Finance news

The Federal Reserve may have cut its key short-term interest rate to the lowest level on record, but that doesn’t mean credit will be any easier to get.

The move to lower the fed funds target rate to a range between 0% and 0.25%marked the tenth time the Fed has cut rates in the past 15 months in an attempt to jumpstart the economy.

Generally, the Fed lowers rates when it is concerned about the economy slowing because consumers tend to spend more when the cost of borrowing is cheap. But economists say the problem for consumers and businesses right now is not the cost of borrowing, but the availability of credit.

"Consumers might see lower rates but it’s still hard to get a loan," said Gus Faucher, director of macroeconomics at Moody’s Economy.com. "Banks are taking big hits, and they’re still trying to preserve capital. So they’ll only make loans if you’re a good credit risk."

The federal funds rate is an overnight lending rate that is used as a benchmark to determine the price of a variety of loans, including credit cards, home equity loans, lines of credit and car loans.

Most types of consumer loans are pegged to the prime rate, which is directly influenced by the federal funds rate. Typically, the prime rate is 3 percentage points higher than the federal funds rate. It was 4% before Tuesday’s rate cut; just after the decision, several banks announced they were lowering their prime rate to 3.25%.

In turn, all credit cards with variable interest rates will automatically reset to reflect the lower rate. That is good news for card holders, but expect issuers to counter it by setting rate floors in order to preserve their margins, as well as scaling back consumer credit lines and closing old accounts.

"Banks are trying to mitigate losses," said Robert McKinley, CEO of CardWeb.com, a credit card tracking Web site.

"New credit is going to be a problem," McKinley added. "If you have shaky credit you’re going to be very challenged to find money instant payday loan no telecheck…even people with good credit are going to find it’s not as easy to get credit," he said.

And the same goes for consumers shopping for home equity lines of credit. "Lenders are not jumping up and down to be a second lien holder at a time when home prices are falling and foreclosures are rising," said Greg McBride, senior financial analyst at Bankrate.com.

Those in the market for a new car will certainly find deals, but that’s mostly thanks to slashed sticker prices, not lower interest rates. That’s because auto loans are not overly rate sensitive. For example, despite the Fed rate cuts, the average five-year note for a new car loan is at 7.05%, down from 7.60% a year ago.

"Rates have not gotten significantly lower, but even if they did it wouldn’t have a significant impact on affordability," said McBride.

Plus, even if borrowers can get financing, the difference of a percentage point doesn’t seriously impact affordability. "Nobody is upgrading to a Hummer based on lower interest rates," McBride added.

For many mortgage holders, the cumulative Fed rate cuts will result in lower payments when their variable-rate loans reset in 2009. But there is also a diluted effect: While this is a good time to refinance your existing mortgage, those in the market for a new home will need excellent credit to get a low rate.

"To obtain today’s low interest rates, you need to have a down payment - or equity position in your home in the case of a refi - of at least 10% and fully document your income and your assets," said Keith Gumbinger, vice president of mortgage-rate tracking firm HSH Associates. "If you don’t have good credit, you’re going to have trouble getting financing."

"It used to be, you had to prove you were alive to get a mortgage," he added. 

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Sears.com was inaccessible to U.S. shoppers for two hours Friday in what was the most notable Web hiccup of the holiday gift-buying season’s official start.

Other sites, including Amazon.com Inc (AMZN, Fortune 500)., experienced minor slowdowns, according to Shawn White, director of external operations at Keynote Systems Inc., a San Mateo, Calif.-based research group.

Starting a week and a half ago, Keynote began tracking the performance of about 30 big online retailers, logging the time it took to find a product and start checking out.

Keynote’s list includes Wal-Mart Stores Inc (WMT, Fortune 500)., Macy’s Inc (M, Fortune 500)., Circuit City and others; the system takes measurements every 15 minutes from computers in 10 major U.S. cities.

Sears Holdings Corp. (SHLD, Fortune 500)’s site started to crawl at around 9:30 a.m. ET when loading a page on the site topped one minute need cash. From about 10:30 to 12:30, Sears posted a message asking shoppers to try again in a few minutes.

White said Sears was among the retailers that stumbled last year on Black Friday.

But while Sears’ problems returned this year, others including Neiman Marcus seem to have resolved past issues.

Amazon and Target Inc (TGT, Fortune 500)., which uses Amazon’s e-commerce technology, were slower Friday than in recent days, but not unbearably so, White said. At the slowest point, a transaction that took 25 seconds last week required about 40 seconds Friday morning.

Kohl’s Corp. (KSS, Fortune 500) and Saks Inc. (SKS) also had performance problems, according to Keynote data. 

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The current economic slump will likely lead to an increase in lawsuits, according to a new litigation trends survey released Tuesday by law firm Fulbright & Jaworski LLP. The blame game will prompt many of these suits.

Of the U.S.-based companies participating in this year’s survey, 34 percent expect to see what the study calls a “run-up” in litigation involving their firms over the next 12 months.

By comparison, 22 percent of respondents to the 2007 survey expected to see an increase in litigation.

“This year’s survey appears to mark an inflection point for American business — between the end of a prolonged period of prosperity and the start of a period of economic challenge that is likely to fuel litigation over who is to blame and who should pay for the consequences,” says Stephen C. Dillard, chair of Fulbright’s global litigation practice.

The latest litigation trends report is based on responses from 358 participating companies — including company officials who serve as general or deputy-general counsels for their firms. Of that pool, 251 respondents were U.S.-based firms.

The survey was performed from May 22 through July 18 of this year — during what Dillard calls “the cusp of that transition” from economic prosperity to the current economic slump. The report covers litigation practices over the prior 12-month period.

Houston business research firm Greenwood Associates conducted the survey on behalf of Fulbright & Jaworski.

The litigation trends report provides businesses with a snapshot of the current legal landscape, notes John W. Weber Jr., who is a partner in the litigation practice of the San Antonio office of Houston-based Fulbright & Jaworski.

Given the timeframe in which the survey was conducted, Dillard says that the 2008 report highlights “both the evident calm before the storm, as well as the sense that disputes are on the rise.”

The calm: The overall pace of activity in the U.S. declined during the 2007-2008 survey period — with 21 percent of U.S. companies stating that no new lawsuits had been filed against them. By comparison, 17 percent of the firms surveyed claimed there was no pending litigation against them during the 2006-2007 survey period approved payday advance in seconds.

But this period is not expected to last for long — especially as the country sees a rise in lawsuits tied to the collapse of the subprime mortgage market.

Such concerns have companies ramping up their legal arsenal. Of the U.S. companies responding to the 2008 litigation trends survey, 45 percent reported spending at least $1 million annually on litigation. In line with that finding, 19 percent of the U.S.-based firms stated that they were more likely to increase their in-house litigation staff.

Over the last 12 months, 12 percent of the insurance companies surveyed had already engaged outside counsel regarding subprime lawsuits or investigations. Eleven percent of the financial services firms surveyed had done this over the past year.

Looking ahead to the next 12 months, 15 percent of the insurance firms, and 22 percent of the financial services respondents are, as the report states, “bracing themselves for a subprime action or investigation.”

Who’s at risk

As part of this year’s survey, Fulbright & Jaworski also broke down which industries are most vulnerable to litigation.

Insurance companies were the prime target — with at least 66 percent of these firms facing six or more new lawsuits. Next was the retail industry, with 55 percent of this sector facing at least six new lawsuits. These top targets were followed by manufacturing, with 54 percent of the companies facing six or more new lawsuits; and health care providers, with 52 percent of its businesses facing at least six new lawsuits.

As for the areas most ripe for lawsuits, the top three were labor and employment matters, contract disputes and personal injury cases. These areas also took the top three spots in the 2006-07 and the 2005-06 surveys, Weber says.

Product liability, intellectual property/patents, insurance, environmental-toxic tort, regulatory, class actions and professional services rounded out the top 10 categories of lawsuits.

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Exports from Germany, Europe's largest economy, declined more than economists forecast in July as cooling global growth curbed demand.

Sales abroad, adjusted for working days and seasonal changes, fell 1.7 percent from June, the Federal Statistics Office in Wiesbaden said today. Economists expected a drop of 1.1 percent, the median of 10 forecasts in a Bloomberg News survey showed. In the year, exports rose 7 percent.

Exporters are grappling with a slowdown in the economies of their main trading partners. Europe's gross domestic product shrank 0.2 percent in the second quarter and may not recover in the third, raising the risk of the region's first recession since the euro was introduced in 1999. While oil prices fell 28 percent from a July record, they're still up almost 40 percent over the past year, boosting inflation and damping the outlook.

“Today's result matches recent negative data,'' said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. “There's a risk of a drop in gross domestic product in the third quarter. We don't see a significant recovery anytime soon.''

Imports rose 7.4 percent from June. That's the biggest gain since June 2002. In the year, imports gained 16 percent.

The trade surplus narrowed to 13.9 billion euros ($20 billion) from 19.9 billion euros in June. Economists forecast a surplus of 17.5 billion euros. The surplus in the current account, the measure of all exports including services, narrowed to 11.8 billion euros from 18.9 billion euros in June.

Dropping Orders

German factory orders unexpectedly fell in July, extending their longest-ever declining streak and increasing the likelihood that the economy is heading for a recession.

The German economy contracted 0.5 percent in the second quarter and may not recover in the third as investments falter and consumer spending slumps. The VDMA lobby has said that plant and machine orders dropped for a third straight month in July, led by sliding foreign demand payday loan.

German business confidence declined to a three-year low last month and consumer optimism fell to the lowest level in five years. Growth is slowing globally after the U.S. subprime mortgage market collapsed, making banks reluctant to lend and driving up the cost of credit.

Landesbank Baden-Wuerttemberg, Germany's biggest state-owned bank, had a net loss in the first six months of the year following writedowns related to the credit-market collapse, the company reported on Aug. 28.

Bertelsmann AG, Europe's largest media company, cut its 2008 profit forecast after advertisers slashed marketing budgets to cut costs amid the economic slowdown.

Asian Demand

Some companies are trying to offset falling European and U.S. orders by expanding in Asia and oil-exporting countries. German exports to India more than tripled in the four years through 2007 to 7.4 billion euros, the statistics office said.

Adidas AG Chief Executive Officer Herbert Hainer last week repeated the company's forecast, saying growth in emerging markets following this summer's Beijing Olympics will drive sales at the second-largest sporting-goods maker.

Shipments to countries outside the European Union rose 10 percent from a year earlier, today's report showed. Exports to EU member states increased 5.4 percent from July 2007. Imports from within the EU trade bloc rose 13.7 percent from a year ago.

Still, the German government forecasts growth will slow to 1.7 percent this year and 1.2 percent in 2009 from 2.5 percent in 2007. Economy Minister Michael Glos said Aug. 26 the economy is “exposed to a serious economic stress test.''

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Washington’s latest attempt to resuscitate the moribund U.S. mortgage business moves the housing market out of the emergency room and into intensive care but by no means cures the patient.

The U.S. government announced on Sunday it was seizing control of troubled mortgage finance giants Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz), which are vital to the U.S. housing industry and have posed risks to international investors.

The action should lend stability after a year of turmoil in financial markets, and is sure to be watched closely by other victims of deflated housing bubbles, such as the UK. But there is still a long way to go to right the U.S. economy.

“This is a slow process. This is a baby step in the right direction,” William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Massachusetts, said about the plan’s effect on housing and the economy.

Larkin added that “it is going to be a positive for our financial system.”

Anything that puts U.S $500 payday loan. growth on a firmer footing is likely to raise hopes for the struggling global economy, though it could raise risks of already elevated U.S. inflation if investors grow to view this as the government printing money to bail out the economy.

VITAL SUPPORT

U.S. financial officials have made clear that a recovery in the housing market, currently in its worst slump since the Great Depression, was vital to getting the economy back on its feet. That’s because so much of consumers’ total wealth is tied to the value of their homes that staunching declining property prices is a must before any rebound in consumer spending can be expected to take hold. 

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The local office of J.M. Waller Associates Inc. is helping to provide emergency operations support to the Federal Aviation Administration (FAA) following Hurricane Gustav’s landfall in Louisiana.

J.M. Waller provides logistics consulting to the FAA and has stepped up its responsibility to provide logistics coordination of supplies delivery to keep the FAA’s Air Traffic Control Tower at Louis Armstrong New Orleans International Airport and Lake Front Airport operational.

J.M. Waller has been working to help the FAA effectively provide relief efforts in and out of the airports, company officials say. The company worked with the FAA to locate and deliver equipment and vehicles such as motor homes and RV’s for the FAA to the airports credit report. J.M. Waller has also sent personnel to New Orleans to provide oversight of all essential services to the FAA.

Fairfax, Va.-based J.M. Waller is a service-disabled veteran-owned small business specializing in environmental, facilities and logistics consulting and management services. The company has a large presence in San Antonio along with offices in Hawaii and Atlanta.

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Two credit unions on Maui have voted in favor of a merger.

The boards of both the Lahaina Federal Credit Union and the Valley Isle Community Federal Credit Union voted unanimously in favor of the merger, which was approved by the National Credit Union Administration.

Under the merger, which is targeted for Oct. 1, all members will be under the Valley Isle Community FCU name.

Valley Isle Community FCU, the second largest credit union on Maui, will have assets totaling more than $89 million and a membership base of approximately 11,400 following the merger, the company said no fax payday loan.