Originally published August 18, 2007 at 12:00 AM | Page modified August 18, 2007 at 2:03 AM
Credit worries won't vanish despite moves, analysts say
The Federal Reserve swept into the market this past week to offer a calming hand, but that's still no panacea for the fundamental problems...
The Associated Press
NEW YORK — The Federal Reserve swept into the market this past week to offer a calming hand, but that's still no panacea for the fundamental problems Wall Street faces.
Big institutional investors from hedge funds to investment banks are still wrestling with credit problems spawned by distressed subprime mortgage loans. The housing market still looks gloomy. And the wave of takeovers that drove stocks to new highs this year has dropped off considerably.
The Fed's discount-rate cut and injection of billions of dollars into the banking system alleviate only some of the stress. Wall Street observers say there is still plenty of risk and that the aftershocks from the failure of billions of dollars in subprime loans have yet to be felt.
"What the Fed did was about consistent with putting a Band-Aid on a gunshot wound," said Chris Johnson, founder of Cincinnati-based Johnson Research Group. "You have a situation where the subprime concerns have spread, and there are still a lot of things going on in this market that are just wrong."
Investors are really hankering for a more important interest-rate cut — in the federal funds rate — when policymakers meet next month. That would lower borrowing costs on everything from school loans to mortgages and help stimulate the economy. But there's a catch even with a fed funds cut — it would take months for the benefits to be felt.
Investors must also take into account that it's the dead of August — not exactly a time of the year known for big market comebacks.
Moreover, reverberations from the subprime mortgage crisis are expected to be felt in the months ahead. Some argue the problem has hurt financial markets much more than was warranted, but the fact remains that the nation's financial institutions have been hurting because of it.
"There are still so many unknowns out there," said Greg Gilbert, president of Oakland, Calif.-based Infinity Financial Services. "You're not going to see JPMorgan or Citigroup go bust over this, but they are going to take an earnings hit."
Banks and mortgage lenders that have been hit from their exposure to subprime loans include Washington Mutual and Countrywide Financial. Bigger institutions, such as Goldman Sachs and Bear Stearns, have been pinched by the market volatility that ensued.
On Wednesday, Countrywide said it borrowed $11.5 billion from a group of 40 banks to help stem losses and stay afloat.
The nation's largest mortgage lender had previously raised money by issuing bonds and other debt backed by the mortgages it sells — but a global flight to safety has all but dried those markets up. The company's action set off another wave of heavy selling on Wall Street.
This past week also saw Goldman Sachs tell investors that three hedge funds it manages were socked by market volatility and required a $3 billion infusion of cash.
The Fed's moves were designed to make it easier for these financial institutions to operate. In fact, even if credit and debt worries deepen, global banks will likely come out ahead by snapping up distressed debt at bargain prices.
"I've always said this, the big dogs get to eat first," Gilbert said. "But, for the rest of us, the problems are still out there."
Copyright © 2007 The Seattle Times Company
Tech execs double as scourges and sages at Allen & Co.'s media summit
Brier Dudley: Brier Dudley | Learning hard lessons from Boeing giveaways
Symantec, McAfee add firepower to market-share war
Interface: UIEvolution helps content providers get mobile

2009 fireworks time lapse
With strict parking rules enforced at this year's July 4th celebration on Wallingford Ave North, less cars and more spectators filled the streets.
Entertainment | Top Video | World | Offbeat Video | Sci-Tech
nwjobs

Post a comment

Michelle Goodman blogs about work/life balance.
Tax tips for new independent professionals
Post a comment
nwautos

Choosing a new car? Weigh the impact of your choice on your wallet and on the planet.
Post a comment
nwhomes

Find a new home or condo that fits your lifestyle.
Search New Developments
Builder Directory
- Plasma and LCD beware; OLED screens ready to go mainstream
- Landmark Smith Tower mostly vacant
- Former NFL MVP McNair killed
- Russell Branyan, Mariners fight off the Red Sox
- Property taxes: Appeals shoot up in King, Snohomish Counties
- Palin takes to Web for hints of political future
- Fourth of July festivals and fireworks in Seattle, the suburbs and beyond
- Palin links resignation to 'higher calling' and blasts media in Facebook posting
- Hard times for tourist towns means good deals for travelers
- Tenn. police rule ex-QB McNair's death a homicide
- Seattle Mariners at Boston Red Sox: 07/05 game thread
247 - Palin links resignation to 'higher calling' and blasts media in Facebook posting
172 - Hatred for the NBA runs deep, but don't take it out on the players
135 - Tukwila residents rally against light-rail noise
122 - Former NFL MVP McNair killed
112 - Property taxes: Appeals shoot up is King, Snohomish Counties
103 - Tent City on campus: UW stalls decision
100 - Anti-tax rally in Olympia attracts about 1,500
65 - Seeking your questions
50 - Mariners did their part, now they need help
38
- Plasma and LCD beware; OLED screens ready to go mainstream
- Property taxes: Appeals shoot up in King, Snohomish Counties
- Merchant Marine veterans fight for recognition
- Hard times for tourist towns means good deals for travelers
- Landmark Smith Tower mostly vacant
- Close-up | Prison guards intercept carrier pigeon with a cellphone
- Amtrak cleared for 2nd daily train to Vancouver, B.C.
- Tent City on campus: UW stalls decision
- Pre-grill drill: marinate steaks
- Concert Review | Green Day blasts off 4th weekend with KeyArena show





