October 2, 2022

Archives for February 2009

The Economic Collapse Continues – Logical Minds See No Signs Of A Bottom

No Signs Of A Bottom

The market continues its massive sell off in a resounding vote of no confidence on the measures being taken to reverse the economy’s downward spiral.  A contrary investor buying the dips over the past two years has seen nothing but huge losses.  Recent news on the economy continues to indicate that things are getting worse, not better. The impact of estimated losses of over $100 trillion in stocks, bonds and real estate over the past two years will not be offset by stimulus plans.

The trillions of dollars being borrowed to prop up the system are being overwhelmed by a loss of confidence and a loss of wealth that many fear may never be recovered.  The massive deficit in the national budget (12% of GDP) is causing a sell off in the long treasury market, with yields rising above 3% today on the 10 year bond.  The scary question in many people’s minds is how many more trillions of government debt and guarantees will be needed to support a collapsing banking and insurance industry?

Bernanke Confident – Reality Denied

Chairman Bernanke of the Federal Reserve recently expressed his optimistic view that the recession would be over this year – see Do Bernanke and Obama Talk To Each Other? Many others with far superior track records do not agree with Bernanke.

Paul Volcker – former Federal Reserve Chairman – “I don’t remember any time, maybe even in the great depression, when thing went down quite so fast, quite so uniformly around the world”.

George Soros – successful hedge fund investor – the financial system “was placed on life support, and it’s still on life support.  There’s no sign that we are anywhere near a bottom”.

Nouriel Roubini – economist who correctly forecast the financial collapse – “We are still in the third and fourth innings and it’s getting worse”.

Logical minds would have to strongly doubt Bernanke’s optimistic view, especially in view of his previous calls that proved to be ridiculous, such as:

“We will follow developments in the subprime market closely.  However, fundamental factors—including solid growth in incomes and relatively low mortgage rates—should ultimately support the demand for housing, and at this point, the troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system.”
—June 5, 2007

Horrific Economic News Continues – Notable Links

California’s Jobless Rate Exceeds 10%

California’s unemployment rate climbed to 10.1% in January, the highest since 1983, as employers in the nation’s most-populous state cut 79,000 jobs in the month.

There were 3.3% fewer jobs in January 2009 compared to January 2008. The report said there were 1,863,000 unemployed Californians in January, up by 754,000 a year earlier.

The first half of 2009 will continue “to be pretty ugly,” said Howard Roth, the chief economist for the state’s finance department.

The state is threatening to pass the 11% jobless rate of late 1982, the highest since the Great Depression. “All we need is another month like this,” Mr. Roth said.

The Dangers Of Turning Inward

Yet if historians look back on today’s severe downturn, with its crumbling markets, rising unemployment and massive government interventions, they could well be busy analyzing how globalization — the spread of trade, finance, technology and the movement of people around the world — went into reverse. They would likely point to the growth of economic nationalism as the root cause.

The last time we saw sustained economic nationalism was in the 1930s, when capital flows and trade among countries collapsed, and every country went its own way. World growth went into a ditch, political ties among nations deteriorated, nationalism and populism combined to create fascist governments in Europe and Asia, and a world war took place.

It’s no accident that the European Union has called an emergency summit for this Sunday to consider what to do with rising protectionism of all kinds.

There are a number of reasons why economic nationalism could escalate.

As happened in the 1930s, economic nationalism is also sure to poison geopolitics. Governments under economic pressure have far fewer resources to take care of their citizens and to deal with rising anger and social tensions. Whether or not they are democracies, their tenure can be threatened by popular resentment. The temptation for governments to whip up enthusiasm for something that distracts citizens from their economic woes — a war or a jihad against unpopular minorities, for example — is great.

Economy In Worst Fall Since 1982

A broad measure of the U.S. economy plummeted in the fourth quarter — to levels far worse than previously thought — underscoring how quickly the economy has soured and casting doubt that things will get better this year.

With falloffs in consumer spending and exports, gross domestic product declined at a 6.2% annual rate in the fourth quarter of 2008, according to a Commerce Department report Friday. The agency’s first estimate for GDP, reported in January, was for a 3.8% decline. GDP is a key measure of a country’s economic performance.

Big Numbers

Does $65.5 trillion terrify anyone yet?

As the Obama administration pushes through Congress its $800 billion deficit-spending economic stimulus plan, the American public is largely unaware that the true deficit of the federal government already is measured in trillions of dollars, and in fact its $65.5 trillion in total obligations exceeds the gross domestic product of the world.

Failure To Save Eastern Europe Will Lead To Worldwide Meltdown

The unfolding debt drama in Russia, Ukraine, and the EU states of Eastern Europe has reached acute danger point.

If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung.

Austria’s finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria’s GDP.

“A failure rate of 10pc would lead to the collapse of the Austrian financial sector,” reported Der Standard in Vienna. Unfortunately, that is about to happen.

Europe’s governments are making matters worse. Some are pressuring their banks to pull back, undercutting subsidiaries in East Europe. Athens has ordered Greek banks to pull out of the Balkans.

The sums needed are beyond the limits of the IMF, which has already bailed out Hungary, Ukraine, Latvia, Belarus, Iceland, and Pakistan – and Turkey next – and is fast exhausting its own $200bn (€155bn) reserve. We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights.

The New Depression

We are living through a crisis which, from the collapse of Northern Rock and the first intimations of the credit crunch, nobody has been able to understand, let alone grasp its potential ramifications. Each attempt to deal with the crisis has rapidly been consumed by an irresistible and ever-worsening reality.

Yet what if such a crisis were to be no longer confined to the peripheries of global capitalism but instead struck at its heartlands? Now we know the answer. The crisis has enveloped the whole world like an uncontrollable virus, spreading from the US and within a handful of months assuming global proportions, at the same time mutating with frightening speed from a financial crisis into a fully fledged economic crisis.

As General Motors Goes, So Goes The Nation

General Motors was founded in 1908 in Flint, Michigan and grew to be the largest corporation in the world. Its market capitalization reached $50 billion in 2000. In the past week its market capitalization dropped below $1 billion to levels last seen during the 1920’s. The story of General Motors is the story of America.

“I think it is important to recognize that General Motors is a canary in this country’s economic coal mine; a forerunner for what’s to come for the broader economy. Their mistakes have resembled this nation’s mistakes; their problems will be our future problems. If the U.S. and General Motors have similar flaws and indeed symbiotic fates, they appear to be conjoined primarily by the un-competitiveness of their existing labor cost structures and the onerous burden of their future healthcare and pension liabilities. Perhaps the most significant comparison between GM and the U.S. economy lies in the recognition of enormous unfunded liabilities in healthcare and pensions.

First Time Homebuyers In 2009 Helped By $8,000 Tax Credit

Large Benefit For First Time Homebuyers

The stimulus bill (American Recovery and Reinvestment Act of 2009) recently signed into law provides a large incentive to first time homebuyers.  The purchaser of a principal residence made on or after January 1, 2009 and before December 1, 2009 is allowed up to an $8,000 tax credit.

Some of the key features of the tax credit are as follows:

-the credit may be taken on either the 2008 or the 2009 federal tax return.  By allowing the credit to be taken on the 2008 tax return, a homebuyer can realize the $8,000 tax credit this tax season instead of waiting until next year.  Since the amount of the credit varies based on income levels, this factor should be considered prior to deciding what year to take the tax credit.

-the tax credit is based on 10% of the home’s purchase price.  To obtain the full $8,000 tax credit, the purchase price would have to equal or exceed $80,000.

-there is a claw back provision on the tax credit if you sell the home within 3 years of the purchase date.  The amount of the tax credit that would have to be paid back is reduced if the gain is less than the tax credit taken.   For example, if the house was sold in less than 3 years for a $15,000 gain, the entire tax credit would have to be repaid.  If the home is sold for a loss, no repayment of the tax credit is required.

-the amount of the tax credit can be reduced or eliminated based on income.  If adjusted gross income is $75,000 or less for single filers or less than $150,000 for married couples filing jointly, the full credit is allowed.  For purchasers with income above these levels, the tax credit is reduced.  The tax credit is completely eliminated for income levels exceeding $95,000 for single filers and $170,000 for those married and filing jointly.

First-Time Homebuyer Credit Explained

See the National Association of Realtors “Frequently Asked Questions” for an excellent summary of the tax credit plan details.

FHA Increases Minimum Credit Score Requirement



FHA And VA Increase Credit Score Requirement

Effective March 6, 2009, a minimum credit score of 620 will be required to be eligible for FHA and VA loans.

The credit score requirement had recently been changed less than a month ago.  As of February 9, 2009 the credit guidelines had required only a minimum credit score of 580, subject to certain exceptions.

The increased credit score requirement is an attempt to lower the large number of FHA defaults, which have been running at about 12%.  A 580 credit score reflects a sub prime borrower and in conjunction with minimal down payment requirements, the risk of mortgage default is very high, as reflected in the FHA default ratios.

New Home Buyers With Empty Pockets After Closing

Another area that should be examined by the FHA in their underwriting guidelines is the amount of reserves that a borrower has after closing on a home purchase.  Many borrowers are left with empty pockets after paying for closing costs and the down payment to purchase a home.  As every homeowner knows, the expenses of maintaining a home are never ending.  In addition, a major and unexpected repair could be thousands of dollars that can put a severe strain on the family budget, leading to the inability to maintain the mortgage payments.

There are no guidelines per se that require a potential home buyer to have a specific amount of savings available after purchasing a home.   The ability to save should be viewed by the FHA as a prerequisite for home ownership.  Additional mortgage defaults do not benefit the FHA nor the homeowner.  Savings (reserves) of 3 to 6 months of mortgage payments should be considered by the FHA as a part of their underwriting guidelines.  Buyers might have to postpone the purchase of a home to acccumulate some savings and strengthen their financial position, but the end results would benefit all – a stable housing market with fewer defaults.

Update Regarding 620 FICO Score Requirement – April 2009

There are now some lenders that will do FHA loans at sub 620 FICO scores – see Sub 620 FICO Score Lenders

Update on This Topic: 

-See FHA Introduces New Minimum 580 Credit Score Requirement, September 6, 2010

-See FHA Zero Down Payment Financing Returns

FHA Increases Loan Limits

FHA Announces Higher Loan Limits

As part of the Economic Recovery Act, the FHA loan limits were increased.  The new higher loan amounts are effective until December 31, 2009.  The higher loan limits will allow many borrowers with jumbo mortgages to refinance at much lower rates than would be available under jumbo mortgage pricing.

Due to the high level of defaults, banks are becoming very reluctant to approve jumbo mortgage loans for either purchases or refinances.  Since Fannie Mae and Freddie Mac  will not buy or insure jumbo loans, the lending bank must assume all the risk, keep the loan on their books and set aside additional reserves for possible losses.  All of these additional risk factors are reflected in the higher jumbo rates and strict loan underwriting guidelines – see Jumbo Mortgage Rates.

FHA Announcement

PRESIDENT’S ECONOMIC RECOVERY PACKAGE TO MAKE MORE FAMILIES ELIGIBLE FOR FHA-INSURED MORTGAGES
FHA implements temporary higher loan limits to help families keep their homes

WASHINGTON – More American families will be eligible this year to purchase or refinance their homes using affordable, FHA-insured mortgages, thanks to the economic stimulus package signed into law by President Obama last week. The American Recovery and Reinvestment Act of 2009 will allow HUD’s Federal Housing Administration to temporarily increase its maximum loan limit, allowing FHA to insure larger mortgages at a more affordable price in high-cost areas of the country.

“This is one of many elements of the President’s recovery plan that will help homeowners and homebuyers in these high cost areas secure lower cost mortgage financing,” said HUD Secretary Shaun Donovan. “These loan limit increases will help FHA continue to provide safe, affordable mortgage products to families in all areas of the nation. Today’s announcement is just one example of how the President’s recovery and homeowner affordability plans work together to make homeownership more affordable for those looking to buy a house or refinance their current loans.”

HUD will increase FHA loan limits up to $729,750 in high-cost metropolitan areas such as New York, Los Angeles, San Francisco and Washington, D.C. There are 73 counties in the U.S. that will now be eligible for the highest loan limit of $729,750. Previously, FHA’s loan limits in these high-cost areas were capped at $625,500. The change in loan limits is applicable to all FHA-insured mortgage loans originated until December 31, 2009.

Increasing loan limits will help FHA continue to provide needed stability to housing markets across the country. As conventional sources of mortgage credit have contracted, FHA has been filling the void. From September to December 2008, FHA facilitated $97 billion of much-needed mortgage activity in the housing market, $35 billion of which was through FHA’s refinancing products. By focusing on 30-year fixed rate mortgages, FHA helps homeowners avoid and escape the risks associated exotic subprime mortgage products, which have resulted in rising default and foreclosure rates.

Two More Massive Investment Frauds Reported

Capital Vaporized By Hedge Fund Fraud

How many more frauds are lurking out there?   Two more large cases of investment fraud by hedge fund managers were reported today by The Wall Street Journal.

In the latest round of financial-fraud allegations to erupt, two money managers have been accused of misappropriating at least $553 million, and using it to fund a lifestyle of lavish homes, horses and even an $80,000 collectible teddy bear.

The two men, Paul Greenwood, 61 years old, of North Salem, N.Y., and Stephen Walsh, 64, of Sands Point, N.Y., were arrested by Federal Bureau of Investigation agents and face criminal charges of conspiracy, securities fraud and wire fraud by the U.S. Attorney for the Southern District of New York.

Court documents list several companies as being controlled by the two men, including WG Trading Co. and WG Trading Investors LP in Greenwich, Conn., and Westridge Capital Management Inc., based in Santa Barbara, Calif. They owned Westridge with another individual, prosecutors say.

Westridge Capital managed $1.8 billion in assets, the firm told the SEC in an adviser-registration filing in January. It oversaw a total of 20 accounts primarily for institutions including pension funds, charitable foundations and hedge funds, according to the filing. It lists Messrs. Walsh and Greenwood as principals since 1999.

Alleged victims include Carnegie Mellon University, which had invested more than $49 million, and the University of Pittsburgh, which put in more than $65 million, court records show. The Iowa Public Employees Retirement System said it had invested about $339 million, or 2% of its portfolio. The Sacramento County Employees’ Retirement System in California said on its Web site that it had invested $89.9 million, or 1.6% of its total fund.

The case marks the latest in a series of scandals, topped by Bernard Madoff, who authorities say admitted in December to masterminding a $50 billion Ponzi scheme. Other cases include R. Allen Stanford, a Texas financier who has been accused by the Securities and Exchange Commission of an $8 billion fraud involving certificates of deposit, and Marc Dreier, a prominent New York lawyer charged in an alleged $400 million hedge-fund scam.

If proved, the latest case “will be the biggest direct hedge-fund fraud we’ve seen,” according to Chris Addy of Montreal-based Castle Hall Alternatives, which provides risk-assessment services for investors in hedge funds.

Separately, another alleged fraud began unfolding Wednesday when the U.S. attorney charged hedge-fund manager James Nicholson with securities and bank fraud in U.S. District Court in Manhattan. Prosecutors don’t have a clear idea of the size of the alleged loss, saying only that as much as $900 million could have been invested with his firm.

Is Anything Safe?

Investors have to be wondering if there is any safe place left to invest their capital.  Stocks are down 50% and there seems to be another major investment fraud reported almost daily with total losses well over $100 billion and counting.

Large investment losses, loss of confidence and a weak economy restrict investment and risk taking which further impede economic recovery.  It looks like it’s time to take Will Rogers advice and be more concerned with return of capital rather than return on capital.

Banks Tighten Lending By Restricting FHA Cashout Refi

FHA Loans Become Tougher To Qualify For

Effective January 1, 2009 HUD announced that any FHA cash out refinance would require two appraisals when the loan to value exceeds 85% – see FHA Takes A Closer Look At Home Values. Since the customer usually has to pay for the appraisal, this adds around $350 to the cost of refinancing with the FHA.  In addition, many underwriters are taking a very close look at appraised values, due to the continuing drop in home prices.   In turn, the close scrutiny of appraised values by the underwriters are making many appraisers more conservative in the values that they assign to a home.  The FHA also raised the down payment requirement on purchases to 3.5% and increased mortgage insurance premiums.

The net result is that an FHA loan not only has higher costs but also a higher probability of being turned down due to insufficient equity and more stringent underwriting guidelines.

Some Banks Reduce Cash Out Limits On FHA Loans

Two smaller banks today have reduced the cash out limits on FHA loans to 85% loan to value, despite the FHA guideline allowing 95% cash out.  Rumor has it that larger banks will also follow through on lowering the loan to value limits on FHA cash out refinances.   Tougher guidelines quickly spread industry wide, so expect many more lenders to make it more difficult to cash out on an FHA refinance.

Since FHA loans have a very high default rate (roughly 12%), it is only logical that banks are imposing tougher guidelines for borrowers.   The banks simply cannot afford to take on additional default risk given their weak financial position.

Many potential borrowers will continue to find it difficult to obtain mortgage approval until the economy recovers and the housing markets stabilize.  Based on the way things are going, it could be a long wait.

Can The Economic News From Japan Possibly Get Worse?

Japan’s Exports Plunge By 45% In January

Six months ago, no one in his right mind would have predicted a 45% decline in Japan’s exports.  The drop in exports has no comparable statistics, as Bloomberg reports.

Feb. 25 (Bloomberg) — Japan’s exports plunged 45.7 percent in January from a year earlier, resulting in a record trade deficit, as recessions in the U.S. and Europe smothered demand for the country’s cars and electronics.

The shortfall widened to 952.6 billion yen ($9.9 billion), the biggest since 1980, the earliest year for which there is comparable data, the Finance Ministry said today in Tokyo. The drop in shipments abroad eclipsed a record 35 percent decline set the previous month.

Exports to the U.S. tumbled an unprecedented 52.9 percent from a year earlier, and shipments to Asia and Europe also posted the largest-ever declines as the global recession deepened. The collapse is likely to force Japanese companies to keep firing workers and closing factories, worsening an economy that shrank the most in 34 years last quarter.

“The pressure on companies to cut jobs and investment is rising and that will make the recession deep and protracted,” said Yasuhide Yajima, a senior economist at NLI Research Institute in Tokyo.

Shipments to Europe slid 47.4 percent in January from a year earlier, the Finance Ministry said. Exports to China fell 45.1 percent and those to Asia dropped 46.7 percent.

Central bank Governor Masaaki Shirakawa said last week that the economy will remain in a “severe” state next quarter and companies will struggle to obtain financing as investors shun risk. The bank, which lowered the key overnight lending rate to 0.1 percent in December, last week said it will buy corporate bonds for the first time to stem the credit squeeze.

The Nikkei Puzzle

With astonishingly horrible economic news coming out of Japan almost daily, one would expect that the Nikkei would be crashing below its 2003 low – see Nikkei – Black Hole or Buying Opportunity. Is it possible that we are looking at a classic “buy on the bad news” opportunity?   At this point, one could take the position that the Nikkei’s refusal to sell lower means that the present bad news has been fully discounted.

Contrary Opinion Time?

The fact that the Nikkei refuses to hit new lows may indicate that the world economy will improve going forward.   How could it get much worse?  If we extrapolate the present rate of decline for Japanese exports, they would drop to virtually zero within six months!   Is the world’s second largest economy really going to ground to a dead stop?

This may turn out to be a classic (long term) “buy on the bad news” opportunity for the Nikkei, as long as the 7000 level can hold.

Do Bernanke And Obama Talk To Each Other?

Bernanke Gives Upbeat Assessment On Economy

Chairman Bernanke predicted today that the recession would end in 2009.  Some of his upbeat, optimistic comments included:

“If actions taken by the administration, the Congress and the Federal Reserve are successful in restoring some measure of financial stability — and only if that is the case, in my view — there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery”.

“I would anticipate some stabilization in the housing market going forward.”

“I do believe that once the economy begins to recover, we will see improvement in the financial market.”

The Big Question

The really big question is, was the President listening to him?

The Bloomberg report that follows is really tough to reconcile with Bernanke’s comments earlier in the day.  Do these guys talk to each other?  There does not appear to be a consistent message or plan for dealing with the greatest economic chaos since the 1930’s.

Feb. 24 (Bloomberg) — President Barack Obama will tell the public tonight the “day of reckoning has arrived,” and that pulling the U.S. out of a recession will mean sacrificing “some worthy priorities” the nation can no longer afford.

“We have lived through an era where too often, short-term gains were prized over long-term prosperity; where we failed to look beyond the next payment, the next quarter, or the next election,” Obama will say in his first address to a joint session of Congress, according to excerpts released by the White House.

“The only way this century will be another American century is if we confront at last the price of our dependence on oil and the high cost of health care; the schools that aren’t preparing our children and the mountain of debt they stand to inherit,” he will say

Obama is seeking to convince lawmakers and voters that his plans to revive growth will succeed while cautioning that the recovery will take time. The president has spent his first month in office focused on three initiatives — a $787 billion stimulus bill, a bank-rescue plan and an effort to limit home foreclosures — while warning of economic “catastrophe” if the government doesn’t take aggressive action.

With all the warnings about the severity of the economic crisis, Obama now must look for ways to boost public optimism, analysts and economists say.

“It’s a real balancing act,” said Stuart Rothenberg, a Washington-based political analyst. “The president’s got to walk this fine line between reminding people of the difficult situation we’re in and emphasizing the inevitable victory.”

“It’s all about confidence,” said Bruce Foerster, a former Lehman Brothers Holdings Inc. managing director and now president of South Beach Capital Markets in Miami. “That’s the heart of what is going on. We have problems but they are being exacerbated because there’s no confidence in the capital markets.”

I applaud the President’s honesty on the challenges we face and I wish him the best of luck. The stock market, however, has lately been registering a resounding vote of no confidence in the actions taken by Washington.  The nation is searching for a thoughtful, workable plan to solve the economic problems we face.  A coherent and unified message from Washington would be good for starters.

Predicting an end to the recession in 2009 while concurrently describing the economic situation as “catastrophic” and a “day of reckoning” does not project a coherent message.   But it could have been worse – at least they didn’t let Tim Geithner say anything.

Bernanke Predicts 2010 Recovery In Stocks, Housing & Economy

Bernanke Predicts Recession To End In 2009

The stock market jumped over 200 points today, partly due to Federal Reserve Chairman Ben Bernanke’s optimistic comments to the Senate Banking Committee.  Some selected comments by the Chairman follow:

“If actions taken by the administration, the Congress and the Federal Reserve are successful in restoring some measure of financial stability — and only if that is the case, in my view — there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery”.

Mr. Bernanke also sounded optimistic on housing as well, although without a specific time projection for recovery.

“I would anticipate some stabilization in the housing market going forward.”

Mr. Bernanke seemed to dismiss the need for bank nationalization stating that:

“I don’t see any reason to destroy the franchise value or to create the huge legal uncertainties of trying to formally nationalize a bank when that just isn’t necessary”.

Better financial market performance was also seen by the Chairman:

“I do believe that once the economy begins to recover, we will see improvement in the financial market.”

Mr. Bernanke also stressed his commitment to provide ample amounts of credit for all purposes:

“Our objective is to improve the function of private credit markets so that people can borrow for all kinds of purposes.”

Mr. Bernanke did temper his optimistic statements by noting that his forecast

“is subject to considerable uncertainty, and I believe that, overall, the downside risks probably outweigh those on the upside.”

Conclusion?

If the downside risks outweigh those on the upside, how can Bernanke be so optimistic for a recovery in stocks, housing and the economy??  Based on the confusion and conflicting signals, let’s examine some previous comments by the Chairman for perspective on his batting average as an economic prophet.

Previous Forecasts By The Chairman

“At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt.”
—February 14, 2008

The U.S. federal budget deficit has declined recently and is officially projected to improve further over the next few years. Unfortunately… the United States has already reached the leading edge of major demographic changes that will result in an older population and a more slowly growing workforce. A major effort to increase public and private saving is needed to prepare for the economic consequences of this demographic transition and to address external imbalances. As the global perspective makes clear, the reduction of the U.S. current account deficit also requires efforts on the part of the surplus countries to reduce the excess of their desired saving over desired investment.
—September 11, 2007

“Overall, the U.S. economy appears likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy’s underlying trend.”
—July 18, 2007

“We will follow developments in the subprime market closely.  However, fundamental factors—including solid growth in incomes and relatively low mortgage rates—should ultimately support the demand for housing, and at this point, the troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system.”
—June 5, 2007

“We at the Federal Reserve will do all that we can to prevent fraud and abusive lending and to ensure that lenders employ sound underwriting practices and make effective disclosures to consumers. At the same time, we must be careful not to inadvertently suppress responsible lending or eliminate refinancing opportunities for subprime borrowers.”
—May 17, 2007

“The information, expertise, and powers that the Fed derives from its supervisory authority enhance its ability to contribute to efforts to prevent financial crises; and, when financial stresses emerge and public action is warranted, the Fed is able to respond more quickly, more effectively, and in a more informed way than would otherwise be possible. “
—January 5, 2007

No need to assign a grade letter to the Chairman, but maybe we should hold off on celebrating the economic recovery.