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
An 802.11n upgrade could make a big difference
Retailers opening doors on Thanksgiving Day
Google makes concessions on digital book deal
Critics want to block Comcast-NBC deal
Google submits revised book settlement

Opening day at Crystal Mountain
Skiers crowded the slopes at Crystal Mountain for one of the resort's earliest openings.
nwjobs

Post a comment

Michelle Goodman blogs about work/life balance.
How to tell your office you're gravely ill
Post a comment
nwautos

Choosing a new sedan? Weigh the impact of your choice on your wallet and on the planet.
Post a comment
- Homeless man, 46, arrested in Greenwood arsons
- Steve Kelley | ESPN's Bill Simmons gets us: He hates Clay Bennett, too
- KVI talk radio host off the air as of Thursday
- Police investigate videotaped arrest
- Seattle U. Men's Hoops | Big recruit goes from Huskies to Redhawks
- Razor found in muffin an accident, 'mortified' baker says
- Mariners sign Jack Wilson to 2-year contract
- Suspect's family shaken by slaying of police officer
- Mountlake Terrace woman reports razor in muffin
- Ivar's undersea billboards a hoax devised as marketing ploy
- Police investigate videotaped arrest
630 - Seattle man to pack a pistol into community center to protest mayor's ban
185 - Light rail to airport to begin Dec. 19
177 - GOP clueless as families struggle with health care
161 - KVI talk radio host off the air as of Thursday
126 - ESPN's Bill Simmons gets us: He hates Clay Bennett, too
125 - Mariners sign Jack Wilson to 2-year contract
112 - Prosecutor weighs death penalty in police slaying
103 - Wright State game thread
97 - Person of interest in custody in connection with Greenwood arsons
94
- Light rail to airport to begin Dec. 19
- Homeless man, 46, arrested in Greenwood arsons
- Ivar's undersea billboards a hoax devised as marketing ploy
- Steve Kelley | ESPN's Bill Simmons gets us: He hates Clay Bennett, too
- Washington in race for federal education funds
- KVI talk radio host off the air as of Thursday
- Goodwill's Glitter Sale is Nov. 14-15
- Police investigate videotaped arrest
- Boeing: 787 fix is complete on first plane
- Seattle U. Men's Hoops | Big recruit goes from Huskies to Redhawks





