the coming months.

The Standard & Poor's/Case-Shiller index released Tuesday showed home prices increased in July from June in 17 of the 20 cities tracked.

Prices rose sharply in Minneapolis and Chicago. Prices in two cities hit hardest by the housing crisis —Las Vegas and Phoenix — declined.

The index, which covers half of all U.S. homes, measures prices compared with those in January 2000 and creates a three-month moving average. The July data are the latest available.

Analysts cautioned that the price increases are temporary, and not evidence of a housing recovery. Home sales have declined in each of the months in which prices rose.

Prices are expected to drop again this fall and winter, based on the poor sales and expectations that banks will resume processing a raft of foreclosures that have been in limbo.

"This is still a seasonal period of stronger demand for houses, so monthly price increases are expected," said David M. Blitzer, chairman of Standard & Poor's index committee. "While we have now seen four consecutive months of generally increasing prices, we do know that we are still far from a sustained recovery."

Over the past 12 months, prices have fallen in all but two cities: Detroit and Washington.

In Detroit, prices have risen 1.2% during that stretch. Still, the city has been among the nation's worst housing markets over the past decade. In July, homes prices there were equal to 1995 levels.

"In some cities, prices are so undervalued they are not likely to fall further," said Patrick Newport, U.S. economist at IHS Global Insight. "Detroit, which largely avoided a run-up in prices but still saw prices collapse, may be a case in point."

Washington, conversely, has had America's best housing market. Home prices in the nation's capital have increased 0.3% in those 12 months, and were equal to 2004 levels in July.

Housing is a key reason the economy has struggled more than two years after the recession officially ended.

High unemployment, larger required down payments and tighter credit are preventing many buyers from entering the market. Many who could afford to buy are waiting because they are worried the U.S. could fall back into another recession and prices could fall further.

Sales of previously occupied homes are only slightly ahead of last year, which was the weakest since 1997.

New-home sales dropped in August for a fourth straight month. This year is shaping up to be the worst for sales of new homes on records dating back to 1963.

And home prices are certain to fall further once banks resume millions of foreclosures, which have been delayed because of a 10-month government investigation into mortgage lending practices.

"This effect (of spring buying) will fade soon because sales have dropped back in recent months," said Ian Shepherdson, chief U.S. economist for High Frequency Economics. "We expect to see price declines again by the autumn, but we do not anticipate a renewed collapse" in the housing market.

3) Balanced Funds Tilt Toward Stocks, While Investors Want to Scale Back-From The Wall Street Journal 

While individual investors have been fleeing the stock market for months, some fund managers have been pushing them right back in.

Among fund managers with the flexibility to invest in a mix of stocks, bonds and other assets, the trend has been stocks, stocks and more stocks. According to the latest data available from fund researcher

Morningstar Inc., stocks represented 55% of the average allocation fund at the end of August, up almost five percentage points from the start of the year and up from 41% at the end of 2009.

In contrast, of course, investor sentiment could hardly be clearer: Mutual-fund investors pulled an estimated $45 billion out of equity funds from August through mid-September, continuing a steady trend away from stocks that began when the market crashed in 2008.

The division between investors' actions and those of the managers who run their money is only more pronounced in the international arena. Among funds that invest in a mix of global stocks and bonds, stocks made up 58% of portfolios at the end of last month, up from 37% at the end of 2009, according to the Morningstar figures.

Fund managers say they aren't beholden to investor sentiment—even if the investors in question are fund shareholders. "People tend to look at five- and 10-year returns," says Ed Perks, who runs the $58 billion Franklin Income Fund, which has raised its stock allocation to 35% from 27% in 2009. "We're trying to evaluate what returns will be over the next five and 10 years."

That, the managers say, points them directly at stocks. Bond yields are at historic lows, and many bond portfolios already have logged impressive returns. Meanwhile, dividend stocks are, on average, yielding more than 10-year Treasurys. And while stocks may be volatile, a market focused on big-picture economic worries is punishing strong and weak companies alike, says Mr. Perks.

Some funds have made even more significant shifts: The $75 billion American Funds Capital Income Builder's stock allocation has risen to 73% from 64% at the end of 2009, the $10.8 billion T. Rowe Price Capital Appreciation Fund's stake is up to 72% from 65%, and the $1.1 billion Templeton Global Balanced Fund's stock portion is at 63%, up from 46%.

Representatives of these three funds say that yields and valuations are more attractive in stocks than in bonds right now. David Giroux, manager of the T. Rowe fund, also says that his fund uses an options strategy that can make the fund's stock portion look higher than it effectively is.

As large as these moves toward stock assets may seem, they are well within a manager's purview, says Kevin McDevitt, a mutual-fund analyst with Morningstar.

Most of these funds allow for quite a bit of flexibility, promising to generally invest, say, between 50% and 70% of their assets in stocks.

Still, investors spooked by the stock markets might be at the very least surprised to find they have more money in stocks than they had thought. It does increase the risk of short-term losses, ostensibly in exchange for longer-term performance, says Kate Warne, market strategist at Edward Jones. For now, she says, investors in these funds should "be sure that you're comfortable with the additional risk of short-term declines."

Financial Headline News for Monday 9/26

Stocks made up a good portion of their losses from Friday today as all sectors rose. Stocks rallied as hopes are building for a resolution to the European debt crisis. Dow soars 272 points.

What is getting lost in all of the financial news lately is the rise of the dollar which is contributing to the fall of oil prices since barrels of oil are bought with the dollar on the foreign markets.

The unintended consequnces of the 'Twist' are that Money-market funds, often regarded as among the safest global investment vehicles, could soon get some much-needed relief thanks to the Federal Reserve's latest stimulus plan.

Here are the top financial stories of the day:

1) Stocks jump on hopes for a Europe fix; Dow up 272-From the AP

Stocks had their biggest gains in more than two weeks Monday after European officials pledged to take action to resolve the region's debt problems. The Dow Jones industrial average jumped 272 points, making up about a third of last week's losses.

European ministers told a meeting of global finance leaders in Washington over the weekend that they would take bolder steps to fight the debt crisis, which threatens to slow the global economy. President Barack Obama called on Europe's leadership Monday to move more quickly to address the problems.

Germany wants banks and private institutions that hold Greek bonds to take a bigger loss on those holdings to reduce Greece's debt burden. European officials have talked about increasing the size of Europe's $595 billion rescue fund by allowing it to take loans from the European Central Bank. Pressure is also mounting for the central bank to lower interest rates.

"The news leaking out of Europe is giving investors hope that the politicians and central bankers in Europe might be putting together a plan," said Channing Smith, managing director of Capital Advisors Inc. "The devil's in the details."

The Dow Jones industrial average shot up 272.38 points, or 2.5 percent, to close at 11,043.86. It was the biggest gain since Sept. 7. JPMorgan Chase & Co. jumped 7 percent to $31.65, the most of the 30 stocks in the Dow.

The Standard & Poor's 500 rose 26.52, or 2.3 percent, to 1,162.95. The Nasdaq composite rose 33.46, or 1.4 percent, to 2,516.69.

About three stocks rose for every one that fell on the New York Stock Exchange. All 10 industry groups in the S&P 500 rose.

Financial stocks had the biggest gains in the S&P 500, rising 4.4 percent. Banks have the most to lose if Europe's debt crisis gets worse, so investors picked up those stocks as hopes built that a resolution could be on the way. Huntington Bancshares Inc. rose 8.3 percent, SunTrust Banks Inc. rose 8 percent.

Berkshire Hathaway's Class B shares rose 8.6 percent after the company announced a plan to repurchase stock for the first since Warren Buffett took control in 1965.

Investors have been on edge about Europe's debt problems for months. The Dow plunged 6.4 percent last week, its biggest drop since the week ended Oct. 10, 2008 at the height of the financial crisis.

The market's volatility has made many investors nervous. Since the first week of August, the Dow has closed up or down more than 200 points a total of 16 times. There were only four swings of 200 points or more in the other seven months of 2011.

President Barack Obama said in a town hall meeting that Europe's financial crisis "is scaring the world" and that the actions the region's leaders have taken so far "haven't been as quick as they need to be."

Greece is at risk of defaulting on its debt next month if it does not receive the next installment of a bailout package. If that happens, banks that hold Greek bonds would lose money. Analysts also worry that the economies in Europe and the U.S. could slip into another recession.

News that sales of new homes in the U.S. fell to a six-month low briefly sent indexes lower in morning trading, but by midday Eastern the Dow and S&P were higher.

Boeing Co. rose 4.2 percent after the company delivered its first 787 aircraft to Japan's All Nippon Airways.

An analyst said the company's earnings should rise for the next few years if the aircraft maker is able to maintain steady production.

Clorox Co. fell 4.3 percent after Carl Icahn withdrew his proposal for a new slate of directors. That suggested the activist investor was unable to find a buyer for the consumer products company.

Eastman Kodak Co. plunged 26.9 percent after the company borrowed $160 million because most of its cash is deposited overseas. Some analysts took that as a sign that the company is running out of cash as it tries to reinvent itself in the era of digital photography.

Trading volume was a bit heavier than average at 4.5 billion shares.

2) Rising Dollar: Headwind for U.S. Growth-From The Wall Street Journal

A stronger dollar may actually bode further weakness.

The greenback has been on a tear lately, jumping more than 6% in the past four weeks to reach its highest level since January against a trade-weighted basket of currencies. Politicians may like to talk up a "strong dollar," but investors know that in fact a rising currency can be a head wind for economic growth and a drag on corporate earnings.

Moreover, sharp upward moves in the dollar tend to happen during periods of financial turmoil, as a side effect of the global flight-to-safety trade.

The dollar's current rally likely has further to run. For one, rival currencies like the euro and pound are under renewed pressure amid economic weakness and the resulting prospects for looser monetary policy in those regions.

Nomura Securities, for example, expects the euro will drop to $1.30 by year end, compared with a recent peak of $1.50 in early May. Meanwhile, the rout in commodities and jitters about global growth have killed investor appetite for formerly highflying currencies like the Australian and Canadian dollars.

Investors, then, can add the rising dollar to their growing list of headaches.

For the third quarter, which ends this week, it is clear companies in the Standard & Poor's 500-stock index won't see nearly as much benefit from currency translation effects as they did in prior periods. Credit Suisse strategist Douglas Cliggott points out that in the second quarter, the dollar was down about 16% year on year against the euro, which represents the biggest foreign market for the S&P 500. That helped companies in the index post a 19% gain in earnings per share from the same period a year earlier.

For the third quarter, the dollar is likely to be down only 7% to 8% against the euro. And if its rally continues, the dollar could wind up being stronger in the fourth quarter than it was a year earlier.

"We'll just get a lot less earnings support" from the dollar in the quarters ahead, notes Mr. Cliggott. The technology, industrial and consumer-staples sectors will be particularly sensitive to this.

Currency may be a small factor relative to other fundamentals in good times, but it takes on more importance in a low-growth environment.

Message to America's strong-dollar advocates: Be careful what you wish for.

3) Fed's 'Twist' May Help Money-Market Funds-From The Wall Street Journal 

Money-market funds, often regarded as among the safest global investment vehicles, could soon get some much-needed relief thanks to the Federal Reserve's latest stimulus plan.

Conservative investors typically park their cash in these funds to make steady, albeit small returns. But the rewards have been meager the past several months because short-term government debt yields are so low.

The Fed's new accommodation effort, dubbed "Operation Twist," may lead to better results. The central bank's plan involves selling shorter-dated Treasurys over the next nine months, a move that is designed to push short-term debt prices lower and force yields, which move inversely to prices, higher.

Because money-market funds rely so heavily on short-term Treasury yields to generate returns, a boost of even one or two hundredths of a percentage point is a boon to managers who have been accepting bare-minimum interest all summer.

"It helps ease the supply-demand situation," said Debbie Cunningham, chief investment officer at Federated Investors in Pittsburgh. "It provides the basis for a more realistic money-market curve."

Gary Pollack, head of fixed-income trading at Deutsche Bank's Private Wealth Management, thinks two-year yields might tick up another 0.05 to 0.1 percentage point because of the Fed's plan.

Increasing fears over the summer about a euro-zone credit contagion and global economic slowdown set off an aggressive flight into safe-haven assets, boosting prices of U.S. Treasurys and dragging their yields to the lowest levels in history.

This crushed money-market funds, which are required to invest in the shortest-dated Treasury securities, called T-bills. On some recent occasions, the yields on these actually fell into negative territory, meaning investors had to pay just to lend their own money.

During July's U.S. debt-ceiling crisis, the government also cut back on its T-bill supply in order to avoid exceeding the country's legal debt limit. That added to the shortage that was already crimping money-market yields.

To be sure, some money-market managers say that until investors stop rushing into Treasurys, the relief spurred by the Fed's selling will be limited. "It'll put a bit more supply on the front end of the market, but the reality is that you can't even get enough of that paper in our world right now," said Joseph D'Angelo, head of the money-market desk at Prudential Fixed Income. As funds limit their exposure to European bank assets to alleviate investor concerns, T-bills are the only place left to invest.

Perhaps the bigger problem for these funds is Europe's credit crunch. Money-market funds invest heavily in European bank debt, a fact that is worrying investors who think the debt crisis will only get worse. Investors yanked $27.8 billion from global money-market funds in the past two weeks, according to global-fund tracker EPFR.

"There's now far fewer places to lend your money and be able to sleep at night," Mr. D'Angelo said.

But while money-market funds will at least benefit incrementally, the Fed's Twist could have unwanted side effects for banks and traditional long-term-bond investors. The central bank's long-term debt buying will push those securities' yields down, which compresses the amount banks can earn from making long-term loans.

Likewise, pension funds and insurance companies that rely on yields from long-term Treasury bonds will also feel a pinch.

The next milestone for money-market managers comes in October, when the Fed starts selling its shorter-dated debt. Many managers say they will be eager to scoop up whatever securities the Fed sells, hoping to pick up bills with more attractive returns, however puny they still are. "There's just humongous appetite for this risk-free paper," Mr. D'Angelo said.

Financial Headline News for Friday 9/23

This was the Dow's sixth largest weekly point drop in its 115-year history. The index also has dropped in seven of the last nine weeks. This is proving to be another September of stocks turbulence after all.

Even Goldman Sachs is experiencing difficulties in this recession.

The global economy continues to sputter and is causing oil and gold to fall

Here are the top financial stories of the day:

1) Wall Street stabilizes after disastrous week-From Reuters

The Dow Jones industrial average on Friday suffered its worst week since the depths of the financial crisis in 2008, stung by severe anxiety over Europe's spiraling debt crisis and a warning from the Federal Reserved about the U.S. economy.

But stocks ended higher after a disastrous four days of selling, which helped push down the S&P 500 index 6.6 percent for the week.

Volatility spiked in a revival of the tumult seen in August. Fears of a Greek default and the Federal Reserve's gloomy prognosis for the U.S. economy spurred heavy selling in equities.

Stocks seesawed between gains and losses on Friday, but the S&P was able to hold above the August 8 low of 1,119, a key support level that served as a trigger for buyers during the week.

While the market remains susceptible to further losses, many traders believe it will take a significant deterioration, either in the economy or in Europe, to spur another sharp decline.

"I would have been happier to see the market up 100 points or so ... however, in these rather cautious times people are a little hesitant to commit in a big way," said Doreen Mogavero, chief executive of Mogavero, Lee & Co. in New York.

The CBOE Volatility index edged up 0.6 percent, its fifth straight advance.

For the week, the Dow dropped 6.4 percent for its worst weekly performance since October 2008 and the Nasdaq lost almost 5.3 percent.

The primary trigger for the rebound came from policymakers suggesting additional steps will be taken to support Europe's financial system.

Ewald Nowotny, European Central Bank Governing Council member, said it might be advisable for the ECB to add more liquidity into the banking system.

The Dow Jones industrial average (DJI:^DJI - News) gained 37.19 points, or 0.35 percent, to 10,771.02. The Standard & Poor's 500 Index (^SPX - News) gained 6.83 points, or 0.60 percent, to 1,136.39. The
Nasdaq Composite Index (Nasdaq:^IXIC - News) gained 27.56 points, or 1.12 percent, to 2,483.23.

The escalating turmoil in global markets has led many analysts to cut their year-end targets for the benchmark S&P 500 index, with even some of the most bullish investors beginning to scale back their optimism a bit.

"We are at a very conservative position. We reduced our net long from 70 percent a week ago to 20 percent as of now," Barton Biggs, managing partner at New York-based Traxis Partners told Reuters Insider.
For Reuters Insider interview with Barton Biggs, see http://link.reuters.com/cex83s

Bespoke Investment Group notes the average consensus year-end price target is currently at 1,311 for the S&P, down from the 1,374 at the start of the year and nearly 100 points off its high mark of the year at 1,406.

Biggs said the chances of another recession in the United States are now three-in-four because officials in Europe and the United States are not doing enough to deal with the banking problems and their weak economies.

"Financial markets are sick and tired of the authorities in Europe and in the U.S. twiddling their thumbs and not doing substantive things to solve this crisis of the global economy,
and that's what its all about," he said.

"The odds of a double dip recession on a global basis are increasing rapidly."

Bob Doll, BlackRock's chief equity strategist and a noted bull, told Reuters Insider that while he feels most of the bad news is in the market, he has the odds of a double-dip recession at roughly one-in-three.

Gains in the Nasdaq were helped by semiconductor stocks, with the PHLX index (Nasdaq:^SOX - News) up 2 percent. Texas Instruments (NYSE:TXN - News) gained 3.8 percent to $27.22 after Caris boosted its rating on the stock.

Hewlett-Packard Co (NYSE:HPQ - News) was down 2.1 percent to $22.32 a day after Meg Whitman, the former head of EBay Inc (NasdaqGS:EBAY - News), was named to run the computer and printer maker.

The move was met with criticism of the company's board, which has been accused of recent missteps.

Trading was active with about 8.9 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, above the daily average of 7.94 billion.

Advancing stocks outnumbered declining ones on the NYSE by 1,886 to 1,104, while on the Nasdaq, advancers beat decliners 1,728 to 815.

2) Wall Street Banks Taking a Bruising-From The Wall Street Journal

Global markets have turned so ugly that Wall Street's mightiest firm, Goldman Sachs Group Inc., is at risk of posting its first quarterly loss since the financial crisis.

The culprit? Growing uncertainty among investors and cash-rich companies, driven by a slowing economy and fears that Western nations will fail to defuse debt problems that ballooned during the bailouts of 2008 and 2009.

Those worries have fed a sharp decline in revenue from stock, bond and merger deals. A spell of wild action in stock, debt and commodity markets has delivered another blow in the form of falling values on securities held to facilitate client trades.

Goldman isn't the only big bank under pressure. But as it and other firms respond to their shriveling business prospects with moves such as jobs cuts and bonus reductions, they risk further undermining the economy.

With a week left in the third quarter, "we struggle to find any broker-dealer businesses reporting positively trending results," Barclays Capital analyst Roger Freeman wrote in a note to clients Thursday. He predicted that Goldman will lose 35 cents a share for the third quarter, reversing a year-ago profit of $2.98 a share and marking just its second quarterly loss in a dozen years as a public company. Mr. Freeman had been predicting a third-quarter profit at Goldman of $2.40 a share. Goldman declined to comment.

Third-quarter revenue expectations at six big U.S. banks—Bank of America Corp., J.P. Morgan Chase & Co., Citigroup Inc., Wells Fargo & Co., Goldman and Morgan—have fallen 7% since midyear, according to analysts surveyed by data provider FactSet Research Systems. That is the biggest drop since the fourth quarter of 2008.

The banks' pain has widespread implications on Wall Street and across the country. Weaker banks will likely lend less, pressuring an economy already flirting with recession. Bankers' bonus checks, which fund everything from second homes to private school educations, are expected to plummet, in some cases to zero.

Mike Mayo, a bearish bank analyst at Credit Agricole Securities, sees a bruising retrenchment ahead.

"The industry can't escape the need to reduce expenses," Mr. Mayo said in an interview.

Already, Bank of America has said it will lay off 30,000 workers. Goldman is planning to cut more than its usual percentage of low performers. Morgan Stanley is trimming brokers from its wealth-management joint venture with Citigroup.

There are fewer places for the laid-off employees to go, since many boutique firms are also scaling back.

During the quarter, investment bank Gleacher & Co. said it would close its equities division, shedding 20% of its workforce, or 94 jobs.

Some of the banks' difficulties are tied to the crisis in Europe. Morgan Stanley shares fell 5.5% on Thursday, pressured by a report on investing Web site Zero Hedge that highlighted Morgan Stanley's exposure to French banks. The report cited data in Morgan Stanley's 2010 annual report showing $39 billion of so-called cross-border outstandings at Dec. 31.

Analysts and a person familiar with the firm said Morgan Stanley's net exposure to French banks was actually close to zero now. They added that the Dec. 31 figure can be misleading since it doesn't take into account hedges or cash a bank holds on behalf of clients.

But a bigger problem is that Wall Street banks are finding it more difficult to profit from trading even plain-vanilla debt like corporate bonds and mortgage securities, since bond markets have experienced unusually violent price swings in recent weeks on relatively low trading volumes. In the past, price volatility created more opportunities for Wall Street traders to make money.

But now, banks have less appetite to take riskand step into trades, especially when bond prices are being driven up and down by external events and news, say traders.

Cost-cutting on Wall Street is always a double-edged sword. It helps profits in the short term, but firms risk missing future revenues if the markets bounce back—as was the case at Morgan Stanley in 2009.

While regulators have pushed banks to put themselves on more solid financial footing, some of the rumors floating around the market echo the panicked days of late 2008. Mr. Freeman on Thursday found himself chasing a rumor on Twitter about a bond fund blowing up and one or more banks providing a financial backstop. Mr. Freeman called the company involved and found out it wasn't true.

Despite that episode, he says there is not as much panic as there was then. But few investors are excited about financial stocks, either.

"There's more apathy about these businesses," said Mr. Freeman. He believes there is value in Goldman and Morgan Stanley, but they both need an end to market fears about Europe. And to fix that situation, "it might take a significant market rout to force the issue."

3) Global economy pushed to the brink-From The Financial Times

High quality global journalism requires investment.

Time is running out to find a solution to the eurozone crisis and prevent another global recession, finance ministers warned on Friday, as they hinted that discussions were under way to boost the firepower of European rescue funds.

Financial markets experienced another day of intense volatility as investors struggled to interpret an emergency statement from the Group of 20 leading economies, which met on the sidelines of the International Monetary Fund and World Bank meetings in Washington.

Investors were initially unimpressed by the G20’s message of support for the global economy, but several said they did not want to get caught out should policymakers unexpectedly decide on a radical policy response.

Gold continued to slide sharply and US oil prices traded below $80 a barrel, their lowest level in more than a year. Shares rallied modestly in Europe and the US, accompanied by selling in government bonds and the dollar.

Many finance ministers reported a greater sense of urgency in discussions on the eurozone overnight on Thursday.

“Patience is running out in the international community,” said George Osborne, UK chancellor of the exchequer . “The eurozone has six weeks to resolve this political crisis.”

Eurozone governments have pledged to pass legislation by mid-October to make their rescue fund, the European financial stability facility, more flexible and are now discussing ways to “maximise its impact in order to address contagion”.

European Union officials are warming to the idea that the EFSF could be “leveraged” to increase its strength, perhaps by guaranteeing larger European Central Bank purchases of Spanish and Italian sovereign debt, in an effort to isolate the two countries from the more intractable Greek debt crisis. François Baroin, French finance minister, said policymakers “need the right firewall to prevent contagion” and can discuss giving the EFSF “the necessary strength”.

“I am very confident they’re going to move in the direction of expanding (their) effective financial capacity,” added Tim Geithner, US Treasury secretary. “They’re just trying to figure out how to get there in a way that is politically attractive.”

As the sense of urgency surrounding the eurozone crisis mounted, Eswar Prasad of the Brookings Institution said the heightened risks of a disastrous outcome might help the eurozone to find a political solution to its woes and infighting: “A nudge from the rest of the world might help sway some European leaders to act more forcefully and in a more co-operative spirit to tackle the crisis.”

Investors are bracing themselves for more ECB action, possibly next week or in early October. JPMorgan analysts predicted the ECB would cut interest rates by 50 basis points at its October meeting, while members of the ECB’s governing council hinted they could reintroduce 12-month loans to eurozone banks.

Even as discussions focused on containing the crisis, German officials insisted on balancing talk of a beefed-up EFSF by lobbying for reduced government borrowing. Wolfgang Schäuble, German finance minister, said a rejection of further fiscal stimulus was “widely shared” in the G20.

Quote of the Day-from Readers Digest
Good judgement comes from experience,and often experience comes from bad judgement-Rita Mae Brown

Financial Headline News for Thursday 9/22

Wall Street followed world markets sharply lower today as investors focused on the fear of economic slowdown. Stocks were down from the beginning and continue to slide all day.

Unemployment claims continue to be elevated as it hit 423,000 this week, which was 3,000 more than expected.

Gen-Y has the worst unemployment. Near-retirees have the least time to recover their savings. And Gen-Xers? They're caught between debt that won't disappear and an economy that won't move. A good article below on how the economy is hurting different age groups.

Here are the top financial stories of the day:

1) U.S. Stocks Plunge-From The Wall Street Journal 

Investors staged a global flight from risk Thursday that sent U.S. stocks plummeting and 10-year Treasury yields to 1940s levels, after a gloomy outlook by the Federal Reserve renewed fears of a global economic slowdown.

The Dow Jones Industrial Average closed down 391.01 points, or 3.5%, to 10733.83, as investors barreled out of stocks and into "safe" assets like the U.S. dollar, which surged. The blue-chip measure fell more than 500 points in afternoon action, averting its lowest close in a year with a late-session lift. The action built on the stock market's Wednesday selloff, when the Fed acknowledged "significant" downside risks to the economy and noted "strains" in global financial markets, a reference to debt-strapped Europe.

A weak reading on manufacturing in China contributed to the slowdown fears. Adding to the grim mood was a lack of appreciable progress in containing Europe's debt crisis, which has weighed on markets for months.

The Standard & Poor's 500-stock index shed 37.20 points, or 3.2%, to 1129.56, after touching its lowest intraday level since early August. The technology-oriented Nasdaq Composite slumped 82.52 points, or 3.2%, to 2455.67.

Among NYSE-listed issues, decliners outnumbered gainers by just over 7 to 1, while the Nasdaq losers outpaced rising issues by about 6 to 1.

All blue-chip stocks finished in the red, as did all S&P 500 sectors. Materials and energy stocks were hit hardest, falling as investors acted on their economic slowdown worries and in reaction to the fast rise of the U.S. dollar.

"They're selling literally everything," said Alan Valdes, director of floor trading at DME Securities at the New York Stock Exchange. "It's the realization that things aren't getting better that has traders concerned. They're selling gold, they're selling copper, they're selling everything."

European stocks closed sharply lower. The Stoxx Europe 600 shed 4.6% to hit the lowest level in more than two years in intraday trading. Asian bourses also dropped sharply, with China's Shanghai Composite losing 2.8% on news that manufacturing activity in China contracted in September. Hong Kong's Hang Seng index slid 4.9%.

"A lot of people who had very significant investment positions based on a scenario of dollar weakness changed those position pretty violently," said Douglas Cliggott, chief U.S. equity strategist at Credit Suisse. "I think the bottom line of the Fed's decision was, 'No, we're not going to be growing our balance sheet for the foreseeable future.' It leaves the U.S. as the odd man out in this effort to, in effect, grow central bank balance sheets and weaken currencies."

The first improvement in U.S. jobless claims data in three weeks did little to change the negative tone of trading. New claims for unemployment benefits last week dropped by 9,000 to a seasonally adjusted 423,000, according to the Labor Department. The level remains too high to suggest much improvement in the stubbornly weak U.S. jobs market. In addition, the previous week's figure was revised to reflect more jobless claims.

Investors also shrugged off other modestly positive economic data Thursday morning. The Conference Board's index of leading economic indicators increased for the fourth consecutive month in August and government data showed that U.S. home prices increased in July for the fourth straight month.

In the backdrop was a flareup in U.S. debt worries, the result of the surprise failure of a bill to fund the U.S. government through mid-November. Conservative Republicans and most Democrats teamed up for the largest defeat inflicted on the Republican House majority this year. The episode was a reminder of market gyrations this summer, when Washington was caught in an impasse of raising the limit on federal borrowing.

In corporate news, shares of Goodrich gained 10% after the aircraft-components maker agreed to be acquired by blue-chip conglomerate United Technologies for $16.4 billion in cash. United Technologies fell 8.8%.

FedEx slipped 8.2% after the package-delivery service reported fiscal first-quarter results that were higher than expected, but said it slightly reduced its earnings outlook as it looked to adjust its cost structure to match lower demand.

Red Hat gained 3%. The software company reported better-than-expected fiscal second-quarter results.

CarMax lost 11%. The used-car dealership chain's results missed estimates for the first time in about two and a half years amid a decline in customer traffic and same-store sales, which it attributed to the recent economic slowdown and weakness in consumer confidence.

2) Initial Jobless Claims in U.S. Fell Last Week-From Bloomberg

More Americans than forecast filed first-time claims for unemployment insurance payments last week as the labor market struggled to improve.

Applications for jobless benefits decreased 9,000 in the week ended Sept. 17 to 423,000, Labor Department figures showed today. Economists forecast 420,000 claims, according to the median estimate in a Bloomberg News survey. The average number of claims in the past month rose for a fifth straight week, to the highest level since July 16.

An elevated level of dismissals raises the odds U.S. companies may put off plans to increase employment, making it difficult for joblessness to fall below 9 percent. Citing ongoing weakness in the labor market, Federal Reserve policy makers announced yesterday they would use another unconventional monetary tool to spur economic growth and job gains.

“These numbers are consistent with a job market that is essentially in suspended animation,” said Brian Jones, an economist Societe Generale in New York, who correctly forecast the level of claims. “Anything that the Fed does to help the economy should help the labor market, but it takes time. We’ve got to see job growth before we can get more demand.”

Estimates for first-time claims ranged from 408,000 to 430,000 in the Bloomberg survey of 45 economists. The Labor Department initially reported the prior week’s applications at 428,000.
A Labor Department official said today as the figures were released that the latest week’s data included no special circumstances.

3) Who's Had the Worst Recession: Boomers, Millennials, or Gen-Xers? From The Atlantic

The Millennial generation got hit hardest by the Great Recession. You might have heard this, over and over, especially if you read The Atlantic or happen to have asked somebody from the Millennial generation. Downturns like this one change the course of a lifetime for college graduates, as low starting salaries snowball into a lifetime of depressed wages, slim pensions, and even shorter lifespans.

Hogwash! a Boomer might retort. Even if they have narrower prospects, Millennials have their whole lives to make back lost wages. When the stock market tumbled and housing prices collapsed, couples near retirement lost their nest eggs at the very moment that they were looking to step out of the workforce. Surely, they suffered the most from the timing of this recession.

Oh, come on! a Gen-Xer might respond, we got the worst of both worlds. The 46 million Americans between the age of 33 and 46 reached the prime of their working years only to find salaries depressed by a bad economy and promotions suppressed by lingering Boomers.

This is a debate without a winner, and we're not going to name one. Instead, we're want to look across three categories -- employment, income, and overall wealth outlook -- and argue on behalf of each generation that their cohort got it worst.

EMPLOYMENT

GenY: It's a simple case: Unemployment is worst for the youngest. Overall joblessness is between two and three times higher for 20-somethings than older workers, and the greatest percentage increase in unemployment between December 2007 and September 2010 happens to be 20-24-year olds ... with a college education!

GenX:  Young people can move around with ease. But when you're married with children and a house, it's harder to pick up and follow the job openings. Worse for GenXers, the fastest-growing jobs are in positions that a middle-class mother or father is disinclined to accept. Six in ten jobs lost during the downturn were in middle-wage occupations, according to the National Employment Law Project, and nearly 75 percent of the jobs added since were lower-wage -- so-called McJobs. Gen-Yers can afford $10 an hour, for a while anyway.

Boomers: For those out of work, it's bad to be a Boomer. Older workers suffered the largest overall increase in long-term unemployment, and they face the longest spells of joblessness. In 2009, younger workers were about as likely as prime-age workers to find work, but unemployed older workers were the least likely of all to find jobs, with only about 15 percent of jobseekers finding jobs each month in 2009.

INCOME

GenY: For Millennials, it's not just the money they're not making today. It's all the money they won't make tomorrow. For every one-percentage-point increase in the unemployment rate, new graduates' starting income falls by 7 percent, according to Lisa Kahn, an economist at Yale. And 17 years later, those who had entered the workforce in the worst of a recession still earn 10 percent less than those who graduated in lusher times. When you add it all up, Don Peck writes, "it's as if the lucky graduates had been given a gift of about $100,000, adjusted for inflation, immediately upon graduation."

GenX: A recent study by the Center for Work-Life Policy (charticled nicely by Bloomberg Businessweek) revealed Gen-Xers to be the chief victims of the Great Recession. They're working harder -- a two-parent family worked 26 percent more hours in 2010 than in 1975 -- and making less. Thirty-something men had an average income of $40,000 some 30 years ago; today, it's $35,000. Yet remarkably, hourly wages for this group have fallen even more for women in the last ten years. Finally, the ladder to the C-suite is crowded: Boomers have delayed their expected retirement by another five years since the recession struck.

Boomers: Since Boomers have the lowest unemployment rate and the highest total income, it's hard to make the case that 47-65-year-olds have the worst income crisis. Rather, their greatest challenge is preserving wealth at a time when asset values have been decimated. More on that in the next section.

THE FUTURE OUTLOOK

GenY: This overall wealth outlook category is all about debt-building versus asset-building. Gen-Yers don't have a lot of assets, which is fortunate at a time when housing values have fallen more than 25 percent in major cities. But we do have debt, particularly student loan debt, and this is a particularly nerve-wracking story. Total student loan debt infamously eclipsed credit card debt last year at $850 billion, and tuition costs are still rising even faster than health care costs. The hollowing out of the middle class means that paying back that debt -- and finding ways to pay for an education that keeps us ahead of productivity curve -- will be the challenge of a generation.

The kids behind us face these challenges, and more. If their parents can't afford tuition and extended health care coverage, that will mean more debt for today's grade-schoolers. In the near future, the poverty rate for children is projected to rise to a multi-decade high of 26 percent in 2014.

GenX: Compare debt and assets: The first is growing, the second is falling, and that's not the way you want it. Low pay today is coming on the heels of a big student debt increase. In 1977, when the youngest Gen-Xers were in 4th grade, a third of students borrowed for college. By the time this generation was finishing school, 65 percent borrowed to attend college. The average homeowner entered the recession with debt equal to 125 percent of income. Now with a fifth of homes underwater or close to it, millions of older Gen-Xers (and Boomers) are drowning in what they thought were their savings vehicles.

There is also the question of how this plays out for retirement. X-ers are in danger of losing out on their pensions, whether or not state and federal governments reform their calculations. "When somebody loses a job at age 60, their pensions are not as affected because they've racked up enough lifetime earnings," said Till Von Watcher, associate professor economics at Columbia University. "But for somebody to lose a job in their 30s, they're facing lasting declines in earnings that affect their pensions too."

Boomers: Vacillations in the stock market might not worry a 20-something with decades left on his savings account. They might not freak out a 40-year old who doesn't expect to quit until she's 70. But if you're an older worker on the lip of retirement, your investments are your savings and your savings are about to become your principle source of income. "This last recession has definitely not treated everyone equally," said Susan Menke, an economist at market research firm Mintel. "Younger boomers [are] the 'sandwich' generation, burdened with educational expenses for their kids and, for some, health care costs for aging parents." As tuition and medical services get more expensive and the stock market lingers below its pre-recession high, even Boomers who have kept their jobs, their homes, and their savings and every right to be nervous about how the economy handles in their last years in the workforce.

Quote of the Day from Dave Ramsey.com:

Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no hope at all. — Dale Carnegie

Financial Headline News for Wednesday 9/21

QE3 is already an abject failure as stocks tanked right after 'The Twist' was announced.

Fed’s Operation Twist Isn’t Much to shout about as the fed had to reach back in time to 1961 to come up with this plan. 

Yet more bad news on the housing market below as prices are expected to stumble through 2015 Economists say which would weigh down the recovery.

Here are the top financial stories of the day:

1) “Very Unusual” Fed Action Fails To Boost Animal Spirits: Dow Drops 285-From the Daily Ticker

The Fed's latest moves to bring down long-term interest rates will be "marginally helpful," predicts former

Fed Governor Mark Olson, now co-chair of Treliant Risk Advisors, a compliance and strategic advisory firm specializing in the financial services industry. "There really isn't a lot of room" left for the Fed to bring down rates.

Specifically, the Fed announced plans to buy $400 billion of long-term Treasuries and sell an equivalent amount by the end of June 2012. The so-called Operation Twist will not change the size of the Fed's balance sheet but the duration of its Treasury holdings. "This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative," the FOMC statement declares.

In addition, the Fed announced plans to reinvest principal payments from its current holdings of agency debt and agency mortgage-backed securities into agency MBS. In other words, the Fed is going to be buying paper from Fannie Mae and Freddie Mac again "to help support conditions in mortgage markets."

Treasury prices did rally in response to the Fed announcement with the yield on the benchmark 10-year note falling to a record low 1.86%, while the yield on the 30-year bond slipped to 3.01%.

If the Fed was trying to lower long-term rates, the action was a success. If the goals was to boost the stock market, the action was a total failure, although perhaps traders focused on Moody's downgrade of Bank of America, Wells Fargo and Citigroup vs. the Fed, which did say "there are significant downside risks to the economic outlook, including strains in global financial markets."

Tumbling into the close, the Dow shed 285 points, or 2.5%, while the S&P lost nearly 3% and other so-called risk assets like gold and oil fell sharply as the dollar rose.

Very Unusual

While Operation Twist was widely expected, the MBS announcement was a bit of a surprise, as was the timing of the Fed's announcement, some 10 minutes after its normal 2:15 ET release.

The Fed's failure to meet its (self-imposed) deadline is "very unusual," Olson says, suggesting there was likely some last-minute wrangling over the wording of the release.

Although three Fed governors dissented from Wednesday's policy action — Dallas Fed President Richard Fisher, Minneapolis Fed President Narayana Kocherlakota, and Philadelphia Fed President Charles Plosser — Olson notes they were the same dissenters at the August meeting "so I don't think that in particular was much of a surprise."

For the record, Olson says he would have voted for Wednesday's action if he were still a voting member of the FOMC.

"I would have because I don't see any downside risk to it," he says. "Should inflationary pressures start to build, it's a circumstance where they can adjust that portfolio just a quickly and reduce the size in a way that won't have long-term negative implications."

But positive implications? That remains very much in doubt.

2) Fed’s Operation Twist Isn’t Much to Shout About-From Yahoo Finance

The Federal Reserve has announced its latest effort to jolt the economy back to life. In the widely anticipated move, dubbed Operation Twist, it is pledging, over the next nine months, to sell some $400 billion in short-term government bonds it owns and use the proceeds to buy government bonds that mature in 6-30 years.

The theory: This market intervention will help further lower long-term interest rates. The Fed also said that when mortgage-backed securities it owns pay off, it will roll the money back into similar securities. That could help push mortgage rates down.

There are some reasons why we shouldn't have great expectations for this move.

First, the Federal Reserve moves with all the surprise and guile of a lumbering elephant. It talks about moving, says what direction it might go in and at what speed, and provides a specific date on which it will act. It does so because it wants to avoid spooking the market. But it also means that the market tends to react well ahead of the actual event. Look at the path of the 10-year bond over the last several weeks. The interest rate on the 10-year bond has fallen from 3.2 percent on July 1 to about 1.9 percent today. The mere anticipation of the Fed's move has caused the market to do much of the Fed's work.

Second, given how low long-term interest rates already are -- they've fallen by 40 percent in the past three months -- this action is like pushing on a string, or adding another drop of water to a full pitcher. Pick your metaphor. Long-term borrowing costs for creditworthy borrowers are already at Crazy Eddie levels -- they're so low, they're insane. In August, according to Freddie Mac, the average commitment rate on 30-year mortgages it backed was 4.27 percent. Disney in August sold 30-year bonds that yielded 4.375 percent. Google in May sold three-year notes that pay a paltry 1.25 percent in annual interest. The government borrows for 10 years at less than 2 percent. That's all to the good. These lower rates help free up more cash for some people to spend, help corporations pay their bottom line, and lessen the fiscal bite of high deficits. But when you get close to zero, it becomes harder to make a bigger percentage difference. Money simply can't get much cheaper.

In recent years, lower interest rates have generally allowed people who are already able to borrow do so at lower rates. Homeowners who have a lot of home equity and are current on their mortgages may be given an opportunity to refinance. But the lower rates haven't generally led to the extension of credit to people who badly need it. If a home is underwater, it's very difficult to refinance, no matter how low rates go. Check out page 9 of Fannie Mae's recent earnings report. The average loan it has been acquiring over the last few years has a loan-to-value ratio of just 68 percent, and only six percent of the loans it bought in that period had a LTV ratio of 90 percent. Meanwhile, value of the collateral for mortgages continues to fall. According to the National Association of Realtors, the median price of an existing home sold in August 2011 was down 5.1 percent from August 2010.

In theory, lower long-term capital costs should lead to filter through the system in the form of cheaper (and hence more plentiful) credit. And banks are finally lending more. The FDIC reported that in the second quarter, "total loans and leases at insured institutions rose by $64.4 billion (0.9 percent) during the quarter."

That was essentially the first quarterly increase since the second quarter of 2008. The balances of commercial and industrial, auto, credit-card and first mortgages all rose, while home-equity lines and construction loans fell. "A majority of banks (53 percent) reported growth in loan balances in the second quarter." But banks, like mortgage lenders, are still maintaining high standards. The reaction after years of lending recklessly is to be careful, to husband resources, and to not lend unnecessarily.

In their defense, banks generally claim that the demand for credit is low. And across the board, slack demand is plaguing the economy. Unemployment is at a very high level. Those with jobs are saving all they can. Consumers are reluctant to buy big-ticket items because they remain focused on paying down debt and are fearful about losing jobs. Companies aren't hiring and investing in the U.S. in part because the demand simply isn't here. This latest move by the Fed doesn't do much to address that shortfall. Lower interest rates alone can't counteract contractionary forces, like states and cities laying off tens of thousands of people each month, or a poor job market, or wages that don't go up.

There's one item likely to be overlooked in all the discussion over Operation Twist. For the last three years, even as it has made extraordinary efforts to keep money cheap, the Fed has also given banks incentive to sit tight. The central bank requires banks to keep a certain level of reserves on deposit at the Fed. Legislation passed in 2006 permitted the Fed to start paying interest on those reserves starting in 2011. The change was accelerated due to the financial crisis. In October 2008, the central bank announced it would pay interest on those reserves, as well as on reserves posted in excess of the requirements. The amount is small: .25 percent per year. But essentially the Fed provides banks with an incentive to husband resources more carefully. As this data series shows, banks now have $1.57 trillion in excess reserves parked at the Fed, up from $981 billion a year ago. Imagine if the Fed stopped paying interest on those excess deposits -- or if it imposed a penalty on them. Bankers do respond to incentives. And if they had less incentive to lock cash up at the Fed, they might buy bonds, or get a little more aggressive about lending.

The upshot: This move is better than doing nothing. But there's no reason to think it will make the difference between unsatisfying and satisfying growth. The Republican leaders who wrote Bernanke this week to complain that the Fed doing too much about helping the economy shouldn't fret so much

3) Home Forecast Calls for Pain-From The Wall Street Journal

Economists, builders and mortgage analysts are predicting the weakened U.S. economy will depress housing prices for years, restraining consumer spending, pushing more homeowners into foreclosure and clouding prospects for a sustained recovery

Home prices are expected to drop 2.5% this year and rise just 1.1% annually through 2015, according to a recent survey of more than 100 economists to be released Wednesday. Prices have already fallen 31.6% from their 2005 peak, as measured by the Standard & Poor's Case-Shiller 20-city index.

If the economists' forecast is accurate, it means housing faces a lost decade in which home prices recover just a fraction of what was lost between 2005 and 2015, leaving millions of homeowners with little, if any, equity in their homes. The survey was conducted for MacroMarkets LLC, a financial technology company co-founded by Yale University economist Robert Shiller.

The housing bust has chilled consumer spending—the largest single driver of the U.S. economy—with eroding home equity contributing to the so-called reverse wealth effect that prompts people to spend cautiously because they feel poorer.

One in five Americans with a mortgage owes more than their home is worth, and $7 trillion of homeowners' equity has been lost in the bust. Homeowners' equity as a share of home values has fallen to 38.6% from 59.7% in 2005.

"With all of the economic turmoil, both domestic and international, there's not much that points to an improving housing market at any point in the near future," said Ara Hovnanian, chief executive of Hovnanian Enterprises Inc., the U.S.'s seventh-largest builder by deliveries.

While home prices aren't falling at anywhere near the pace of 2008, one worry is that even modest declines become self-reinforcing, pushing more homeowners underwater and exacerbating the downdraft caused by more foreclosures.

That, in turn, could prompt more credit tightening by lenders, further shrinking the pool of home buyers when more are needed to purchase bank-owned foreclosures.

The housing bust is weighing on the economy in part because bank-owned foreclosures have sidelined new construction, a traditional employment engine following a downturn.

The Commerce Department said Tuesday that single-family housing starts fell by 1.4% in August from July to a seasonally adjusted annual rate of 417,000.

Over the past 35 years, housing has contributed just 0.03 percentage point to annual growth in gross domestic product, according to research from the Federal Reserve Bank of St. Louis. But in the two years following most recessions, housing adds around 0.5 percentage point.

Recently, that contribution has been negative. The housing market needs the economy to add jobs, but the economy isn't able to rely on the job boost housing normally provides in a recovery. "We're in uncharted territory," said David Rosenberg, chief economist at Gluskin Sheff.

The fallout from the housing bust hasn't been easy on Greg Rubin, owner of California's Own Native Landscape Design, a landscape contractor in Escondido, Calif.

With sales down by half from 2007, Mr. Rubin has reduced his work force to nine people from 21. He now does jobs for as little as $4,000 versus no less than $10,000 in the past.

With home values no longer increasing, the few people who are hiring Mr. Rubin are paying with cash savings instead of home-equity loans, substantially decreasing their purchasing power.

Also, Mr. Rubin said, home prices have been battered for so long that many people have stopped believing home improvements will increase the value of their property.

"There's this psychology that home prices are dropping independent of whatever improvements they make, so it's a lost cause to do them now," he said.

Rising home prices traditionally lead homeowners to spend more money, even during periods of economic sluggishness, creating jobs.

But "that cycle can cut the other way," said James Parrott, a top White House housing adviser. "As the value of a family's home drops, that can really go from a lever of savings to a drain on that savings."

Those concerns prompted the White House earlier this year to begin canvassing experts on how to attack the excess inventory of distressed properties and troubled mortgages.

Officials are studying ways to encourage banks to write down loan balances for borrowers that are seriously underwater and to allow more underwater borrowers with government-backed loans to take advantage of low mortgage rates by refinancing. They are also working with federal regulators to study ways to rent out or clear the inventory of foreclosed homes.

Earlier initiatives encouraging banks to voluntarily modify mortgages haven't reached as many borrowers as hoped, hindered in part by stubbornly high unemployment.

Banks hold nearly 500,000 homes on their books, but more than four million additional loans are in some stage of foreclosure or are considered "seriously delinquent" because they have missed three or more payments.

That bad debt is "dragging the nation's economy underwater," said Lewis Ranieri, the pioneer of the mortgage-bond market, in a speech warning of the growing risks of policy inaction at a conference Monday.

"In truth, we seem very paralyzed and slow to act," he said, chiding policy makers and industry executives for "wasting time engaging in self-interested bickering" while the housing market rots.

While mortgage rates have fallen to their lowest levels in decades, applications for home-purchase mortgages are mired near 15-year lows, according to the Mortgage Bankers Association. Applicants today face "a mountain of paperwork and never-ending reverifications," said Stuart Miller, chief executive of home builder Lennar Corp., in an earnings call Monday.

Financing remains available to only "the most credit-worthy purchasers," he said.

Mortgage-finance giants Fannie Mae and Freddie Mac sharply tightened their standards three years ago, and many banks continue to do so because of concerns they will be forced to buy back defaulted mortgages.

The bust has hit some markets harder than others. In Nevada, Arizona and Florida, many homeowners can't move to take new jobs because they owe far more than their homes are worth. But even some markets that have shown resilience over the past year, such as Washington, D.C., could be at risk if job growth peters out.

Housing markets are also in bad shape because would-be first-time homeowners have retreated amid grim economic news. Many current homeowners, meanwhile, don't have enough equity to move, chilling the crucial "trade-up" market. That has left housing heavily dependent on investors buying homes at discounts with cash.

Quote of the Day from Dave Ramsey.com:
Disgust and resolve are two of the great emotions that lead to change. — Jim Rohn