India's large steel firms have agreed to roll back prices of long steel products, Steel Secretary R.S. Pandey told reporters after a meeting with big producers including Tata Steel and Steel Authority of India Ltd.
The government, concerned about soaring inflation, has announced a series of measures aimed at controlling prices and has held meetings with industrialists to persuade them to keep prices under .
Thursday, April 03, 2008
India's leading steel firms to cut prices - govt
India's large steel firms have agreed to roll back prices of long steel products, Steel Secretary R.S. Pandey told reporters after a meeting with big producers including Tata Steel and Steel Authority of India Ltd.
The government, concerned about soaring inflation, has announced a series of measures aimed at controlling prices and has held meetings with industrialists to persuade them to keep prices under .
The government, concerned about soaring inflation, has announced a series of measures aimed at controlling prices and has held meetings with industrialists to persuade them to keep prices under .
Mutual funds see assets dwindle
Plummeting stock prices and higher redemption demand from institutional investors saw mutual funds losing their assets under management (AUM) by 10-11 per cent on an average last month.
There were, however, exceptions such as Canara Robeco, Benchmark, DBS Chola, ABN Amro and JPMorgan which saw an erosion of 42.15 per cent, 33 per cent, 25.05 per cent, 14.6 per cent and 14.44 per cent, respectively.
Better performers include Principal Mutual Fund, Tata Mutual Fund and Reliance Mutual Fund which saw depletion in AUM by 1.42 per cent, 2.60 per cent and 2.77 per cent, respectively. UTI Mutual Fund lost 6.64 per cent, AIG Global, 7.92, Sundaram BNP Paribas, 8.25 per cent and ICICI Prudential 8.36 per cent.
In March, the market capitalisation of all the stocks listed on the Bombay Stock Exchange got eroded by Rs 7.42 lakh crore, or 12.60 per cent.
Companies trading on the National Stock Exchange, witnessed a depletion of Rs 5.62 lakh crore, or 10.36 per cent.
The erosion in AUM of mutual funds accompanied by the decrease in market capitalisation of stocks, however, doesn’t reveal the true picture.
This is because equity-oriented schemes, including ELSS, of mutual funds comprise only 35 per cent of the total asset under management. The rest is made up of debt-oriented and money market plans.
The AUM of growth plans of equity-linked schemes fell by more than 20 per cent on an average in March.
The AUM of equity schemes stood at Rs 2.08 lakh crore in February, 2.6 per cent lower than in January.
However, on adjusting net inflows, the fall was steeper at 5.8 per cent, which is more than the decline in market capitalisation of 2.8 per cent.
The steep fall in AUM of growth plans was partially offset by the increase in inflows of income schemes.
Mutual funds that have a large portfolio of income and money market schemes suffered less than the others.
A scheme-wise analysis also revealed that many investors who opted for growth options under equity schemes switched on a mass scale to dividend options.
The AUM under dividend plans of equity schemes increased for almost all the mutual funds.
Besides market volatility, fund managers were also subject to heavy redemption pressure, particularly from high-ticket investors. Following this, fund managers had to resort to distress selling to keep a higher percentage of cash (8 to 10 per cent) to meet redemption requests.
There were, however, exceptions such as Canara Robeco, Benchmark, DBS Chola, ABN Amro and JPMorgan which saw an erosion of 42.15 per cent, 33 per cent, 25.05 per cent, 14.6 per cent and 14.44 per cent, respectively.
Better performers include Principal Mutual Fund, Tata Mutual Fund and Reliance Mutual Fund which saw depletion in AUM by 1.42 per cent, 2.60 per cent and 2.77 per cent, respectively. UTI Mutual Fund lost 6.64 per cent, AIG Global, 7.92, Sundaram BNP Paribas, 8.25 per cent and ICICI Prudential 8.36 per cent.
In March, the market capitalisation of all the stocks listed on the Bombay Stock Exchange got eroded by Rs 7.42 lakh crore, or 12.60 per cent.
Companies trading on the National Stock Exchange, witnessed a depletion of Rs 5.62 lakh crore, or 10.36 per cent.
The erosion in AUM of mutual funds accompanied by the decrease in market capitalisation of stocks, however, doesn’t reveal the true picture.
This is because equity-oriented schemes, including ELSS, of mutual funds comprise only 35 per cent of the total asset under management. The rest is made up of debt-oriented and money market plans.
The AUM of growth plans of equity-linked schemes fell by more than 20 per cent on an average in March.
The AUM of equity schemes stood at Rs 2.08 lakh crore in February, 2.6 per cent lower than in January.
However, on adjusting net inflows, the fall was steeper at 5.8 per cent, which is more than the decline in market capitalisation of 2.8 per cent.
The steep fall in AUM of growth plans was partially offset by the increase in inflows of income schemes.
Mutual funds that have a large portfolio of income and money market schemes suffered less than the others.
A scheme-wise analysis also revealed that many investors who opted for growth options under equity schemes switched on a mass scale to dividend options.
The AUM under dividend plans of equity schemes increased for almost all the mutual funds.
Besides market volatility, fund managers were also subject to heavy redemption pressure, particularly from high-ticket investors. Following this, fund managers had to resort to distress selling to keep a higher percentage of cash (8 to 10 per cent) to meet redemption requests.
Microsoft faces Rs 700cr tax claim
Indian tax authorities have asked Microsoft to pay over Rs 700 crore as tax on income earned through royalties on software products licensed to Indian customers between 1999 and 2005.
In an order passed recently, the commissioner of income tax (appeals), New Delhi, has said, “Gracemac Corporation, a 100 per cent subsidiary of Microsoft which had in 1999 been granted proprietary and ownership right in licence and in intellectual property of Microsoft software and hardware products, is liable to pay income tax on its gross royalty income earned out of licensing of software to Indian customers.”
Microsoft said it was reviewing the order and would, accordingly, prepare a course of action.
“Microsoft believes it is in full compliance with Indian tax laws and the income tax treaty agreement between India and the US. The case in point is an old issue relating to the financial period 1999 to 2004 and for an overseas Microsoft entity,” the company spokesperson told The Telegraph.
According to the order, the total gross royalty income for the six assessment years starting from 1999 to 2005 stands at Rs 2,240 crore.
At a 15 per cent tax on royalty under Section 9(1)(vi) of the Income Tax Act read with Article 12 of the double taxation avoidance agreement with the US, the total tax liability on the Microsoft subsidiary comes to about Rs 350 crore.
Since interest on this has also been confirmed by the commissioner, the total liability is around Rs 700 crore.
The tax department said that the price charged for the use of Microsoft’s software in India was royalty and tax was payable on it.
“This is because the software is not sold, but licensed and Microsoft continues to retain its intellectual property rights over the software,” said income tax officials.
Moreover, its agency has to activate the software, and the end-user agreement says that the product is licensed and not sold, they added.
A CBDT spokesperson said: “If Microsoft desires it can go on an appeal against the finding before the income tax appellate tribunal.”
In 1999, Microsoft had granted a licence for Microsoft software and hardware products to the Nevada, US-based Gracemac.
But Microsoft declared to the income tax (I-T) department that its income was nil. An assessment officer, however, found that the company had “licensed Microsoft software to end users in India through Gracemac.”
Analysts said that this implied that royalty payments were coming out of India, which could be taxed.
The I-T department view is that software is an invention as “its development requires highly technical manpower with highly sophisticated infrastructure, putting it under the category of ‘secret formula or process’, making it taxable.”
In an order passed recently, the commissioner of income tax (appeals), New Delhi, has said, “Gracemac Corporation, a 100 per cent subsidiary of Microsoft which had in 1999 been granted proprietary and ownership right in licence and in intellectual property of Microsoft software and hardware products, is liable to pay income tax on its gross royalty income earned out of licensing of software to Indian customers.”
Microsoft said it was reviewing the order and would, accordingly, prepare a course of action.
“Microsoft believes it is in full compliance with Indian tax laws and the income tax treaty agreement between India and the US. The case in point is an old issue relating to the financial period 1999 to 2004 and for an overseas Microsoft entity,” the company spokesperson told The Telegraph.
According to the order, the total gross royalty income for the six assessment years starting from 1999 to 2005 stands at Rs 2,240 crore.
At a 15 per cent tax on royalty under Section 9(1)(vi) of the Income Tax Act read with Article 12 of the double taxation avoidance agreement with the US, the total tax liability on the Microsoft subsidiary comes to about Rs 350 crore.
Since interest on this has also been confirmed by the commissioner, the total liability is around Rs 700 crore.
The tax department said that the price charged for the use of Microsoft’s software in India was royalty and tax was payable on it.
“This is because the software is not sold, but licensed and Microsoft continues to retain its intellectual property rights over the software,” said income tax officials.
Moreover, its agency has to activate the software, and the end-user agreement says that the product is licensed and not sold, they added.
A CBDT spokesperson said: “If Microsoft desires it can go on an appeal against the finding before the income tax appellate tribunal.”
In 1999, Microsoft had granted a licence for Microsoft software and hardware products to the Nevada, US-based Gracemac.
But Microsoft declared to the income tax (I-T) department that its income was nil. An assessment officer, however, found that the company had “licensed Microsoft software to end users in India through Gracemac.”
Analysts said that this implied that royalty payments were coming out of India, which could be taxed.
The I-T department view is that software is an invention as “its development requires highly technical manpower with highly sophisticated infrastructure, putting it under the category of ‘secret formula or process’, making it taxable.”
MARKET PREDICTION
GLOBAL MARKETS ARE MIXED,INDIA WILL FOLLOW THE STEEP MEAN FLAT.
YESTERDAY MARKET HAD SEEN HEAVY SELLING AFTER POSITIVE OPENING THAT CLEARLY SHOWS THAT PEOPLES ARE STILL BEARISH IN MARKET.
NIFTY LEVEL 4650-4720-4800-4850.
BUY FROM LOWER LEVEL IN IT SECTOR;
IF MARKET DOES NOT HOLD 4730 GO SHORT IN BANKING AND FINANCIAL SERVICE.
MARKET OI IS 50K CR PREVIOUSLY IT WAS 52K CR.AND PUTCALL RATIO IS CRAWL UPTO 1.25%FROM 1.19%.
HAVE A NICE TRADING DAY......
-MR.SAM
YESTERDAY MARKET HAD SEEN HEAVY SELLING AFTER POSITIVE OPENING THAT CLEARLY SHOWS THAT PEOPLES ARE STILL BEARISH IN MARKET.
NIFTY LEVEL 4650-4720-4800-4850.
BUY FROM LOWER LEVEL IN IT SECTOR;
IF MARKET DOES NOT HOLD 4730 GO SHORT IN BANKING AND FINANCIAL SERVICE.
MARKET OI IS 50K CR PREVIOUSLY IT WAS 52K CR.AND PUTCALL RATIO IS CRAWL UPTO 1.25%FROM 1.19%.
HAVE A NICE TRADING DAY......
-MR.SAM
Jobs reports optimistic, in contrast with Fed
The private sector added jobs in March, according to a surprisingly optimistic report that contrasted with Fed chief Ben Bernanke's bleak economic outlook and more bad news from the factory sector.
Private employers added 8,000 jobs in March, according to a report on Wednesday by ADP Employer Services, confounding economists' expectations that companies would trim payrolls in the face of a slowing economy.
The news on private-sector job growth bodes well for Friday's March jobs report from the Labor Department, some analysts said, while others discounted the significance of the ADP data.
"ADP is suggesting that private payrolls were up on average about 35,000 a month so far this year. Which means maybe better than 50,000-55,000 payroll jobs if you put in the public (sector)," said Jim Paulsen, chief investment officer at Wells Capital Management in Minneapolis.
The positive tone of the ADP data was corroborated by a separate report showing planned lay-offs by U.S. companies fell 26 percent in March from the previous month.
That was at odds with the assessment of the Federal Reserve chairman. Bernanke said told a congressional committee the economy could contract in the first half of this year, supporting suspicions of many that it might already be in recession, and unemployment would move higher.
Bernanke tempered his remarks, however, with a forecast of improvement later this year and next, giving stock market bulls a sliver of a reason to press on with Tuesday's gains, although at a much more moderate rate.
"He is basically pointing to potential recession in the first half. He is still anticipating further weakness in the housing sector and as well as a higher unemployment rate," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.
Bernanke's weak economic outlook briefly led the dollar to pare its early gains versus the yen.
Government bonds, which usually benefit from soft economic conditions, were mixed as some investors bet the Fed was near the end of its campaign of aggressive interest rate cuts.
GOOD NEWS, BAD NEWS
A government report showed new orders at U.S. factories fell for the second month in a row in February and by a much larger-than-expected 1.3 percent.
The ADP employment report provided a rare sign of hope for the struggling economy. However, after months of grim economic data, some analysts were reluctant to revise their forecasts for Friday's monthly jobs report based on the ADP numbers.
Analysts forecast Friday's jobs report to show a fall of 60,000 in March non-farm payrolls, according to a poll by Reuters.
Ian Shepherdson, chief U.S. economist at High Frequency Economics, in Valhalla, N.Y., said the ADP data was not a precursor of gains in Friday's government jobs report.
"This does not necessarily mean there was a real improvement in the state of the labor market in March because the data are very noisy from month-to-month and the shift from -18,000 in February to +8,000 in March is far too small to be statistically significant."
February's figure was originally reported by ADP as a drop of 23,000.
Employment consulting firm Challenger, Gray & Christmas Inc said planned lay-offs decreased to 53,579 in March from February's 72,091. Still, labor market weakness continued to spread from the financial sector, hurt by last year's mortgage debacle, to other areas of the economy.
For the second consecutive month, government and non-profit enterprises led job cuts, as the public sector suffered "from a precipitous drop in tax revenue" that has accompanied the economic downturn, Challenger said.
Wednesday's jobs reports offset some of the gloom that continued to come from the beleaguered housing market.
U.S. mortgage applications plunged last week, the Mortgage Bankers Association said, as the effects of the worst housing slump since the Depression wore on.
Private employers added 8,000 jobs in March, according to a report on Wednesday by ADP Employer Services, confounding economists' expectations that companies would trim payrolls in the face of a slowing economy.
The news on private-sector job growth bodes well for Friday's March jobs report from the Labor Department, some analysts said, while others discounted the significance of the ADP data.
"ADP is suggesting that private payrolls were up on average about 35,000 a month so far this year. Which means maybe better than 50,000-55,000 payroll jobs if you put in the public (sector)," said Jim Paulsen, chief investment officer at Wells Capital Management in Minneapolis.
The positive tone of the ADP data was corroborated by a separate report showing planned lay-offs by U.S. companies fell 26 percent in March from the previous month.
That was at odds with the assessment of the Federal Reserve chairman. Bernanke said told a congressional committee the economy could contract in the first half of this year, supporting suspicions of many that it might already be in recession, and unemployment would move higher.
Bernanke tempered his remarks, however, with a forecast of improvement later this year and next, giving stock market bulls a sliver of a reason to press on with Tuesday's gains, although at a much more moderate rate.
"He is basically pointing to potential recession in the first half. He is still anticipating further weakness in the housing sector and as well as a higher unemployment rate," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.
Bernanke's weak economic outlook briefly led the dollar to pare its early gains versus the yen
Government bonds, which usually benefit from soft economic conditions, were mixed as some investors bet the Fed was near the end of its campaign of aggressive interest rate cuts.
GOOD NEWS, BAD NEWS
A government report showed new orders at U.S. factories fell for the second month in a row in February and by a much larger-than-expected 1.3 percent.
The ADP employment report provided a rare sign of hope for the struggling economy. However, after months of grim economic data, some analysts were reluctant to revise their forecasts for Friday's monthly jobs report based on the ADP numbers.
Analysts forecast Friday's jobs report to show a fall of 60,000 in March non-farm payrolls, according to a poll by Reuters.
Ian Shepherdson, chief U.S. economist at High Frequency Economics, in Valhalla, N.Y., said the ADP data was not a precursor of gains in Friday's government jobs report.
"This does not necessarily mean there was a real improvement in the state of the labor market in March because the data are very noisy from month-to-month and the shift from -18,000 in February to +8,000 in March is far too small to be statistically significant."
February's figure was originally reported by ADP as a drop of 23,000.
Employment consulting firm Challenger, Gray & Christmas Inc said planned lay-offs decreased to 53,579 in March from February's 72,091. Still, labor market weakness continued to spread from the financial sector, hurt by last year's mortgage debacle, to other areas of the economy.
For the second consecutive month, government and non-profit enterprises led job cuts, as the public sector suffered "from a precipitous drop in tax revenue" that has accompanied the economic downturn, Challenger said.
Wednesday's jobs reports offset some of the gloom that continued to come from the beleaguered housing market.
U.S. mortgage applications plunged last week, the Mortgage Bankers Association said, as the effects of the worst housing slump since the Depression wore on.
Bernanke Says Recession Possible, Won't Tip His Hand on Future Fed Interest Rate Cuts
For the first time, Federal Reserve Chairman Ben Bernanke acknowledged the U.S. could reel into recession from the powerful punches of housing, credit and financial crises. Yet, he was coy about the Fed's next move.
With home foreclosures swelling to record highs and job losses mounting, Bernanke on Wednesday offered Congress an unflinching -- and more pessimistic -- assessment of potential damage to the national economy.
"A recession is possible," said Bernanke, who is under immense political and public pressure to turn things around. "Our estimates are that we're slightly growing at the moment, but we think that there's a chance that for the first half as a whole there might be a slight contraction."
Under one rule of thumb, six straight months of a shrinking economy would constitute a recession, but Bernanke wasn't getting into that. "A recession is a technical term," he said. "I'm not yet ready to say whether or not the U.S. economy will face such a situation."
Whether or not the economy already has fallen into its first recession since 2001 -- and many economists believe it has -- the housing debacle and other economic woes are a major concern for homeowners, job losers and investors. That means they're a concern to Congress and the presidential contenders, too.
The Fed and the White House have been thrust into crisis-management mode.
Hoping to limit damage, the Federal Reserve has been slashing interest rates since the start of the year in an effort to get people and companies spending again. "We are fighting against the wind," Bernanke said, "at least offsetting significantly the headwinds coming from these financial factors."
But he didn't offer a clear signal about the Fed's interest-rate intentions from here on.
At the last meeting of the central bank's policymakers in March, two members dissented from the decision to sharply cut rates. Those officials, who have reputations for being extra vigilant about fighting inflation, are concerned that cutting rates too much or too quickly could damage the economy by pushing prices higher. Although Bernanke said he hopes inflation will moderate in coming quarters, he said high energy prices have clouded the outlook.
Still, economists believe the Fed probably will drop its key rate again at its next meeting at the end of this month. Some analysts predicted the Fed's key rate would fall as low as 1.50 percent this year, from the current 2.25 percent.
"The Fed has pulled out all the stops to rescue both financial markets and the economy and now is probably hoping for the best," said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group.
On Wall Street, stocks initially dropped after the Fed chief's remarks, then fluctuated through the day before ending moderately lower. The Dow Jones industrials lost 45.44 points to finish the day at 12,608.92.
Employers slashed jobs in January and February, and Friday's report for March could show more losses. The nation's unemployment rate, now at 4.8 percent, probably will move higher in coming months, Bernanke told Congress' Joint Economic Committee.
Striking a hopeful note, though, he said he expects economic growth to pick up in the second half of the year and into 2009, helped by the government's $168 billion stimulus package of tax rebates for people and tax breaks for businesses as well as the Fed's aggressive interest rate reductions.
"Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year," Bernanke said.
On the hot seat, Bernanke was grilled by senators about the Fed's moves to aid the once mighty Wall Street firm Bear Stearns, and about additional actions Congress and the White House should take to provide relief to struggling homeowners.
"I hope that you will use your position to jawbone this administration to get behind the housing relief effort before Congress," said committee chairman Charles Schumer, D-N.Y. "Addressing the housing crisis head-on will do as much to instill confidence in the markets as lowering interest rates or bolstering regulatory oversight of wayward mortgage lenders and financial institutions. We need to do all of it."
Sen. Robert Bennett, R-Utah, said people shouldn't view the situation as Wall Street versus Main Street.
"My experience is that Wall Street and Main Street are inextricably linked," he said. "We've reached the point in our financial system now where a community bank on Main Street has to have a correspondence with a major bank on Wall Street in order to keep things going, and that what happens in the banking system generally permeates down to the very lowest level."
Bernanke urged Congress to take additional steps to bolster the housing market and to aid people in danger of losing their homes. But he refused to be pinned down on making specific recommendations in other areas, such as how to help struggling state governments hit by the crisis. That exasperated Sen. Edward Kennedy, D-Mass., who pleaded: "What are we going to tell the states? ...The states are in a critical situation."
Besides lowering interest rates, the Fed has taken a series of extraordinary steps in recent weeks and months to prop up the nation's financial system, which has been in a state of high jeopardy.
In a controversial move, the Fed backed a $29 billion lifeline as part of JP Morgan's deal to take over the troubled Bear Stearns, the nation's fifth largest investment house, which was on the brink of bankruptcy. Bear Stearns had invested heavily in risky mortgage-backed securities that eventually soured with the collapse of the housing market.
That brought criticism from Democrats and others who contend the Fed is bailing out Wall Street and putting billions of taxpayer dollars at potential risk.
Bernanke defended the move as necessary to avert a meltdown in the entire financial system. "The damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain," he said. The Fed's unprecedented involvement was meant as a one-time event. "It has never happened before, and I hope it never happens again," he told lawmakers.
Although the taxpayers are on the hook for the $29 billion, Bernanke believed they wouldn't suffer any losses. "I feel reasonably confident that we will be able to recover all of the principle and indeed some interest, and there is some chance of even upside beyond that."
To also ease the credit crisis, the Fed -- in the broadest use of its lending authority since the 1930s -- agreed to temporarily let big investment firms obtain emergency financing.
Bernanke said the Fed "never lost a penny" in the past from various lending maneuvers
With home foreclosures swelling to record highs and job losses mounting, Bernanke on Wednesday offered Congress an unflinching -- and more pessimistic -- assessment of potential damage to the national economy.
"A recession is possible," said Bernanke, who is under immense political and public pressure to turn things around. "Our estimates are that we're slightly growing at the moment, but we think that there's a chance that for the first half as a whole there might be a slight contraction."
Under one rule of thumb, six straight months of a shrinking economy would constitute a recession, but Bernanke wasn't getting into that. "A recession is a technical term," he said. "I'm not yet ready to say whether or not the U.S. economy will face such a situation."
Whether or not the economy already has fallen into its first recession since 2001 -- and many economists believe it has -- the housing debacle and other economic woes are a major concern for homeowners, job losers and investors. That means they're a concern to Congress and the presidential contenders, too.
The Fed and the White House have been thrust into crisis-management mode.
Hoping to limit damage, the Federal Reserve has been slashing interest rates since the start of the year in an effort to get people and companies spending again. "We are fighting against the wind," Bernanke said, "at least offsetting significantly the headwinds coming from these financial factors."
But he didn't offer a clear signal about the Fed's interest-rate intentions from here on.
At the last meeting of the central bank's policymakers in March, two members dissented from the decision to sharply cut rates. Those officials, who have reputations for being extra vigilant about fighting inflation, are concerned that cutting rates too much or too quickly could damage the economy by pushing prices higher. Although Bernanke said he hopes inflation will moderate in coming quarters, he said high energy prices have clouded the outlook.
Still, economists believe the Fed probably will drop its key rate again at its next meeting at the end of this month. Some analysts predicted the Fed's key rate would fall as low as 1.50 percent this year, from the current 2.25 percent.
"The Fed has pulled out all the stops to rescue both financial markets and the economy and now is probably hoping for the best," said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group.
On Wall Street, stocks initially dropped after the Fed chief's remarks, then fluctuated through the day before ending moderately lower. The Dow Jones industrials lost 45.44 points to finish the day at 12,608.92.
Employers slashed jobs in January and February, and Friday's report for March could show more losses. The nation's unemployment rate, now at 4.8 percent, probably will move higher in coming months, Bernanke told Congress' Joint Economic Committee.
Striking a hopeful note, though, he said he expects economic growth to pick up in the second half of the year and into 2009, helped by the government's $168 billion stimulus package of tax rebates for people and tax breaks for businesses as well as the Fed's aggressive interest rate reductions.
"Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year," Bernanke said.
On the hot seat, Bernanke was grilled by senators about the Fed's moves to aid the once mighty Wall Street firm Bear Stearns, and about additional actions Congress and the White House should take to provide relief to struggling homeowners.
"I hope that you will use your position to jawbone this administration to get behind the housing relief effort before Congress," said committee chairman Charles Schumer, D-N.Y. "Addressing the housing crisis head-on will do as much to instill confidence in the markets as lowering interest rates or bolstering regulatory oversight of wayward mortgage lenders and financial institutions. We need to do all of it."
Sen. Robert Bennett, R-Utah, said people shouldn't view the situation as Wall Street versus Main Street.
"My experience is that Wall Street and Main Street are inextricably linked," he said. "We've reached the point in our financial system now where a community bank on Main Street has to have a correspondence with a major bank on Wall Street in order to keep things going, and that what happens in the banking system generally permeates down to the very lowest level."
Bernanke urged Congress to take additional steps to bolster the housing market and to aid people in danger of losing their homes. But he refused to be pinned down on making specific recommendations in other areas, such as how to help struggling state governments hit by the crisis. That exasperated Sen. Edward Kennedy, D-Mass., who pleaded: "What are we going to tell the states? ...The states are in a critical situation."
Besides lowering interest rates, the Fed has taken a series of extraordinary steps in recent weeks and months to prop up the nation's financial system, which has been in a state of high jeopardy.
In a controversial move, the Fed backed a $29 billion lifeline as part of JP Morgan's deal to take over the troubled Bear Stearns, the nation's fifth largest investment house, which was on the brink of bankruptcy. Bear Stearns had invested heavily in risky mortgage-backed securities that eventually soured with the collapse of the housing market.
That brought criticism from Democrats and others who contend the Fed is bailing out Wall Street and putting billions of taxpayer dollars at potential risk.
Bernanke defended the move as necessary to avert a meltdown in the entire financial system. "The damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain," he said. The Fed's unprecedented involvement was meant as a one-time event. "It has never happened before, and I hope it never happens again," he told lawmakers.
Although the taxpayers are on the hook for the $29 billion, Bernanke believed they wouldn't suffer any losses. "I feel reasonably confident that we will be able to recover all of the principle and indeed some interest, and there is some chance of even upside beyond that."
To also ease the credit crisis, the Fed -- in the broadest use of its lending authority since the 1930s -- agreed to temporarily let big investment firms obtain emergency financing.
Bernanke said the Fed "never lost a penny" in the past from various lending maneuvers
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