Obama Says U.S. ‘Starting to See Progress’ in Economic Recovery


April 10 (Bloomberg) -- President Barack Obama said the U.S. economy is “starting to see progress” toward recovery even as it is “still under severe stress.”

“What we’re starting to see is glimmers of hope,” the president told reporters at the White House after getting an update on the economy from Federal Reserve Chairman Ben S. Bernanke, Treasury Secretary Timothy Geithner, and Sheila Bair, chairwoman of the Federal Deposit Insurance Corp. Obama cited a 20 percent increase in loans to small businesses.

Talks centered on stimulating the economy, stabilizing banks, reducing strain in the credit markets, the rising jobless rate, mortgage refinancing and the health assessment of banks, including “stress tests” being conducted by the Fed.

“We’ve still got a lot of work to do,” Obama said. He didn’t take reporters’ questions.

White House chief economic adviser Lawrence Summers yesterday expressed confidence that the U.S. recession is nearing an end.

“We can be reasonably confident that is going to end within the next few months and you’ll no longer have that sense of free fall,” Summers, director of the National Economic Council, told the Economic Club of Washington.

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Clinton

First time in history, U.S. banks have suffered large, ominous losses in a giant sector that, until now, they thought was solid: bets on interest rates. Until the third quarter of last year, the banks’ losses in derivatives were almost entirely confined to credit default swaps — bets on failing companies and sinking investments. But credit default swaps are actually a much smaller sector, representing only 7.8 percent of the total derivatives market. Now, with these new losses in interest rate derivatives, the disease has begun to infect a sector that encompasses a whopping 82 percent of the derivatives market. Thus, considering their far larger volume, any threat to interest rate derivatives could be far more serious than anything seen so far. In 1929, derivatives were virtually nonexistent. Today U.S. banks alone control $200.4 trillion of derivatives.

The large banks are exposed to the danger that, with exploding federal deficits and new fears of inflation, interest rates will suddenly surge, delivering a whole new round of even bigger losses in the months ahead. Worst of all, the five biggest banks are exposed to breathtaking default risk — the danger that their trading partners could fail to make good on their gambling debts, transforming even the best winning trades into some of the worst losers.

And it’s precisely in this dangerous sector that the megabanks dominate the most and US govt is not letting them fail. Otherwise U.S. government can use (which has been allocated of $356 billion bailing out the banks) this same amount of money for creating 10 new banks with $35 billion each and they could have loaned out funds at 10-to-one leverage, creating $3.5 trillion of new financial muscle.

Why US is trying to save all biggest banks instead of creating new banks with the same money to ease the credit crunch and credit flowing to the extent of 3.5 trillion dollar. Simple reason that the problem is much deeper and much bigger for people to comprehend.

Keep well,

Cheers!