 New York Stock Exchange |
The Dow Jones Industrial Average traded down today more than 210 points until an announcement from Reuters in the last hour of trading revealed Obama administration plans to consider a mortgage modification program for homeowners who are at risk of going arrears.
The stock market rallied back in the last hour of trading to close at 7,932.76, down 6.77 points for the day.
The nearly 3 percent drop in the Dow until the final hour of trading reflected a lack of investor confidence that the proposed nearly $1 trillion deficit-funded economic stimulus package the Obama administration is pushing through Congress will create enough jobs to reverse the current economic downturn.
CNBC reported as the New York Stock Exchange closed that the Treasury and the Federal Reserve were planning to use as much as $50 billion of the second half of $350 billion in Troubled Asset Relief Program, or TARP, funds to be applied to the not-yet-fully-explained mortgage modification program.
Under the plan, a borrower apparently would have to meet needs criteria in an eligibility test to qualify, even before the homeowner goes delinquent on mortgage payments.
The idea would be that those qualifying for a mortgage modification under the proposed plan would receive a reduction in loan interest rates, perhaps to as low as between 4 to 4.5 percent, with the government and the original lender sharing the loss between the reduced loan payments under the new interest rate schedule and the original loan payments when the loan was originated.
Reuters reported that housing policymakers in the Obama administration have shelved for now a plan for the government to stand behind low-cost mortgages of between 4 and 4.5 percent for mortgage holders facing foreclosure.
Separately, a secret 17-page report is circulating among European Union finance ministers warning EU governments that toxic assets still held by EU banks and investment firms could total a massive 16.3 trillion British pounds in losses or approximately $24.4 trillion.
European Commission officials have estimated that “impaired assets” of this magnitude could amount to 44 percent of total EU bank balance sheets.
Such a loss of bank assets is potentially destabilizing to the European Union itself and may involve a government-backed bail-out effort that stretches across the EU’s 27 nation-state members.
The report on the secret EU report originally appeared in the London Telegraph, but after initially reporting the toxic assets yet in EU bank asset portfolios could total 16.3 trillion pounds in losses, the Telegraph sanitized the story and removed the numbers.
A reader posting to a European blog captured the original story that first appeared on The Telegraph website with the numerical quantification included.
In the rewritten story remaining on the Telegraph’s website today, the newspaper simply reported that the European bank bail-out required to handle a problem of this magnitude could send the EU into crisis.
The story carried on the Telegraph’s website omitted any mention of amount of toxic assets, calling them “massive” without any specific quantification.
Estimates of the quantity of toxic assets yet in U.S. bank portfolios have reached as high as $9 trillion in speculation on Wall Street this week.
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