Treasury Secretary Henry Paulson called for tougher rules for mortgages lenders Thursday, while investment fund Carlyle Capitol faced collapse after defaulting on $16 billion in debt as a string of new reports this week signaled continued weakness in the U.S. economy. Economic experts offer insight.
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There were new and disturbing signs this week signaling more economic pain ahead. The dollar is at record lows, oil prices at record highs, and a report out today found retail sales were down more than expected last month.
On Wall Street, more troubles. The investment fund Carlyle Capital Corporation neared collapse today after defaulting on $16 billion of debt.
Official Washington has tried to help restore order. Earlier this week, the Federal Reserve offered to pump as much as $200 billion into the financial system to help banks and brokerages.
And Secretary Paulson's pledge today to toughen lending rules was aimed at preventing a future crisis.
To help us understand what's happening, we turn to Mark Zandi, chief economist for Moody's Economy.com, and Alan Blinder, professor of economics at Princeton University. He was vice chair of the Federal Reserve from 1994 to 1996.
And, Professor Blinder, listening to that litany of a low dollar, high oil, low consumer confidence, are all these things related to each other? Are they connected?
ALAN BLINDER, Former Economic Adviser to President Clinton: I think they are. All of these are various aspects or most of them are various aspects of a weak and weakening economy. Whether we'll have a technical recession or not remains to be seen. We might.
But even if we don't, we're skittering along at very miniscule growth rates. And a lot of this, frankly, traces back to the housing problem, which is causing the financial travails. It is also weakening the economy.
Mark Zandi, do you agree that the housing problem is sort of the first domino to tumble?
MARK ZANDI, Chief Economist, Moody’s Economy.com:
Yes, most fundamentally, that's absolutely right. The housing market is a mess. Since it peaked over two years ago, housing starts are down 60 percent. Home sales are down 35 percent. And, most importantly, house prices are down 10 percent nationwide.
That's leading to mortgage defaults and foreclosures, which is undermining the value of mortgage securities, and just creating turmoil throughout the entire financial system. So at the root is what's going on in the housing market.