Financial thoughts

The Group of Seven’s surprise expression of unease over the U.S. dollar’s rapid fall is unlikely to stem the greenback’s slide for long since the U.S. economy has yet to show evidence it has hit bottom.

In a major shift, the G7 nations abandoned long-standing language on currencies in a communique issued after a meeting on Friday, and expressed concern that sharp currency moves could undermine economic and financial stability.

The language carried at least the implied threat that authorities could step in to try to right the markets’ wrongs and may make traders a bit more nervous about making one-way bets on currencies.

“On Monday you may have a bit of strengthening, but the short- and long-term trend is still for a weaker dollar,” said Nouriel Roubini, an economics professor at New York University.

“The U.S. dollar is hurting growth in Europe, so this is a concerted effort to say they don’t like this excessive weakness,” he said online cash advance. “The U.S. is on a path of economic recession, and I don’t see any bottoming out of the dollar.”

The Group of Seven or G7, as the leading industrial nations are known, issued their strongest statement of concern in more than seven years about sharp currency swings and a weaker U.S. dollar dampening growth in Europe. The G7 has not made such a united effort since 2000, when the group intervened to prop up the euro to avert a global financial crisis.

This time, it’s the U.S. dollar and the bursting of the U.S. housing market bubble which are of concern.

“The new G7 language may put a bit more two-way risk into (currency) markets in the near term, as it may challenge the view that U.S. officials have a policy of benign neglect” toward the dollar, Morgan Stanley analyst Sophia Drossos said in a statement. 

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China's foreign-exchange reserves, the world's largest, surged to $1.68 trillion at the end of March, adding pressure on the government to prevent money inflows from fueling inflation already at an 11-year high.

Currency holdings expanded 40 percent from a year earlier, the People's Bank of China said today on its Web site. The assets grew a record $153.9 billion from the end of December, after a $94.6 billion increase in the fourth quarter.

Exports, foreign investment and U.S. dollar depreciation have boosted China's currency assets, hampering government efforts to rein in money supply and inflation. China last month ordered lenders to set aside more deposits as reserves for a second time this year and has let the yuan rise at a quicker pace to stem cash inflows.

“The rapid accumulation in foreign-exchange reserves is making it very difficult for China to control money supply and inflation,'' said Wang Qing, chief China economist at Morgan Stanley in Hong Kong.

Consumer prices surged 8.7 percent in February from a year earlier, the most since May 1996, after the worst snowstorms in half a century disrupted food supplies. Chinese policy makers including Premier Wen Jiabao have named inflation and overheating as China's biggest economic risks this year.

The yuan closed at 7.0065 versus the dollar in Shanghai from 6.9995 before the data was released.

Country-Sized Increase

The increase in currency reserves is more than the annual economic output of some countries, such as New Zealand.

China's economy, the world's fourth largest, expanded 11.9 percent in 2007 from a year earlier, the fastest pace in 13 years. A strengthening Chinese currency, up 4.3 percent already this year against the dollar, has encouraged inflows of speculative capital. The yuan gained 7 percent in 2007.

“The pace of hot money coming into China has picked up, exacerbating the accumulation of foreign reserves,'' said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. “The government will slow the appreciation of the yuan to ease speculation.''

To tame liquidity, the central bank has pushed the required reserve ratio for lenders to a record 15.5 percent. China has held off raising interest rates after six increases last year as the U.S. Federal Reserve cuts borrowing costs.

Trade-Surplus Cash

“Raising interest rates will only attract more money into China,'' said Morgan Stanley's Wang, who expects faster yuan gains to rein in a trade surplus that pumped $41.4 billion into the financial system in the first quarter.

A stronger currency makes exports more expensive. Tighter control of foreign-exchange inflows, higher reserve requirements and more bill sales to soak up cash are also likely, according to Wang.

The central bank today cited slower money-supply growth as evidence that its “tight'' monetary policy is having an effect. M2, the broadest measure, grew 16.3 percent in March from a year earlier, the slowest pace since January 2007.

A falling dollar contributes to the build-up of China's foreign reserves as the assets are quoted in the U.S. currency, according to UBS AG economist Jonathan Anderson.

“The onset of the credit crisis and the crumbling of the U.S. housing bubble precipitated a significant sell-off of the dollar,'' said Anderson, who is based in Hong Kong. That has boosted the value of the assets that China holds in other currencies.

“A sizable portion, 35 percent to 40 percent of China's foreign-exchange reserves, is held in European and Japanese assets,'' he said.

Growing reserves prompted the government to set up an investment arm last year to increase returns. China Investment Corp., a $200 billion fund, bought stakes in Blackstone Group LP, the New York-based private equity firm, and Morgan Stanley.

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Industrial production in France unexpectedly climbed for a third month in February on higher consumer spending and record exports.

Production at factories and utilities, which accounts for 15 percent of the economy, rose 0.3 percent from January, when it gained a revised 0.6 percent, the national statistics bureau, Insee, said today in Paris. Economists expected no change, the median of 25 forecasts in a Bloomberg News survey showed.

Economic growth in France has weathered a U.S. slowdown, record oil costs and euro appreciation, sustained by 9 billion euros ($14.2 billion) in tax cuts introduced by President Nicolas Sarkozy and declining unemployment. Joblessness in France fell to a 24-year low in the fourth quarter.

“It's obvious that the U.S. economy has an impact on the European economy, but you have to put it into context,'' said Emeric Challier, chief executive officer and head of fixed income at Oaks Field Partners, in a Bloomberg Television interview before the report. “We've had figures coming out of Europe that are pretty good.''

The impact of credit-market turmoil may begin to show up in March economic data, according to Mathieu Kaiser, an economist at BNP Paribas SA in Paris. The International Monetary Fund and French government have cut their 2008 growth forecast in the past two weeks, with the IMF seeing a slowdown to 1.4 percent and French officials forecasting as low as 1.7 percent.

Italian Output

Separately, Italy's national statistics office today said industrial output there declined in February as the worsening economic outlook choked demand for manufactured products.

At the same time, inflation in the euro region will accelerate to 2.8 percent this year before slowing to 1.9 percent next year, just below the European Central Bank's 2 percent target, the Washington-based institution also said.

That's preventing the ECB from cutting borrowing costs to cushion against the slowdown, Guillaume Menuet, a senior European economist at Merrill Lynch & Co. in London, said in a Bloomberg Television interview today.

“It will be difficult for the ECB to implement a more accommodative policy through 2009,'' said Menuet. “The manufacturing sector is doing extremely well in the euro zone.''

Beneteau SA, the world's largest maker of sailboats, which is based in Saint-Gilles-Croix de Vie, on the west coast of France, said on April 2 that sales in the sixth months ended Feb. 29 rose 19 percent.

French manufacturing, which excludes energy and food output, rose 0.3 percent on the month, led by a 1.3 percent gain in equipment manufacturing, Insee said. From a year earlier, industrial output rose 2 percent and manufacturing increased 1.9 percent.

January's industrial production was initially reported to have risen 0.5 percent.

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The Bank of Japan kept interest rates on hold at the first meeting chaired by Masaaki Shirakawa amid concern the economy may slip into a recession.

Shirakawa, who parliament today approved as governor, and his six colleagues left the key overnight lending rate at 0.5 percent, the central bank said in a statement in Tokyo. The decision was unanimous.

Shirakawa may want to gather more evidence before deciding whether the world's second-largest economy needs the first rate cut in seven years. Recent economic data have been mixed, with export growth and inflation accelerating as corporate sentiment fell to a four-year low and production cooled.

“The Bank of Japan will have no other choice but to keep interest rates on hold for a long time, given that economies are slumping at home and abroad,'' said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo.

The yen traded at 102.47 per dollar as of 12:47 p.m. in Tokyo from 102.60 before the announcement.

Shirakawa had been deputy since March 12 and acting governor since the government failed to appoint a successor to Toshihiko Fukui a week later. Yesterday in parliament he repeated that the bank is ready to act flexibly if needed.

It's “relatively probable'' that Japan's economy will regain momentum after slowing, he said, adding that risks remain as the U.S. faces the worst credit crisis since the Great Depression and global financial markets are still volatile.

Too Much Stimulus

At the same time, he said the bank must bear in mind that providing too much stimulus to the economy in the short term could jeopardize long-term growth.

“Mr. Shirakawa is probably succeeding Mr. Fukui's slightly hawkish line, but he certainly has to be very flexible in response to changing economic conditions,'' said Tomoko Fujii, head of economics and strategy for Japan at Bank of America Corp. in Tokyo. “The economy is set for a full-fledged slowdown.''

The board meeting was held a week after the bank's Tankan survey showed confidence of major manufacturers, which have fueled the economy's longest postwar expansion, slumped to a four-year low and businesses plan to cut investment.

Companies reduced factory output for a second month in February on concern that the U.S., Japan's biggest export market, may slide into a recession.

Watanabe Rejected

Parliament's approval of Shirakawa ends the first vacancy at the head of the Bank of Japan in 80 years. The leadership void occurred after the opposition-controlled upper house rejected the government's previous two candidates last month.

The upper chamber rejected former Finance Ministry official Hiroshi Watanabe, after the main opposition Democratic Party of Japan said appointing him would amount to parachuting a former bureaucrat into a top government post, a custom it opposes.

The two rejected candidates for governor, Toshiro Muto and Koji Tanami, also worked at the Finance Ministry. Shirakawa was at the central bank for 34 years before taking up at teaching position at Kyoto University in 2006.

Shirakawa “is certainly not a charismatic person but he has a great deal of experience in monetary policy'' and will become a “steady hand at the helm,'' said John Vail, chief global strategist at Nikko Asset Management Co. “Doing nothing for the time being is the best course of action'' because interest rates are already low, Vail said.

Most economists expect the Bank of Japan to maintain a wait-and-see stance this year, according to a Bloomberg News survey. Of 30 economists surveyed, four predict a cut by December and three expect an increase. The remaining 23 said borrowing costs would stay on hold in 2008.

Still Intact

Some reports show the expansion is still intact. Export growth quickened in February as demand from emerging economies helped manufacturers ride out the U.S. slump. Wages rose for a second month, the first back-to-back gains since July 2006.

The bank also has to consider inflation that's higher than the key interest rate. Consumer prices excluding fresh food climbed 1 percent in February from a year earlier. Shirakawa has said Japan's interest rates are currently “very low.''

The central bank will publish its monthly assessment of the economy at 3 p.m. and Shirakawa will speak at a news conference at 3:30 p.m. He will leave for Washington tomorrow to attend the G-7 meeting.

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German industrial production unexpectedly rose in February, the third gain in as many months, as unusually warm temperatures boosted construction.

Output rose a seasonally adjusted 0.4 percent from January, when it gained 1.4 percent, the Economy Ministry in Berlin said today. Economists expected a 0.4 percent decline, the median of 41 forecasts in a Bloomberg News survey showed. From a year earlier, industrial production rose 6.1 percent when adjusted for the number of working days.

German construction emerged from a decade of decline in the past two years as pent up demand and low interest rates fueled orders for buildings. Still, output way wane in the months ahead as the euro's gain to a record $1.5903 last month damps exports and surging oil prices crimp companies' spending power.

“The importance of weather factors will increasingly wane over coming months,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. “I still expect this moderate upward trend to continue, but the dynamic will weaken in the second half of the year because of the global slowdown.''

The euro gained a fifth of a cent against the dollar after the release, rising to $1.5729. The currency traded at $1.5699 at 1:08 p.m. in Berlin after $1.5737 yesterday.

Construction output rose 3.7 percent in February from the previous month, today's report showed. Manufacturing production increased 0.3 percent and output of semi-finished goods rose 1.6 percent. Investment goods production declined 0.2 percent. January's gain in output was revised down from 1.8 percent.

Mild Winter

Mild weather allowed construction companies to work during much of the winter. At 3.6 degrees Celsius the average temperature in February was 3.3 degrees higher than the long-term average, according to the Offenbach-based German weather service DWD.

In a two-month comparison, which smoothes out monthly volatility, industrial production increased 2.4 percent in January and February from the previous two-month period.

German business and investor confidence unexpectedly rose in March. Germany's BDB banking association today maintained its growth forecast of 1.6 percent for this year, saying the economy is still “robust.''

Porsche SE, the maker of the 911 sports car, expects deliveries this year to be about the same as last year as economic growth in China, Russia and the Middle East offsets any declines in the U.S., the company said last month payday loans.

Robust Enough

Germany's economy is sufficiently robust to cope with the global slowdown and the outlook “remains positive,'' the DIW research institute said this month. The economy will expand 2 percent this year and growth will slow to 1.6 percent in 2009, the Berlin-based institute said.

“Industry is still working off the huge batch of orders from the fourth quarter,'' said Juergen Michels, an economist at Citigroup Inc. in London. “But we'll see a slowdown over the course of the year as global demand is cooling and due to the euro's strength.''

Hochtief AG, Germany's largest construction company, said March 26 that it expects profit to stagnate this year on slowing orders. The Essen-based company said that earnings from its U.S. building-arm will be unpredictable this year.

Factory orders fell 0.5 percent in February, a government report showed last week, and the International Monetary Fund cut its outlook for economic growth in Germany to 1.4 percent from 1.5 percent, Finance Minister Peer Steinbrueck said April 5.

U.S. Fallout

The fallout from record defaults on mortgages to U.S. households with a poor credit history has so far caused about $232 billion in losses and writedowns among the world's biggest financial companies, data compiled by Bloomberg shows. German banks have $312 billion in non-performing loans on their books after the financial crisis made them harder to sell, accounting firm Ernst & Young said last week.

“The recent weakening in factory orders as well as a smaller spring upswing as a result of the mild winter indicate that the upward dynamic of the industrial sector will be less strong in the months ahead,'' the Economy Ministry said a statement today.

Fuchs Petrolub AG, Germany's largest maker of lubricants, expects operating profit to grow at a slower rate this year as U.S. sales are hurt by the economic slowdown, the company said March 28. “This year it's going to be a struggle.''

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Yahoo Inc has three weeks to accept Microsoft Corp’s $31-a-share cash-and-stock offer or Microsoft may lower its bid and take its offer to Yahoo investors, Microsoft said on Saturday.

Microsoft Chief Executive Steve Ballmer said in a letter dated April 5 and addressed to Yahoo’s board of directors that “now is the time” to negotiate final terms of a deal, which, valued at more than $40 billion would mark the biggest-ever takeover in the high-tech industry.

“If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors,” Ballmer wrote.

Then he threatened to reduce Microsoft’s offer if Yahoo failed to meet the deadline: “That action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal.”

The letter marks the tightening of the noose in a classic Wall Street bear-hug merger strategy, wherein Microsoft aims to convince Yahoo directors to negotiate a friendly deal or else face a battle for their jobs at Yahoo’s next annual meeting.

Yahoo’s board is reviewing the letter, said a person close to the company payday advance low fees. Directors of the Sunnyvale, California-based company have rebuffed Microsoft’s original offer, saying the bid undervalues Yahoo and that it is seeking alternatives.

Ballmer said Microsoft was growing impatient more than two months after the Redmond, Washington-based software powerhouse made its unsolicited takeover offer for Yahoo. At the time, the bid represented a 62 percent premium to Yahoo’s share price.

“Steve Ballmer is an emotional guy and the emotion comes through and it’s frustration,” said Kim Caughey, senior analyst at Fort Pitt Capital Group, a Microsoft shareholder. “I really don’t think it’s going higher than $31. That ship has sailed.”  

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As gas prices hit another record high Thursday, senators in Washington suggested Congress may need to intervene and change how investors buy and sell oil.

The Senate Energy and Natural Resources Committee tackled the complicated but potentially critical topic of speculation, raising the possibility that Congress might make it harder for investors to buy high-risk oil contracts which some say are driving up gas prices.

"I think it’s a minimum of a dollar a gallon," said Sean Cota, a regional chairman with the Petroleum Marketers Association of America. "That’s very significant."

Two days earlier, oil executives told Congress that speculation might be responsible for half the current cost of oil. Leaders from five top companies agreed that current supply and demand levels should place the price near $55 a barrel, instead of the roughly $100 a barrel in recent days. Thursday, senators heard conflicting opinion on the idea, but many showed open distrust of the speculation market.

"I think there’s an orgy of speculation that we ought to be deciding to do something about," said Sen. Byron Dorgan, D-North Dakota.

He and others raised the idea of changing the margin or amount investors must pay up front in order to engage in oil speculation. It would be a hugely significant change in financial markets. Dorgan said stock speculation requires a 50% margin, but commodities like oil demand a much lower threshold, just 5% or 7%.

Experts say the result has been a flood of investment in oil, seen as a commodity more immune from inflation issues.

"I do think the margin requirements are low," testified Sarah Emerson, the managing director of research firm Energy Security Analysis bad credit payday loan. Emerson told senators that a change in the margin rate may be among their only short-term options to address speculation and soaring oil prices.

"I do think that’s one tool that Congress has," she said. "There really aren’t any other easy fixes, save drawing down the SPR (Strategic Petroleum Reserve), which I wouldn’t necessarily recommend."

Other analysts insisted that global events and the weak dollar might be just as much to blame for the oil bubble.

But senators from both parties focused on speculation and a possible change in the margin rate, insisting it needs to be addressed.

"This is very confusing and everybody gets confused," said Sen. Pete Domenici, R-New Mexico, ranking Republican on the Energy Committee.

"I don’t think…that just because this is difficult and confusing that we ought to let it go," he added. 

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Swiss bank UBS AG on Tuesday reported more serious damage from exposure to the U.S. subprime crisis, saying it would post first-quarter losses of $12.1 billion and that it would seek $15.1 billion in new capital.

Switzerland’s largest bank said it expects writedowns of approximately $19 billion and announced the resignation of Chairman Marcel Ospel, just as Deutsche Bank AG, Germany’s largest bank, announced similar writedowns of about $4 billion.

It was the latest indication of how far the severe plunge in U.S. housing prices and a credit crisis triggered by rising mortgage defaults has reached.

UBS writedowns have reached a staggering $40 billion in the past nine months, the largest reported by any bank to date.

Standard & Poor’s cut the bank’s credit rating one notch to AA-, citing "risk management lapses, earnings volatility and need for new capital."

UBS said that after it raises new capital, its Tier 1 capital ratio, a key indicator of a bank’s ability to absorb losses, would be about 10.6%. That is well above minimum European requirements of 4% and bank shares rose 8.66% to $31.53.

Ospel: I’m responsible. Ospel said he was ultimately responsible for the bank’s health as he stepped down.

"My willingness to stand for re-election for a further one-year term was based on my desire to lead UBS out of its current difficult situation," Ospel said. "We have worked very hard and have been able to address the firm’s most pressing problems, thereby laying the foundation for the long-term success of the bank."

The bank said its move to raise capital through a rights issue that would be fully underwritten by four leading international banks and would enable it to remain "one of the world’s strongest and best capitalized banks."

"In the first quarter, UBS substantially reduced its real estate related positions through both valuation adjustments and significant disposals," the bank said.

It said it would create a new unit to "hold certain currently illiquid U.S. real estate assets."

"UBS is confident that these measures will deal effectively with the firm’s real estate exposures and allow the bank to focus on strengthening its core operations," the statement said.

Aiming for a recovery. Chief Executive Marcel Rohner said, "We believe this capital increase and the creation of a vehicle to separate problem assets from the remainder of our businesses will allow us to return to sustainable value creation over time."

He said profits from most of the bank’s businesses "remained acceptable in challenging conditions" during the first quarter.

"We have made further prompt writedowns and sales of our impaired U.S http://payday-faxless.com. real estate-related positions," Rohner said. "We have reduced risk weighted assets and implemented measures to control costs and strengthen the structure of the firm."

However, he said, UBS wants to avoid selling at "severely distressed levels."

"With these measures we have created the basis to weather one of the most difficult periods in the history of the industry," Rohner said.

Subprime exposure reduced. The measures show the bank continues to trim risky assets. The bank said its exposure to U.S. subprime mortgage related positions declined to approximately $15 billion from $27.6 billion on Dec. 31.

The exposure to Alt-A positions, which are less risky than subprime loans, was reduced to $16 billion from $26.6 billion, it said.

The efforts at minimizing exposure will be accompanied by an undisclosed number of job cuts and a further tightening of risk.

The measures mean that UBS is now a restructuring stock, analysts at JP Morgan wrote in a note to investors.

"We conclude UBS is aiming to put a line below its risk-exposure problem and refocus on operational business," JP Morgan’s Kian Abouhossein said.

‘Not out of the woods yet.’ But Octavio Marenzi, head of financial consultancy Celent, said the UBS disclosures were "a clear indication that we are not out of the woods yet in terms of the credit crisis."

"Indeed, the storm clouds are gathering ever more rapidly over the banking industry and, in particular, the U.S. banking industry, where most of UBS’s losses originated from," Marenzi said.

He predicted the U.S. banking industry is set to see its first contraction in overall revenues in more than forty years. "This will inevitably lead to staff reductions, and we expect to see the U.S. banking industry shed about 200,000 jobs in the coming 12 to 18 months," Marenzi said.

Earlier this year UBS (UBS) posted a 12.45-billion franc loss for the fourth quarter of 2007, after writing down 15.6 billion francs tied to U.S. subprime mortgages, and said it expected another difficult year ahead.

The bank posted a net loss of 4.38 billion francs for 2007, its first annual loss. 

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Federal Reserve Chairman Ben S. Bernanke has pushed aside central-banking tradition, scooping up $29 billion of assets from Bear Stearns Cos. and backstopping bond dealers. Congress wants to know where he draws the line.

Bernanke testifies before two congressional panels today and tomorrow. The hearings mark his first trips to Capitol Hill since the Fed's March 16 intervention to avert the bankruptcy of Bear, an extension of credit to a non-bank corporation that was unprecedented since the Great Depression.

While lawmakers praise the central bank and the Treasury Department for staving off a U.S. financial collapse, they question the propriety of subsidies to Wall Street risk-takers as hundreds of thousands of Americans lose their homes to foreclosure.

“We want to know about precedent,'' said Senator Charles Grassley of Iowa, the senior Republican on the Senate Finance Committee. If the central bank is prepared to repeat the Bear Stearns example, “it sends a very dangerous signal,'' he said in an interview with Bloomberg Television yesterday.

“People are willing to take chances if they think that the federal government is going to step in and bail them out all the time,'' Grassley added.

Bernanke, 54, will address the economy at the Joint Economic Committee today at 9:30 a.m. He appears tomorrow at the Senate Banking Committee to discuss markets and the Fed's role in JPMorgan Chase & Co.'s purchase of Bear Stearns.

Ditching Tradition

As credit markets seized up, the Fed gave all 20 primary dealers in U.S. government bonds the same access to discount- window loans. Until then, those loans had been reserved for banks. The central bank now auctions as much as $100 billion in funds to lenders a month, and has cut the cost on direct loans to just a quarter-point above the overnight rate between banks.

Lawmakers have welcomed the interest-rate reductions, including 2 percentage points of cuts since the year began, the fastest easing of monetary policy in two decades. The benchmark rate is now 2.25 percent, down from 5.25 percent in September.

At the same time, legislators have begun scrutinizing the central bank's aid to Bear Stearns, which was the biggest underwriter of mortgage-backed bonds. The market for the securities was throttled by a surge in delinquencies on subprime loans, or credit given to people with poor or incomplete credit histories. Foreclosures jumped when interest rates on the loans climbed after an initial period of lower rates.

`Historic Action'

“The administration just took historic action to support the takeover of Bear Stearns by JPMorgan Chase,'' Senate Banking Committee Chairman Christopher Dodd said yesterday on the Senate floor. “It's now time to turn our attention to Main Street.''

The Fed agreed last month to take illiquid assets off of Bear Stearns's balance sheet to encourage JPMorgan to buy the firm low fee cash advance. Most of the investments were mortgage-backed securities and “related'' items, the Treasury Department said in a March 28 letter to Senate Finance Committee staffers.

The assets will be placed in a Delaware corporation set up by the New York Fed. BlackRock Inc. will attempt to sell the assets to pay back the Fed and JPMorgan. The first $1 billion of losses, if any, will be charged to JPMorgan, and the remainder go to the Fed.

Fed officials crossed a “clear line'' between backstop funding and influencing risk in approving the deal, said Brian Sack, a senior economist at Macroeconomic Advisers LLC in Washington and former Fed Board section chief. “When you have outright ownership you are affecting the supply of risk to the private sector.''

Meeting Republicans

Bernanke told House Republican leaders yesterday that “there are still a number of issues out there that are potentially of concern, including the value of housing,'' Representative Adam Putnam of Florida told reporters yesterday. Putnam is the party's third-highest leader in the House.

The worst housing crisis in a quarter century has probably pushed the economy into a recession, according to most Wall Street economists. Private-sector payrolls have fallen for three consecutive months, retail sales dropped 0.6 percent in February, and the U.S. home foreclosure rate reached a record in the fourth quarter of 2007.

“Anything the Congress can do to stabilize that market and turn values around would be helpful,'' Bernanke told Republicans, referring to housing, Putnam said.

The Fed reinvented the role of the central bank as a lender of last resort without consulting Congress. Now, it's time to debate which firms should have access to emergency funding and when, and whether the Fed is the right supervisor for the securities firms to which it is now lending, economists say. The Treasury this week published a “blueprint'' for regulation that positioned the Fed as overseer of market stability.

`Serious Issue'

“This raises the serious issue: How do we regulate or supervise financial institutions? How many come under the umbrella of too-big-to-fail?'' Henry Kaufman, president of Henry Kaufman & Co. in New York, said in a Bloomberg Television interview. “The Federal Reserve has put a lot on the back burner when it comes to supervision and regulation'' and is “not prepared'' to take responsibility for securities firms, he added.

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