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'America Gets Depressed By Thoughts Of 1929 Revisited' -'Worries Grow
Of Deeper U.S. Recession' - 'Central Banks Float Rescue Ideas' - Plus
Easter Devotional Reading For Christians (Read the full stories below)

America Gets Depressed By Thoughts Of 1929 Revisited

Roosevelt's cry that 'there is nothing to fear but fear itself' is
still valid today

By David Smith,
The Sunday Times, UK,
23 March, 2003.

When Americans get worried about the economy, their thoughts turn to
the Great Depression of the 1930s. And when an eminent US economist,
Martin Feldstein, says America is possibly facing its most serious
recession since the second world war, those worries are heightened.
Could there be a rerun of the Great Depression?

The names may not be familiar to British audiences but in America they
resonate enormously. Bear Stearns, the investment bank that went belly-
up last weekend, survived the 1929 Wall Street crash and the Great
Depression. JPMorgan, the bank that came to its rescue, is a Wall
Street legend.

JPMorgan was the target of anticapitalist terrorists in 1920. They
placed a bomb outside its office, leaving one scion of the banking
dynasty with shrapnel in his bottom. It was Jack Pierpoint Morgan, son
of the original JP, who is said to have got worried about the stock
market when his shoeshine boy started giving him share tips, and it
was at JPMorgan's offices that Wall Street's movers and shakers
gathered to try to stem the 1929 crash.

Winston Churchill was on a visit to New York in 1929 on one of the
worst days for share prices. Churchill was surprised not to see more
frenzy among the brokers until he was told that rules prevented them
from running, shouting or gesticulating. Churchill did witness
something, though, that has become part of the grim history of the
era: a man jumping to his death from a nearby hotel window.

The 1929 crash followed a long, debt-fuelled boom for the American
economy, the Roaring Twenties. People wanted cars, radios and the
other trappings of the new consumer era and borrowed to buy them. The
radio age was even more powerful in its impact than the dotcom era of
a few years ago.

Americans thought their economy had been transformed. Irving Fisher,
one of the country's most distinguished economists, opined shortly
before the crash that was to see stock prices eventually drop by 90%
that shares had reached "a permanently high plateau".

A serious recession in modern times would be when gross domestic
product (GDP) falls by 3% or 4% over two years. Between 1929 and 1932
America's GDP fell by 32%.

Herbert Hoover, America's supine president, was powerless. Some 9,000
banks, accounting for nearly half of America's banking capital,
failed. Unemployment soared and stayed high, with little social
protection for the victims. This was the "Buddy, can you spare a
dime?" era.

John Steinbeck's novel, The Grapes of Wrath, tells the story of a
family of poor Oklahoma sharecroppers and their futile journey from
the dust bowl to a new promised land in California. It was published
10 years after the crash and was hugely powerful in its impact.

The effect on Britain was smaller but still profound. The inter-war
years led to mass unemployment and misery, epitomised by the Jarrow
march of 1936.

Could it happen again? The point man in the current crisis, Ben
Bernanke, chairman of the Federal Reserve, also happens to be an
expert on the era. The big mistake the authorities made in the late
1920s and early 1930s, he believes, was to allow so many banks to
fail, guaranteeing a slump in the wider economy. This was compounded
by other errors, including protectionism.

Bernanke's task now is to ensure that banks are topped up with enough
liquidity to keep lending. The Bank of England has come round to the
same view.

In 1932, Franklin D Roosevelt campaigned successfully for the
presidency with the slogan that Americans had "nothing to fear but
fear itself". There is a powerful echo of that now.
_________________________

Worries Grow Of Deeper U.S. Recession

Economist Martin Feldstein believes U.S. is in recession, possibly a
severe one

WASHINGTON (AP) -- It has been almost an article of faith: Any
recession this year will be mild and brief.

A growing number of economists have a U.S. downturn already figured
into their forecasts.

But now the stunning meltdown of a top Wall Street investment bank
and stubbornly persistent financial market turbulence has called that
into question, raising fears that severe problems in housing and the
nation's bedrock financial system could cripple the economy and wallop
many millions of Americans.

No less an authority than former Federal Reserve Chairman Alan
Greenspan wrote this week that "the current financial crisis in the
U.S. is likely to be judged as the most wrenching" since the end of
World War II.

Other noted economists are also sounding alarms. Harvard professor
Martin Feldstein, the former head of the National Bureau of Economic
Research, said recently he believes the country is now in a recession
and it could be a severe one.

While it will be many months before the bureau's cycle dating
committee, the unofficial arbiter of when recessions begin and end,
makes its own ruling, a growing number of private economists already
have a downturn figured into their forecasts. They are generally
calling for a mild recession that will end this summer when the
economic stimulus checks going to 130 million households start getting
spent.

But the severe credit crisis that erupted last August -- and claimed
its biggest victim this past weekend with the forced sale of Bear
Stearns Co. -- is raising doubts about those mild forecasts.

"Bear Stearns was a clear wake-up call. It resonates with everybody
and highlights the severity of the stresses in the financial system,"
said Mark Zandi, chief economist at Moody's Economy.com.

What got people's attention was how quickly Bear Stearns, the nation's
fifth largest investment bank, could go from a stock market value of
about $3.5 billion when the market closed on March 14 to being sold at
the bargain-basement price of about $236 million two days later.

The Federal Reserve rushed in to take unprecedented actions. It
provided a $30 billion line of credit to facilitate the sale and is
employing Depression-era provisions that for the first time are
providing direct Fed loans to investment banks. Most analysts said the
Fed was justified and that its efforts highlighted the severity of the
dangers facing the financial system.

The turmoil produced wild swings on Wall Street this week with the Dow
Jones industrial average surging on Tuesday after the Fed aggressively
cut a key interest rate only to plunge on Wednesday on renewed worries
about the economy and then to stage a 262-point gain on Thursday.
Markets were closed Friday.

More turbulence is expected in coming weeks because there remains a
great deal of uncertainty about how many more victims the credit
crisis will claim.

The problems began last year with rising defaults on mortgages as a
housing slump intensified, but they have now spread to other parts of
the credit markets with institutions growing fearful about making
other types of loans.

It is the ability to get credit that makes the financial system and
the economy it supports function. When banks stop lending to other
institutions that, like Bear Stearns, depend on credit to conduct
their day-to-day operations, the results can be catastrophic.

"We can't afford to stagger from one day to the next without knowing
what large financial institution might be the next to go down the
tubes because of a lack of liquidity. That is way too dangerous a
game," said Lyle Gramley, a former Fed board member who is now an
economist with the Stanford Financial Group. "It is possible that we
could be entering the worst recession of the post World War II period.
The threat is certainly there."

Because of Bear Stearns, many analysts are raising the odds that a
2008 recession could be worse than expected.

"The potential freezing up of the financial system could have pretty
negative ramifications on bank lending which would have negative
ramifications on consumer and business spending," said Nariman
Behravesh, chief economist at Global Insight, a Lexington, Mass.,
forecasting firm. He said he had upped the chances of a worse-than-
expected recession to 40 percent, up from 25 percent odds before Bear
Stearns.

David Wyss, chief economist at Standard & Poor's in New York, said he
now has a worst-case-scenario in which the country could endure a
double-dip recession in which the economy would briefly recover this
summer, helped by the $168 billion in tax relief, only to quickly slip
back into a downturn. Under this scenario, the economy's total output,
as measured by the gross domestic product, would drop by 2.2
percentage points, making it the third worst recession in the post
World War II period.

The worst recession in recent decades, in terms of lost output,
occurred in the 1973-75 period of oil shocks, when GDP fell by 3.1
percent, followed by the 1981-82 recession, when GDP dropped by 2.9
percent.

By contrast, in the last two recessions output fell by 1.3 percent in
the 1990-91 downturn, and a tiny 0.3 percent in the 2001 recession,
making that slump the mildest in the post-war period in terms of lost
output. The 2001 downturn lasted just eight months.

Wyss' baseline forecast calls for the 2008 downturn to trim GDP by
just 0.5 percent and last for nine months, from last November until
August.

Under that forecast, unemployment, which hit a low in this expansion
of 4.4 percent and now stands at 4.8 percent, will rise to around 6
percent, meaning 1.5 million people will lose their jobs. Under the
worst-case forecast, unemployment jumps to 7.5 percent, meaning 3
million people would be tossed out of work.

"There would be bigger drops in the stock market and in home prices
than we are now anticipating and more people out of work," Wyss said.
"There would be a lot of pain all the way around."

While they are developing worst-case-scenarios, Wyss and other
economists said they still believe the balance has not tipped from
their more benign main forecasts. One thing that gives them hope is
the expectation that Congress and the Bush administration, having
acted so quickly to pass the first stimulus package, will move
quickly, especially in an election year, to pass a second package if
needed.

Also, analysts said the Bear Stearns crisis, which has already
prompted the Fed to move more aggressively, will also probably trigger
a bigger response on the part of Congress and the administration in
offering help to homeowners to keep them from losing their homes
because of mortgage defaults.

"Historically, when policymakers have acted in a concerted and
aggressive way, that signals that we are nearing the end of the
crisis," said Zandi. "If that occurs this time and the financial
markets stabilize in the next few months, then the economy will
suffer, but it won't be a prolonged and severe recession."
_________________________________

Central Banks Float Rescue Ideas

By Chris Giles and Krishna Guha in London,
Financial Times, UK,
Friday, March 21, 2008.

Central banks on both sides of the Atlantic are actively engaged in
discussions about the feasibility of mass purchases of mortgage-backed
securities as a possible solution to the credit crisis.

Such a move would involve the use of public funds to shore up the
market in a key financial instrument and restore confidence by ending
the current vicious circle of forced sales, falling prices and
weakening balance sheets.

The conversations, part of a broader exchange as to possible future
steps in battling financial turmoil, are at an early stage. However,
the fact that such a move is being discussed at all indicates the
depth of concern that exists over the health of the banking system.

It shows how far the policy debate has shifted in recent weeks as the
crisis has spread to prime mortgage assets in the US and engulfed Bear
Stearns, the investment bank.

The Bank of England appears most enthusiastic to explore the idea. The
Federal Reserve is open in principle to the possibility that
intervention in the MBS market might be justified in certain
scenarios, but only as a last resort. The European Central Bank
appears least enthusiastic.

Any move to buy mortgage-backed securities would require government
involvement because taxpayers would be assuming credit risk. There is
no indication as yet that the US administration would favour such
moves. In the eurozone it would require agreement from 15 separate
governments.

One argument among policymakers and bankers has been that new
international rules have exacerbated the credit squeeze by requiring
assets to be valued at their current record lows rather than at face
value.

But a strongly held view at one European central bank is that it is
not "mark-to-market" accounting that is to blame for severe weaknesses
in banks' balance sheets but that prices of MBS securities have fallen
to levels that imply unrealistically high rates of default.

If public authorities were to buy and hold sufficient mortgage-backed
securities - rather than simply lend against them as they have until
now - at prices well below face value but above current prices, they
would set a floor in the MBS market.

The Fed does not believe that the point has yet been reached when such
drastic action is necessary and considers the discussions it has had
with its counterparts to represent "blue-sky thinking" rather than the
formulation of a definitive policy proposal.

Fed officials are monitoring the impact of the latest barrage of Fed
liquidity moves and interest rate cuts. They also believe the US has
not exhausted all the options short of wholesale public intervention
and further intermediate steps are available to them.

These could include still more aggressive use of the Fed's own balance
sheet to boost liquidity in the markets.

Analysts say the US government also has plenty of scope to boost
support for the markets indirectly through the Federal Housing
Administration or Fannie Mae and Freddie Mac.

The UK lacks these institutions, which could be one reason why the
Bank of England is keenest to explore outright intervention. The UK
government has already become heavily involved in buying mortgages
since September with the recent nationalisation of Northern Rock, the
mortgage lender.

Michael Coogan, the director-general of the UK's Council of Mortgage
Lenders, said this week: "Demand for mortgages remains strong but
cannot be fully met from existing funding sources." He predicted
higher prices and reduced lending.

It is not just central banks that think the MBS market prices are too
low and imply a unrealistic level of mortgage default. Some US states'
pension funds are investing small sums in the mortgage market.

Robert Gentzel, a spokesman for the Pennsylvania State Employees'
Retirement System, told the AP news agency: "Some of the securities
that have dropped in value were really very solid securities."

(These news items are posted under 'Fair Use' provisions)
_________________________________

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