[Vision2020] The disconnect between conservatives and the business community

Thu Feb 14 13:56:48 PST 2008

*The conservative present administration:
*

Paulson, Bernanke: Slow growth aheadTreasury secretary and Fed chairman say
rate cuts and rebates should keep economy out of recession but warn of tough
times.By Chris Isidore, CNNMoney.com senior writer
February 14 2008: 3:36 PM EST

NEW YORK (CNNMoney.com) -- Federal Reserve Chairman Ben Bernanke and
Treasury Secretary Henry Paulson both acknowledged problems in the U.S.
economy Thursday, but both said they believe the nation will avoid falling
into recession.

The two made their comments at a hearing before the Senate Banking Committee
about the economy. Their testimony comes in the wake of troubling economic
readings that have raised recession fears on Wall Street.

But while Paulson and Bernanke repeatedly insisted they expect the economy
to avoid shifting into reverse - thanks in part to a series of interest rate
cuts by the Fed and a $170 billion economic stimulus package signed by
President Bush Wednesday - they conceded the economy faces additional
headwinds.

Bernanke and Paulson both said the outlook for the economy is noticeably
worse than it was as recently as a few months ago, and both expect cuts in
official growth forecasts from the administration and the Fed in upcoming
months.

The Fed is currently predicting 1.8% growth for this year, but Bernanke said
a new forecast would be finalized next week. The Council of Economic
Advisors' most recent estimate was for the economy to grow by 2.7% in 2008.

*More losses, tight credit ahead*

Bernanke said he believes major banks and Wall Street firms are likely to
take additional earnings hits tied to bad investments in subprime mortgages.
That could lead to tighter lending standards and contribute to an overall
slowdown.

"More expensive and less available credit seems likely to continue to be a
source of restraint on economic growth," Bernanke said.

But he added he's not worried about bank failures because he thinks banks
entered the current downturn with sufficient capital and have been able to
raise additional funds.

Some of the panel members praised the two for the steps taken so far to spur
the economy.

The Fed last month made two significant interest rate cuts: three-quarters
of a percentage point at an emergency meeting, followed by half a point
eight days later.

Bernanke said Thursday that the Federal Open Market Committee, its
rate-setting body, was ready to act again if further economic readings
justify it.

But some senators criticized the pair, suggesting the administration and the
central bank are at least partly to blame for the current economic problems,
due to lax oversight and lack of early response to the downturn in housing.

Sen. Charles Schumer, D-N.Y., suggested the problems in credit and financial
markets pose a greater threat to the economy than a slowdown in consumer
spending.

"Aren't you underestimating, not giving enough attention to, the severity of
the problem in the credit markets?" asked Schumer. He said Wall Street
executives he's talked to "seem much more worried" about credit woes than
Paulson and Bernanke.

Paulson, a former CEO of Goldman Sachs
(GS<http://money.cnn.com/quote/quote.html?symb=GS&source=story_quote_link>,
Fortune 500<http://money.cnn.com/magazines/fortune/fortune500/2007/snapshots/575.html?source=story_f500_link>),
responded that he also spoke regularly with top Wall Street executives,
adding "some are more worried than others."

*Paulson on defensive*

Sen. Robert Menendez, D-N.J., pointed out that Goldman Sachs is one of the
growing number of investment banks forecasting a recession this year and
suggested that Paulson and Bernanke "hit the snooze button" when alarm bells
about the economy first went off last year.

Menendez said he wasn't trying to talk down the economy, but that he was
looking for "honest assessments" from Paulson.

Paulson bristled at the comments, telling Menendez, "If you're trying to
talk the economy up, I'd hate to see you talk it down."

Menendez shot back, "I'm just trying not to hide my head in the sand."

"I'm not either," responded the Treasury Secretary.

The two also were asked to explain why investments in many major banks and
Wall Street firms by sovereign wealth funds should not be a concern.

Sovereign wealth funds - large pools of money controlled by foreign
countries - have taken stakes in recent months in Citigroup
(C<http://money.cnn.com/quote/quote.html?symb=C&source=story_quote_link>,
Fortune 500<http://money.cnn.com/magazines/fortune/fortune500/2007/snapshots/309.html?source=story_f500_link>),
Merrill Lynch (MER<http://money.cnn.com/quote/quote.html?symb=MER&source=story_quote_link>,
Fortune 500<http://money.cnn.com/magazines/fortune/fortune500/2007/snapshots/865.html?source=story_f500_link>)
and Morgan Stanley
(MS<http://money.cnn.com/quote/quote.html?symb=MS&source=story_quote_link>,
Fortune 500<http://money.cnn.com/magazines/fortune/fortune500/2007/snapshots/905.html?source=story_f500_link>
).

Paulson said these investments are an important endorsement of the U.S.
financial system and that they do not pose a risk of foreign governments
having undue influence on major banks here.

"I think we need to be vigilant. I don't think we need to be fearful," said
Paulson.

*Paulson says economy 'fundamentally strong' *

Throughout the hearing, Paulson and Bernanke repeated that they expect
slower growth and not a recession.

Paulson said the economy "is fundamentally strong, diverse and resilient"
and that the main problem is that it is "undergoing a significant and
necessary housing correction."

But Senate Banking Chairman Christopher Dodd, D-Conn., said the slowdown is
due to a crisis of confidence among both consumers and investors.

Dodd was critical of some of the Bush administration's housing efforts,
including the freeze on foreclosures announced this week by Paulson and some
of the country's leading mortgage lenders.

"It is a lifeline more to lenders than to borrowers in my view," said Dodd.

Sen. Richard Shelby of Alabama, the ranking Republican on the committee,
said he's concerned that the mortgage meltdown is spreading to the rest of
the economy.

"One thing that is now clear to all of us is the subprime mortgage problems
are not contained," said Shelby.

He added that he doubts whether the stimulus package would prove to be
effective.

"Even if every consumer spends their $600 tax rebate, I've equated it to
pouring a glass of water in the ocean and expecting it to make a
difference," Shelby said. "I hope I'm wrong." [image: To top of
page]<http://cnnmoney.printthis.clickability.com/pt/cpt?action=cpt&title=Bernanke%2C+Paulson+both+see+U.S.+avoiding+recession+in+%2708+-+Feb.+14%2C+2008&expire=-1&urlID=26524064&fb=Y&url=http%3A%2F%2Fmoney.cnn.com%2F2008%2F02%2F14%2Fnews%2Feconomy%2Fbernanke_paulson%2Findex.htm%3Fcnn%3Dyes&partnerID=2200#TOP>
What senators should ask Bernanke and
Paulson<http://money.cnn.com/2008/02/13/news/economy/questions/index.htm?postversion=2008021312>

Bush signs bill aimed at boosting
economy<http://money.cnn.com/2008/02/13/news/economy/bush_stimulus/index.htm?postversion=2008021314>

Stimulus plan may not lead to many new
jobs<http://money.cnn.com/2008/02/04/news/economy/stimulus_jobs/index.htm?postversion=2008020812>

*The Response of the Business Community:*

News <http://money.cnn.com/markets/news/index.html>
Data<http://money.cnn.com/data/markets/index.html>
Pre-market <http://money.cnn.com/data/premarket/index.html>
After-hours<http://money.cnn.com/data/afterhours/index.html>
US Markets <http://money.cnn.com/data/us_markets/index.html> Hot
Stocks<http://money.cnn.com/data/hotstocks/index.html>
Bonds <http://money.cnn.com/markets/bondcenter/index.html>
Commodities<http://money.cnn.com/data/commodities/index.html>
World Markets <http://money.cnn.com/data/world_markets/index.html>
Currencies <http://money.cnn.com/data/currencies/index.html>   Dow
 Nasdaq <http://money.cnn.com/data/markets/nasdaq/>
S&P<http://money.cnn.com/data/markets/sandp/> Russell
2000 <http://money.cnn.com/data/markets/russell/> NYSE
Composite<http://money.cnn.com/data/markets/nyse/> Dow
Transport <http://money.cnn.com/data/markets/dowtrans/> Dow
Utilities<http://money.cnn.com/data/markets/dowutil/> AMEX
Composite <http://money.cnn.com/data/markets/amex/>
   Dow Jones Industrial Average
  12,376.98 -175.26 / -1.40%
Feb 14 4:04pm ET †
   Open: 12,551.51 High (day): 12,557.61 Low (day): 12,361.46 YTD%Change: -
6.69% Volume: 233,778,821.00 Prev. Close: 12,552.24 52-Week Range (Low -
High): 11,634.82 - 14,198.10      Time Frame
1-day 2 days 5 days 10 days ---------- 1 month 2 months 3 months 6 months YTD
1 year 2 years 3 years 4 years 5 years 1 decade All Data   – previous day
close Advanced Charts <javascript:GoURL(chartingURL,'symb=djia&sid=1643')>

 *US Markets <http://money.cnn.com/data/us_markets/>*
 Actives <http://money.cnn.com/data/actives/>
Gainers<http://money.cnn.com/data/gainers/>
Losers <http://money.cnn.com/data/losers/> Widely
held<http://money.cnn.com/data/widelyheld/> Dow
30 <http://money.cnn.com/data/dow30/>

Feb 14 4:53pm ET † Change %Change Level Dow <javascript:GoURL(dowURL,'');>-
175.26-1.40%12,376.98NASDAQ <javascript:GoURL(nasdaqURL,'');>-41.39-1.74%2,
332.54S&P <javascript:GoURL(sandpURL,'');>-18.35-1.34%1,348.86 DJ Wilshire
5000-187.50-1.35%13,655.93Russell 2000 <javascript:GoURL(russellURL,'');>-
16.61-2.30%705.32Philadelphia Semiconductor<javascript:GoURL(phillysemiURL,'');>
-10.23-2.81%353.26Dow Transports <javascript:GoURL(dowtransportsURL,'');>-
68.71-1.44%4,705.88Dow Utilities <javascript:GoURL(dowutilitiesURL,'');>-
5.26-1.04%498.79NYSE Composite <javascript:GoURL(nysecompositeURL,'');>-
105.07-1.16%8,968.41AMEX Composite <javascript:GoURL(amexcompositeURL,'');>-
11.14-0.49%2,263.10Morningstar Index <javascript:GoURL(morningstarURL,'');>-
46.24-1.41%3,286.42  Open    Market Closed      *as of previous close

-- 
Gray Tree Crab aka "Big Bertha"
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