Banking industry continues to pull down stock market
The recent drop in the stock market which has sent the dow average down to their lowest levels over the past six years can be directly attributed to the banking industry. Major national banks such as Citigroup, Bank of America, JP Morgan have seen their share prices under a severe selling pressure following the premature bank rescue plan the Secretary Geithner announced a little over one week ago. Following this announcement of a new process to fix the banking industry and restore lending, banks have seen their market caps drop in some cases by over 50%. There is a growing speculation that one of the methods the government will need to look into will be nationalizing the countries largest banks. Concerns are abundant that despite the injections of billions of dollars into these banks through the TARP program that these companies are severely undercapitalized. The challenge in the market is trying to determine the fair market value of these banks balance sheets and the billions of dollars they will require in the future as they continue to write down the value of their assets as loan losses continue to grow. The recent foreclosure fix by the government is being reviewed with mixed results as their is a ground swell of emotion that taxpayers are growing more resentful to the continued handouts without a direct benefit to themselves. Lowering mortgage rates for only home owners who do not have equity is drawing the most criticism.
Economic stimulus nears the home stretch
The economic stimulus package heads for a Senate vote this week and could make it to the desk of the President by weeks end. The stock market is likely to continue trading in a wide range until investors believe the bad economic news is behind and a bottom has been reaced in the market. Friday’s job report was a clear indication that the economy ran into serious problems in the fourth quarter of 2008 and the fallout is continuing.
The economic stimulus is likely to feature a few economic incentives aimed at restoring the U.S. housing market. There is growing speculation that the package could include a tax credit to be used towards home ownership in the amount of $15,000. Most of the previous moves the government has tried to pass to stimulate home ownership and slow down the home foreclosure challenge have not been successful including a $7,500 tax credit and the hope for homeowners program. The governments decision to begin purchasing mortgage backed loan securities in late December spurred a surge in home refinance loans, however this move has not resulted in a spike with home purchases. Turning around the U.S. housing market will be critical to fixing the U.S. economy, and this is one of the major focal points of the Obama administration as they prepare their economic and fiscal policies for their first term.