TOPWRAP 13-Fed steps up in global scramble to stem crisis

* Fed's Bernanke signals readiness to cut interest rates

* Fed to buy short-term debt of companies

* Russia bails out banks, in loan talks with Iceland

* IMF sees global losses at $1.4 trillion

* BofA down 18 pct on dividend cut, new capital plan (Adds quotes from Bernanke, analyst, details on interest rate cut expectations, updates stock and bond prices)

(For full coverage double click nCRISIS]

By Daniel Trotta and Kevin Krolicki

NEW YORK/WASHINGTON, Oct 7 (Reuters) - The U.S. Federal Reserve stepped forward as a commercial lender of last resort and signaled a readiness to cut interest rates as governments around the world scrambled to stem the global financial crisis and calls arose for concerted action.

U.S. Federal Reserve Chairman Ben Bernanke signaled a readiness to lower U.S. interest rates to support an economy battered by a financial crisis of "historic dimension". ID:nN07466449 ID:nN07468076

"In light of these developments, the Federal Reserve will need to consider whether the current stance of policy remains appropriate," said Bernanke, who is regarded as an expert on the Great Depression.

In an unprecedented move, the Fed also created a new commercial paper facility that would buy short-term, highly rated debt, stepping into the corporate debt market in a program that falls outside the $700 billion rescue plan approved by the U.S. Congress on Friday. ID:nN07447246

Analysts credited the Fed with trying to create a fire break in the still-developing crisis, but stocks remained under pressure while U.S. government bond prices recovered in a flight to safety. ID:nN07466024 ID:nN07468678

"I think the Fed has done a reasonably good job considering the unusual situation we are in," said Joseph Trevisani, chief market analyst with FX Solutions. "The Fed has shown a great deal of flexibility in this. They're taking very practical steps." ID:nN07468076

Fed fund futures have priced in a 50 basis point cut by the U.S. central bank this month, with a 75 basis point cut an outside possibility. Expectations have built all week that the weekend meeting of Group of Seven officials in Washington could set the stage for coordinated rate cuts.

The actions of the U.S. central bank followed a day in which Russia negotiated an emergency bailout for Iceland and unveiled an aid package for its own banks ID:nL7111036, Australia slashed interest rates by 1 percentage point to 6 percent ID:nSP375711, and Britain considered a massive injection of public funds. ID:nL719996

Iceland, the North Atlantic island facing down a threat of "national bankruptcy," took over its second-largest bank and propped up a battered currency. ID:nL7266189

At ground-zero in the crisis, the interbank lending market remained stalled, with the cost of borrowing dollars, euros and sterling all higher as financial institutions sought to preserve capital and remained unwilling to lend to each other. ID:nL7192802

The International Monetary Fund increased its estimate of global losses from the financial meltdown to $1.4 trillion and warned the economic downturn was deepening. ID:nNYC000167

"The financial planet is in total crisis," European Central Bank Governing Council member Guy Quaden said.

Japan called for greater coordination but signaled it would not cut rates. China's banking regulator denied that Beijing might ride to America's financial rescue and a leading Chinese state newspaper said the world should avoid paying for the United States' mistakes. ID:nPEK13909

Japanese Prime Minister Taro Aso said he hoped the Group of Seven rich nations would send a firm message on stabilizing financial markets when it meets later this week in Washington.

"The impact would be substantial if the G7 didn't send a clear message. European leaders have met, but it didn't go well, and European financial markets have fluctuated rapidly and substantially, so I'm worried about the impact on Japan," Aso told reporters. ID:nTKF003049

World Bank President Robert Zoellick called the G7 ineffective, and said it should be replaced by a group that includes emerging economic powers like China, India and Brazil that have been drawn into the most recent wave of the crisis. ID:nN06391192

In Luxembourg, EU finance ministers agreed to increase the minimum level of bank deposit insurance across the 27 European Union countries. ID:nL7293899

European Commission President Jose Manuel Barroso warned that a succession of national responses by EU countries may lead to a "renationalization" of the financial system, reflecting concern that member states are ignoring EU rules in their haste to react to market turmoil. ID:nL7181853

COUNTING THE TOLL

Investors eagerly awaited progress on the $700 billion U.S. bailout but were uncertain it would be enough to contain America's home-grown mess, built on frenzied mortgage lending and trading in unregulated derivatives.

Voters looking to the U.S. presidential candidates for answers four weeks from election day instead have been hit by an increasingly nasty campaign. ID:nN19361994 Democrat Barack Obama, leading in most public opinion polls, was due to debate Republican John McCain on Tuesday night. ID:nN07421156

The Dow, now down 25 percent this year, opened higher after news of the Fed's commercial paper move, but then resumed its downtrend in volatile trade after a see-saw ride on world markets. ID:nL74477

A raft of U.S. corporate earnings reports were expected to reinforce the view that the world's largest economy shuddered into recession at the start of the current quarter.

Analysts expect overall earnings for companies in the S&P 500 index to fall 4.8 percent in the third quarter, down from an estimate of 12.6 percent growth as recently as July 1, according to Thomson Reuters proprietary data.

Alcoa Inc was due to report after the markets close on Tuesday, and General Electric on Friday in its first report since investor Warren Buffett came to the rescue last week with a $3 billion investment. ID:nL2142458

Bank of America Corp, in a surprise earnings announcement, halved its dividend and said it would sell at least $10 billion in new stock to raise capital and offset loan losses. Its shares were down 19.7 percent in afternoon trading on the New York Stock Exchange. ID:nN07447524

The largest U.S. bank, which has taken over mortgage lender Countrywide and investment bank Merrill Lynch this year, cited "recessionary conditions" in reporting a 68 percent slide in quarterly earnings. ID:nN06410858 (Reporting by Reuters bureaus around the world; Editing by Brian Moss, Steve Orlofsky, Toni Reinhold)

Stocks tumble as Street worries about financials

NEW YORK (AP) — Wall Street extended its steep declines Tuesday as enthusiasm over the Federal Reserve's latest efforts to inject frozen credit markets with a dose of much-needed confidence gave way to concerns about financial companies' balance sheets. Trading remained fractious, with the Dow Jones industrial average losing more than 225 points.

Federal Reserve Chairman Ben Bernanke warned in a speech on the economy Tuesday that the financial crisis could extend the difficulty the economy is facing. Some traders appeared to regard his remarks as a sign that an interest rate cut could be in the offing, but that did not stanch the losses that built on Monday's huge drop.

Investors appeared initially heartened but still very cautious following the Fed's announcement that it plans to buy massive amounts of corporate debt to jump-start lending in the markets where many companies turn for short-term loans. The evaporation of faith that loans will be repaid has lenders weary and is making it more difficult and expensive for businesses and consumers to borrow.

Credit markets showed some signs of easing as demand for safe-haven investments decreased. Credit markets seized up last month after Lehman Brothers Holdings Inc. declared bankruptcy and the government stepped in to rescue insurer American International Group Inc.

The Fed's latest move is designed to lubricate the lurching credit markets whose troubles have spread to other parts of the economy. Still, the measure stops short of a broad interest rate reduction that some investors say is necessary to restore confidence in the market. Other market watchers argue, however, that more focused steps like Fed's decision to buy commercial paper are what's needed.

But some investors remain worried about financial companies like Bank of America Corp., which after the closing bell Monday slashed its dividend and reported that its third-quarter profit fell 68 percent. The stock fell $6.18, or 19 percent, to $26.04 and was the steepest decliner among the 30 stocks that comprise the Dow industrials.

And a rumor that Mitsubishi UFJ Financial Group Inc. was pulling out of a deal to acquire up to 24.9 percent of the voting shares of Morgan Stanley sent the investment bank's stock tumbling $5.40, or about 23 percent, to $18.10.

Investors are fearful that financial companies will continue to face cash shortages even with efforts in Washington and by other governments to resuscitate lending.

"I think we have weeks of volatility ahead of us," said Kim Caughey, equity research analyst at Fort Pitt Capital Group.

She said the write-downs of bad debt at Bank of America are a reminder to investors that troubles within the financial sector remain.

The concerns weighed on stocks after Monday's rout. In early afternoon trading, the Dow fell 227.87, or 2.29 percent, to 9,727.63, a day after the blue chips dropped below 10,000 for the first time in four years. The Dow fell as much as 800 points on Monday before finishing with a loss of 370.

Broader indexes also fell. The Standard & Poor's 500 index declined 26.74, or 2.53 percent, to 1,030.15, while the Nasdaq composite index fell 55.39, or 2.97 percent, to 1,807.57.

The dollar was mixed against other major currencies, while gold prices fell.

Oil prices rebounded after plunging Monday to an eight-month low on concerns a global recession will undermine demand for crude. Light, sweet crude rose $1.25 to $89.06 a barrel on the New York Mercantile Exchange.

Concerns about the credit markets still fed demand for the relative safety of government debt, though pressures eased. The yield on the three-month Treasury bill, which moves opposite its price, rebounded to 0.88 percent from 0.50 percent late Monday. Demand for short-term Treasurys remains high because of their safety; investors are willing to take extremely low returns just to have their money in a secure place.

Some investors moved into longer-term Treasury bonds, which while still safe don't draw as much demand as shorter-term debt in times of fear. The yield on the 10-year note fell to 3.49 percent from 3.50 percent late Monday.

Investors are still hoping to see other moves from the Fed to boost confidence. Australia's central bank lowered interest rates by the largest amount since 1992 in a surprise move, and that reignited hopes that others, including the Fed and European Central Bank, might follow suit.

Though not giving the market a rate cut, the Fed has taken other steps to help unclog the credit markets. On Tuesday, policymakers provided more details about when it will make $900 billion in short-term loans available to squeezed banks.

The loans are made available to banks through auctions. The Fed, in coordination with other countries' central banks engaged in similar efforts, laid out dates that it will conduct the auctions through the rest of this year.

"The Treasury stepping into the commercial paper market is good news," said Peter Cardillo, chief market economist for Avalon Partners. "The Fed is doing everything they can to have confidence return to the markets, and maybe an interest rate cut is next. The central bank is doing what it should be doing as a lender of last resort."

Minutes from the Fed's last meeting described a U.S. economy that was slowing considerably and credit markets that were deteriorating rapidly. The meeting was held Sept. 16, the day after the failure of Lehman Brothers. The central bank's Open Market Committee found the risks from weaker growth and higher inflation were roughly equal; that was its rationale for leaving rates unchanged. Policymakers, who will meet again at the end of the month, left key interest rate unchanged at 2 percent.

Technology stocks saw some support after chip maker Advanced Micro Devices Inc. said it will spin off its manufacturing businesses into a new venture with Abu Dhabi-backed Advanced Technology Investment Co. AMD said the deal will dramatically cut costs and allow it to better compete with chief rival Intel Corp. AMD jumped 77 cents, or 18 percent, to $5. Intel slipped 17 cents to $16.76.

Wall Street is also looking for Alcoa Inc. to unofficially kick off earnings season when it releases results after the closing bell. Alcoa rose 10 cents to $18.21.

Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where volume came to 966.8 million shares.

The Russell 2000 index of smaller companies fell 24.98 or 4.19 percent, to 570.93.

Overseas, Japan's Nikkei stock average fell 3.03 percent. Britain's FTSE 100 rose 0.35 percent, Germany's DAX index fell 1.12 percent, and France's CAC-40 rose 0.55 percent.

US takes on corporate debt as Europe reels with new rescues

WASHINGTON (AFP) — The US opened up a major new front Tuesday in the global financial crisis, backstopping huge amounts of corporate debt as European governments staged new rescues, but the moves did little to boost market confidence.

The US Federal Reserve said it would buy up short-term commercial paper or company debt in an effort to kick-start credit flows and ease a squeeze in bank lending, a move described as "necessary to prevent substantial disruptions to the financial markets and the economy."

A Fed official said the move is aimed at restoring flows in a market worth some 1.3 trillion dollars needed for corporate day-to-day funding that has been nearly halted by a credit crunch.

Despite the dramatic move by the Fed and new actions in Europe, markets ran into new turbulence a day after a meltdown in most stock markets.

A rebound on Wall Street faded and skittish investors sent the Dow Jones industrials down more than 300 points or 3.07 percent to 9,656 in afternoon trading. European bourses were mixed a day after record falls in many countries.

EU finance ministers agreed at a meeting in Luxembourg to increase an EU-wide savings deposit guarantee to 50,000 euros from 30,000. They said they would coordinate their response to the crisis.

In Russia, the Kremlin pledged 36 billion dollars to strengthen banks, but the move failed to help confidence. The RTS market finished down 0.95 percent after a record 19 percent slide Monday.

Iceland, where the economy is imperiled by debt and the credit crunch, nationalized its second biggest bank, Landsbanki, and gave its biggest institution, Kaupthing, a 500-million-euro (678-million-dollar) loan. Glitnir bank, the third largest, was nationalized last week.

Russia also agreed to negotiate a four-billion-euro (5.4 billion dollar) emergency loan to help Iceland's fight against national bankruptcy.

The credit crunch remained acute with banks desperate to find dollars even at punitive interest rates.

The European Central Bank on Tuesday pumped 50 billion dollars (37 billion euros) back into interbank money markets, but it said banks sought more than twice that amount.

The ECB said 67 eurozone banks had requested more than 109 billion dollars, and paid a whopping 6.75 percent for dollars made available in the daily attempt to keep cash flowing through the financial pipeline.

It announced a schedule for new coordinated action with other central banks to support the provision of dollars to cash-strapped commercial banks.

The Bank of Japan also poured more billions into the system.

In the US, the Fed gave no estimate of how much money would be put into the new campaign, but said the new program to soak up corporate debt would begin rapidly.

The US administration has already committed 700 billion dollars to a bailout of banks' bad debt and the latest move extends the government support.

John Ryding, economist at RDQ Economics, said most of the new funds are likely to go to banks and financial companies that have been trying to roll over debts linked to troubled real estate investments.

"This is basically unsecured lending to the banks," Ryding said.

The market in short term company debt -- commercial paper and short-term securities issued by companies and banks for payrolls and day-to-day expenses -- is worth tens of billions of dollars each day.

The Fed action came a day after the Fed agreed to pay interest on commercial bank reserves with the central bank, a move aimed at helping the central bank keep control of interest rates in a frozen market.

Fed chairman Ben Bernanke said meanwhile the US central bank must consider whether its current interest rate policy "remains appropriate" in view of exceptional market turmoil.

Bernanke, speaking to business economists in Washington, provided a hint that the US central bank could cut rates as part of its efforts to stem a widening financial crisis.

He said the turmoil in markets and latest data suggest "that the outlook for growth has worsened and that the downside risks to growth have increased."

"In light of these developments, the Federal Reserve will need to consider whether the current stance of policy remains appropriate," he said.

Bernanke's comments came amid growing calls for rate cuts by the Fed, possibly coordinated with other central banks, to help augment the exceptional measures undertaken to battle a credit crunch that threatens economic activity.

The current base Fed rate is 2.0 percent, and some analysts have said they expect a cut on or before the Fed's next policy meeting October 28-29.

"There is little to keep the Fed from cutting interest rates as it attempts to protect against a more severe recession," said Ryan Sweet at Economy.com.

"We expect the Fed funds rate to be at 1.5 percent by year's end. The 50-basis point cut will not cure all that ails the economy, however."

Bernanke noted that financial systems in the US and much of the rest of world are "under extraordinary stress," but expressed confidence that the steps being taken would eventually ease the crisis.

US President George W. Bush discussed the global economic meltdown with leaders of Britain, France and Italy, seeking a common strategy ahead of weekend crisis talks.

"I was on the phone with them this morning to ensure that our actions are closely coordinated. We live in a globalized world; we want to make sure that we're effective," he said in a speech outside Washington ahead of a meeting Friday of finance chiefs from the Group of Seven industrialized nations.

Top Schools for Real Estate Sales, Appraisals, and Finance Programs

Real estate professionals provide services and advice meant to make the home buying process easier for many customers. Within this field, there are several positions such as real estate agents, appraisers and real estate finance professionals. Real estate sales agents help potential buyers find available housing that suits their specific needs and desires. Along with advertising and providing tours of properties, real estate agents may assist in the paperwork involved in buying a home.

According to the U.S. Bureau of Labor Statistics, www.bls.gov, those interested in being a real estate agent should consider enrolling in a real estate licensing program. The material covered in these programs depending on state regulations. After completing the program, the license may need to be renewed annually or every two years. Students interested in the Real Estate Sales, Appraisals and Finance fields may want to seek a higher education in real estate, business or finance.

List of Colleges for Real Estate Sales, Appraisals and Finance

(Source: U.S. News, www.usnews.com):

• 1. Syracuse University-

This private university was founded in 1870.

-Undergraduate Student Body: 12,268; Faculty to Student Ratio: 1:12; Tuition Costs: $28,285; Average High School Student GPA of Incoming Freshmen: 3.6; Test Scores of Incoming Freshmen: ACT: Not Listed, SAT: More than 40% had scores 1200-1299.

• 2. New York University-

This institution is divided into 14 schools and colleges at six major locations in Manhattan.

-Undergraduate Student Body: 20,212; Faculty to Student Ratio: 1:12; Tuition Costs: $31,690; Average High School Student GPA of Incoming Freshmen: 3.6; Test Scores of Incoming Freshmen: ACT: More than 50% had scores 30-36, SAT: More than 50% had scores 1200-1299.

• 3. University of Florida-

This university had the fourth largest student enrollment in the nation in 2002.

-Undergraduate Student Body: 33,694; Faculty to Student Ratio: 1:23; Tuition Costs: In-State: $2,955, Out-of-State: $15,214; Average High School Student GPA of Incoming Freshmen: 3.9; Test Scores of Incoming Freshmen: ACT: More than 50% had scores 24-29, SAT: More than 40% had scores 1200-1299.

Wiping Out Credit Card Debt

To listen to our politicians and press, you’d think we’ve returned to the Great Depression, with 25% unemployment and soup lines, when it’s just about 1% of our people getting overextended in debt. Still, if you’re one of those people, it is the Great Depression for your family. Well, how do you get over this personal debt crisis, get out from under all the credit card debt and make the changes necessary to wipe out your debt for good? This article will show you how to eliminate debt without filing bankruptcy, ruining your credit or being harassed by creditors over late payments. As an added benefit, you’ll learn how to keep this from happening to you, again.

The Debt Crisis In Personal Credit: It concerns me to hear all the talk about a credit crisis as though the lenders were villains, forcing their money on poor, defenseless debtors. If you think of yourself as a victim of the creditors, this article is probably not for you and you will probably be bankrupt or homeless in a short amount of time. If, on the other hand, you’re willing to accept responsibility for your debt crisis, you probably have a good chance to get it fixed…permanently. The root of the problem is the credit customer, always wanting to live beyond his income. We see all that stuff other people have and want it for ourselves, whether we can afford it, or not. The motivation is probably a combination of low self-esteem, greed and pride, but the result is a personal debt crisis.

We buy a bigger house than we can afford because someone will give us the money…100% of it’s current value. We refinance as the value goes up, to get other things we want, not wanting to admit home values go up and down. We buy cars, boats and other big “toys” on fairly high interest loans because we’re unwilling to wait until we’ve saved for them and because we don’t want to be seen in that old “beater” of ours. After we’ve bought the home, we discover how many thousands of dollars credit card companies are willing to loan us, and that’s usually when the problem goes from barely manageable, to impossible.

credit card debt: A credit card is a great tool for people who manage their money but don’t want to carry it around. You can use someone else’s money interest-free for a month, enough time to get the bill and pay it off. If you don’t pay it off, you’ve already agreed to pay ridiculous interest rates each month until you do. If you make the minimum payment, it will take over 20 years to pay for whatever you buy, and cost you more than 3 times as much…not very smart. Average credit card debt per household in the US is $ 8,400, but since over 60% of families have no cards or pay them off each month, the average household debt of the rest is $ 21,000. This doesn’t count the car loans and mortgages. In fact, a very scary practice has been to refinance the house to pay for the credit cards and then use the credit cards to make the house payments. People who do this are mere months from losing all their assets due to foreclosure and bankruptcy.

Bankruptcy And Debt Negotiation: People who use debt negotiation and bankruptcy to clear personal debt without fully paying what they owe, are often robbing themselves of good credit and of a genuine solution to their spending problem. People go to court, get a good bit of their debt excused and, as soon as they get credit cards, start the cycle over again. The pain continues because the price of being financially irresponsible is not high enough…someone keeps swooping in and bailing us out. We never lose anything, and begin to think we’re entitled to get other people’s property without paying for it. This is a very painful existence, never being free of debt, because we’re never willing to say “no” to ourselves. Most people are capable of paying their debt off and freeing themselves if they hadn’t gotten bailed out. Had the people come and taken our TV, we’d have incentive to learn how to end our debt cycle, and free ourselves.

Wiping Out Debt And The Debt Cycle: For over 99% of us, it’s possible to eliminate credit card debt in less than 2 years, and total debt in less than 5. All we need to do is make a Total Debt Elimination-Reduction Plan and discipline ourselves to follow it. Uh-oh! Did I use the “D” word…Discipline? Well, that’s the price of debt-freedom. If we aren’t willing to pay that price, it explains why we’re where we are, financially. For the precious few who read this article and actually decide to discipline yourselves and wipe out the debt cycle, I want to applaud you and tell you there’s no question you can do it. For the rest, I’m not going to coddle or sympathize.

Here in the US, we have more wealth and economic choice than anyone in the history of the world. Our welfare recipients live in better economic conditions than 96% of the world. Having visited third world countries and seen people living in cardboard boxes, it’s embarrassing for me to hear financial hardship described as having only one plasma TV. I said that to say this.

Anyone in the US who is willing to work hard and discipline themselves can wipe out their credit card debt, auto loans and mortgages. You can free yourself from the debt cycle and soar above the common temptations of wasteful spending. The only thing holding you back is willingness. If we’re not willing to work hard and discipline ourselves, no amount of assistance will free us. On the other hand, if you’re willing to do what it takes to be debt-free, you’ll have all the help you need.

Understanding Mortgage Fees

In basic terms, mortgage fees are defined as charges by lenders for processing a mortgage loan, but these fees can be confusing to people since there are so many of them.

So, it’s important for both real estate investors and their customers to understand these charges so you know the real cost of loans and to make sure all charges are legitimate. Armed with this knowledge, you can get the best mortgage deal for yourself and for your customers and ensure that you’re not being overcharged.

As I explain mortgage fees, keep in mind that lenders have varying requirements so you may not have to incur the cost of every one of these charges.

Application Fee

This is the simply the cost of processing the loan. It’s normally paid to the lender when you apply. It’s usually non-refundable if you decide not to take the loan.

Appraisal Fees

This is an estimate of the market value of the property. The lender has the appraisal done to make sure the mortgage has a level of risk that’s acceptable to them. It’s usually done by a professional appraiser, who provides a written appraisal to the lender.

Attorney Fees

Sometimes, an attorney is required to prepare and review loan documents, so an additional fee is paid for document preparation.

credit report Fee

This is a charge for having a credit report pulled by the lender. Naturally, the lender wants to know the borrower’s creditworthiness so that lender will get the information from one of the “Big Three” credit reporting agencies—Equifax, Experian, or TransUnion.

Document Preparation Fees

These are fees charged for the preparation of legal documents such as deeds of trust, the mortgage contract, etc. The fees may charged by the lender, broker, or the title company.

Earnest Money

This is money the buyer pays into an escrow account to show good faith to the seller; in other words, it demonstrates that they’re serious about buying the property and are putting their money where their mouth is. It’s usually a small amount of money and is paid by the buyer when an offer is made on the property.

Escrow Account Funds

The lender holds money in the escrow account for the purpose of paying of specific items. These items can include up to two months worth of private mortgage insurance, homeowner’s insurance, hazard insurance, property tax payments, etc.

Loan Discount Points

These are fees that lenders charge in order to provide a lower interest rate. As a borrower, you can choose to get a lower interest rate (”buy down”) by paying “points” in addition to the loan origination fee. Each point is equal to one percent of the value of the loan, and one point typically represents about one eighth of a percentage point.

Loan Origination Fee

This is a fee charged by the lender to cover administration costs; i.e., preparation, evaluation and submission of the loan. The fee is usually equal to 1% of the value of the loan. Origination fees may be as high as 2% if the loan is especially complicated. As a general rule, expect to pay no more than approximately 1%. Mortgage Broker Fee In some situations, you may prefer to work with a mortgage broker rather than directly with a lender. In that case, you’ll pay the broker a fee for his or her services in addition to the lender’s fee.

Mortgage Underwriting Fee

Lenders charge this fee for verifying the information on the loan application and making a final decision on loan approval. It also covers closing and funding costs for the lender. Typically, this is where the lender makes their immediate profit from lending (as opposed to profit over time from interest). Note: Brokers shouldn’t charge an underwriting fee; they’re not the ones underwriting a loan.

Prepaid Interest

This is the amount of interest that accrues between closing time and the date of the first mortgage payment. This fee is paid to the lender at closing time. Recommendation: To reduce the amount of prepaid interest, try to close at the end of the month. This will also reduce the amount of cash you need to come up with at closing time. Property Inspection Fee This is a fee charged by a licensed property inspector for determining the general physical condition of the property as well as pest inspection. Property inspections protect both the buyer and the lender.

Survey Fee

This is a fee charged by a licensed surveyor for measurement of a property’s boundaries. The lender or title search company may require a survey in order to ensure that the boundaries have been upheld.

Title Insurance

This is vital protection for the buyer in case there are any unpaid mortgages or tax liens on the property that were overlooked during the title search. If title issues crop up, then title insurance pays for legal costs and reimburses the buyer for any other losses incurred.

Title Search Fee

A title search is vital because, as a buyer, you want to make sure the person selling the property is the legal owner. The title company analyzes all public records concerning the property in order to determine if any title defects could interfere with clear transfer of property ownership.

Summary

In this article, I covered the topic of mortgage fees. As I said earlier, it pays to understand these fees to make sure both investors and their customers get the best deal on a mortgage and to ensure that they’re not being overcharged.

A good online source for getting a handle on mortgage fees charged across the nation is http://www.bankrate.com. This site will give you the highest, lowest, and average fees charged by lenders and brokers. I recommend you consult it on a regular basis to stay on top of the mortgage game.

Proposed Credit Card and Banking Regulations

It looks like the government will be getting serious about credit card regulations. The Federal Reserve Board proposed rules to prohibit unfair practices regarding credit cards and overdraft services that would among other provisions, protect consumers from unexpected increases in the rate charged on pre-existing credit card balances.

Regulation AA (Unfair Acts or Practices) The proposal would amend Regulation AA to prohibit unfair or deceptive acts or practices by banks in connection with credit card accounts and overdraft services for deposit accounts.

Credit Cards

- More Time To make Payments The proposal would stop banks from treating a payment as late unless the consumer has been provided with reasonable amount of time to make that payment. There would be a new safe net for banks that send periodic statements at least 21 days prior to the payment due date.

- Allocation of Payments When you have a credit card with different balances (for example, purchases, and cash advances), typically the annual percentage rate (APR) is higher on the cash advance. When you make a payment on a scenario like this the bank will apply your payment to the lower of the two. With the new regulation the payment will be split equally amongst the two balances. In addition, to enable consumers to receive the full benefit of discounted promotional rates (for example, on balance transfers), during the promotional period payments in excess of the minimum would have to be applied first to the balances on which the rate is not discounted.

- Two-Cycle Billing The proposal would stop banks from imposing finance charges based on balances on days in billing cycles preceding the most recent billing cycle. Credit card issuers will not be allowed to use previous billing cycles to calculate interest on your current bill. Current double cycle billing uses the average balance from the previous two months to calculate interest charges, even if you paid part of the previous balance.

- Rate increases to existing balances Credit Card companies will not be able to increase you APR on existing balances, unless you had a promotional offer and/or was late on a payment

- Less bait and switch credit card offers The proposal would require banks making firm offers of credit advertising multiple APRs or credit limits to disclose exactly what the qualifications would be for those terms.

- Finance of Security Deposits and Fees The proposal would address concerns regarding subprime credit cards by prohibiting banks from financing security deposits and fees for credit availability (such as account-opening fees or membership fees) if charges assessed during the first twelve months would exceed 50 percent of the initial credit limit. The proposal would also require financed security deposits and fees exceeding 25 percent of the initial credit limit to be spread over the first year.

- Credit Card Holds The proposal would prohibit banks from imposing a fee when the credit limit is exceeded solely because a hold was placed on available credit. This can occur where the final dollar amount of a transaction was not known in advance (for example, when a consumer checks into a hotel, a hold is placed for the expected cost of the stay).

Overdraft Services

- Debit Holds This proposal would stop banks from charging a fee when an overdraft takes place to due to a hold placed on available funds in an account.

- Right to opt out The proposal would stop banks from imposing a fee for paying overdraft unless the bank gave the consumer an opportunity to opt out of the payment of overdrafts and the consumer has not done so. This would apply to all transaction types. This would also be applied to overdrafts resulting from ATM and point of sale transactions.

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Using life insurance as part of your estate planning

Let's look at an example. A man and woman have no debt, and some money saved for their funeral expenses. They do not have life insurance. When they pass on, their children are able to pay for their funeral, however, they get hit with estate taxes for the large home, and other parts of the estate that they inherit. The huge burden of these taxes forces them to live in near poverty.

These parents in this example thought they had things taken care of with their no debts and money for funeral expenses. What they forgot was that anything their family inherits is taxed. Estate taxes come due nine months after a death. This is not much time if your heirs need to settle a largely illiquid estate. They may owe taxes on a huge property that they can not sell. What then?

One potential solution that should likely be apart of your estate planning is to buy a permanent life insurance policy that will cover estate taxes and provide your heirs with immediate cash, so they don't have to unload your business, home, etc. in a fire sale.

When you are young, buying life insurance that is permanent does not make sense, as it can cost up to eight times as much as a term policy. However, the point of a term policy is to provide children with money if their parent's die while the children are still young. For estate planning, the concern is not living expenses for young children, but the taxes and other expenses that come with settling an estate. Thus, for this purpose a policy that does not expire is a better plan.

Most people think whole life insurance is a terrible thing to buy, especially when life insurance companies try to sell it as an investment option. Life insurance isn't a great investment; if your primary goal is to get a good return, you'd almost certainly do better in a low-fee mutual fund. But it can be a valuable part of an estate plan, especially if you put it in a trust so it won't trigger estate taxes.

So, with these things in mind, let's take a look at a guide for permanent life insurance:

1. Pick a policy. There are three types of permanent insurance: whole, universal, and variable. Whole is the most conservative and generally the most expensive. Universal is riskier, and your premiums can get higher as you get older. Variable policies are the riskiest, because the cash value account is invested in the stock market, and you control the investments. So, if you are buying life insurance for estate planning, consider buying a second-to-die policy, which kicks in only when it's needed--when the second spouse dies. Variable, universal, and whole policies can all be designed as second-to-die plans.
2. Review your policy at least once a year. Then have your financial adviser review it.
3. Decide whether you need a trust. The rule of thumb is that if you have a net worth of more than $2 million--the point at which federal estate taxes kick in-put your policy in a trust so your heirs won't have to pay estate taxes on it. Only an irrevocable trust will protect your heirs from estate taxes.
4. Decide how much to buy. Determine your current net worth and how much it's likely to grow, then consider the nine-month IRS deadline, you'll need more insurance if a large portion of your estate is in illiquid assets, such as a business.
5. Find the best deal on insurance, watch out for commissions, fees, and more.
6. Put it in a trust sooner than later. If you die within three years of putting it in a trust, it is still considered part of your estate, and can be a real mess to sort out.

What to know about catastrophe insurance

Catastrophe insurance is something many people think about, but too many people pass up. Just ask those in Southern California who did not have fire insurance how they felt when they saw the wild fires ravaging their cities? The fact of the matter is that the 10 most expensive natural disasters in U.S. history all have occurred in the last decade. These catastrophes have resulted in insurance companies having to cover losses averaging $10 billion each year since 1989, compared with just $2 billion yearly from 1980 to 1988. This means two things: one is that you probably need catastrophe insurance more now than you did in the past, and two, it is going to cost you more.

The insurance industry is raising rates on catastrophe insurance, especially in high risk areas. They are basically saying to the homeowner, If you choose to live here, that's great, but you have to take on more of the risk. So what this means is that if you live where tornadoes, floods, hurricanes, and earthquakes are a regular occurrence, catastrophe insurance is going to cost you more, but will be worth it.

The fact is that catastrophe insurance is a great thing to have, and comes in handy if there is a catastrophe. However, with major natural disaster, some insurance companies just can't handle the expense of payouts. So, if you want to make sure you avoid paying more than you need to, and that you are with a company that won't go out of business should a huge disaster happen, ask the following questions:

Do I have proper coverage? You need to be looking at things like whether or not you are in a flood plane, whether or not you live in an area prone to fires, earthquakes, etc. Find out if you need catastrophe coverage by calling your agent or state insurance board, they can give you information about flood, fire, earthquake, etc, risks for your area, and you can consider that as you compare it to risk posed by normal hazards, which your home owner's policy will cover. If you exceed normal risk, buy the extra coverage.

Is the insurer financially stable? Let's face it, if a whole city burns down, this can be costly for insurance companies, and could put them at risk of a default that could leave policyholders uncovered. So, choose a company that will be able to make it. How do you do that? Well, A.M. Best and Standard & Poor's now rate insurance companies to reflect their ability to withstand such catastrophes. Choose someone with an A rating or better.

Can you afford the premiums and deductibles? Are they reasonable? You will see a huge jump in the cost of catastrophe insurance for high risk areas, but that does not mean you should not shop around and see look for companies and region that are not as exposed to catastrophe-related payouts and the cost will be lower. Be cautious of percentage deductibles that require you to pay a percent of the damage rather than a set figure. This can be huge if your loss is huge.

Once you have asked these questions you are likely ready to buy, so do the following three things:

1. Purchase all your insurance from an insurer that offers a multiple-policy discount.
2. Go with a high deductible if you can afford it, as it can save up to 20 percent in premiums.
3. Protect yourself the best you can by installing smoke detectors, a burglar alarm, storm shutters, dead bolts, and a fire-sprinkler system. These can reduce the premium on your homeowner's policy, and protect your home if a catastrophe does occur.

Five Major Ways to Save Money

There are two main roads to improving your personal finances: increasing income, and cutting costs. Increasing income is the harder road to travel. After all, you can't always get a raise or a new job when you need one. But cutting costs, that's a different story! You're in complete control in this area. And all it takes is some imagination and discipline-both of which are free. Below are five major ways to save money in the basic areas of food, shelter, clothing and transportation. They're major expenses in your life - and places for major savings.

1. Home Cooking

Food is a major expense in everyone's budget. But, in today's convenience food society, it's easy to overlook how much money can be saved by cooking meals at home. Plus, it's fun, creative, and healthier to make your own meals. The key is to cook in "bulk" to stretch the food you buy over several meals. If you're a busy person with little time to spare, a good investment is a slow cooker (or crock pot). Generally, they run from $20 to $80, depending on the size. With a slow cooker, you can set aside some time on the weekend to cook stews, soups, and other delicious meals that can be frozen for weekday use. After a hard day at work, all you have to do is pop the meal in the microwave! More than likely, you'll enjoy an additional benefit - your taste buds will wake up from mass produced food and thank you for the delicious taste of a home-cooked meal!

2. Drive less, exercise more

Is owning a car expensive? You already know the answer to that question, don't you? Gas, maintenance, insurance costs. Plus the mental aggravation of being caught in traffic jams! Why not carpool or take public transportation-the bus, train, or light rail? Or, if you live close to work, walk or bike. You'll lose weight, lower your blood pressure, and see the world at a slower pace. And, oh yes, you'll save a couple of thousand dollars in the process.

3. Cut housing costs

This is an easy and fun way to cut costs. Instead of paying a contractor to come in to make changes or repairs, make them yourself. Local hardware stores love your business and will help you with tips and tricks on home repair. Also, do your own decorating and painting. You get two benefits by doing your own changes and repairs - you get the pride of accomplishment and you save money.

4. Cut clothing costs

This can be another major area of expenses, especially if you have a family. So, try buying used clothing... dry clothes on the clothes line instead of in a dryer... learn how to mend clothes...well, you get the idea!

5. Quit your addictions

Okay, so this is not really an easy category, but if you enjoy cigarettes and a drink, this is where you can realize some major savings. Assume you're spending $5.00 a day on cigarettes. Added up over a year, that's an expense of $1825. As for liquor or wine, we all know how expensive that is. Assume you buy one bottle a week at $10 to share with family members or friends. That's $520 a year. Add both amounts up, and the total is $2,345! That's money that could be paying down your debt or going into savings. And don't forget the health benefits. You probably have many other ideas on how to save money in the five areas. If it seems hard at times to cut costs in these places, remember one thing - you're on the road to keeping more of your money in your own pocket! As the old saying goes: "Money saved is as good as money earned".

Purchase Options for Consumers

When you make a purchase...should you use cash, check, a credit card, debit card, your computer or an automatic payment?

Each payment method has advantages and disadvantages. When you buy something, merchants often offer several different ways to pay. Which way is best? To make a good decision, it's important to think about your options.

• Cash
• Check
• Credit Cards
• Debit Cards
• Personal Computer
• Automated Transactions
• Reporting Unauthorized Transactions
• Final Tips

Cash

Cash is almost always accepted, but consider:

• Do you have enough cash to pay for your purchase as well as any other things you might have to pay for in the near future, such as a quick meal or an unexpected purchase? If not, more cash is available from an Automatic Teller Machine (ATM), but is there a service charge for using an ATM?
• Are you losing an opportunity to earn interest by carrying too much cash? The more cash you carry, the less that can be deposited in a financial institution in an interest bearing account.
• Is there a possibility you'll return the item you're buying? Will you be able to return it and get cash back, or will you be able to get only a store credit? Will you use the store credit?
• Does your purchase need to be delivered? Do you want to pay in cash for something you haven't received yet? What if the item is damaged in transit, and you've already paid for it? How will you get your money back? It is generally more difficult to get a cash refund, even if you have a receipt.

In general, it's wise not to carry large amounts of cash because of the risk of loss or theft. Use cash only for those items that you'll either use immediately or take with you.

Check

Checks are another payment option. A check represents money but is not cash. It's a piece of paper the check writer uses to instruct his or her financial institution to release funds. With proper identification, you can open a checking account at most financial institutions. Checks are reliable and convenient for most transactions. Using them frees you from the risk of carrying large sums of cash. However, you may want to consider the following:

• Checking accounts often have fees, minimum balance requirements or a limit on how many checks you can write each month. Therefore, you may not want to write checks for small amounts unless you're mailing a payment.
• If mailing a payment, sending a check is acceptable, but mailing cash can be risky. Cash lost in transit can't be replaced, while a lost check can be.
• Paying with a check through the mail provides proof of payment because the recipient must endorse the check to cash it or deposit it.
• Not everyone is willing to accept checks because they're sometimes returned for reasons such as insufficient funds in the checking account. Merchants are sometimes reluctant to accept a check because they can't be sure it will not be returned.
• There is usually only a day or two between when a merchant receives your check and when the funds in the checking account are actually deducted for payment. Funds in your checking account continue to earn interest during this time. Debit cards and other types of electronic payments are deducted immediately.

Credit Cards

Credit cards and charge cards can be a convenient, efficient and reliable payment method. Actually, they allow the buyer to defer payment. Credit cards are more readily acceptable than checks because the merchant's bank guarantees payment to the merchant. Payment is made when you write a check to the card issuer. If you want to use a credit card to make payments and pay bills there are a number of things you should consider:

• You may have to pay an annual fee to use a credit card.
• Credit cards are more readily acceptable than checks. Sometimes they are the only option acceptable.
• If you want to return a purchase, credit card issuers frequently have procedures to facilitate the return.
• Since merchants pay a fee for each credit card transaction processed, they may not want to accept payment using a credit card under a certain dollar amount.
• When you pay with a credit card, you're actually receiving a short-term loan to make the purchase. Unless you pay your credit card bill in full a short time after the bill is received, you'll have to pay an interest charge in addition to the cost of your purchase.The period between when you receive your bill and when the payment is due is usually referred to as the "grace period". Grace periods are generally 14-20 days, but can be up to 30 days. Although many card issuers offer a grace period, not all credit card issuers do. Check the terms of your card to be sure.
• With low minimum payments and high interest rates, credit card and interest payments can extend over long periods of time - sometimes over many years.
• Purchases are conveniently summarized in a monthly statement.
• Credit cards can be too convenient to use. Unless you keep track of your charges, you can quickly owe more money than you can afford.
• Some credit cards offer incentives such as cash back, shopping discounts, rental cars or airline trips based on how much is charged. These benefits should be weighed against other factors, such as the annual fee and the interest rate charged when you don't pay your bill on time or pay only a portion of your bill.
• If your credit card is stolen or used by an unauthorized user your liability should be no more than $50 if you report the unauthorized transactions to your financial institutions.

Debit Cards

A debit card looks like a credit card but functions differently. It's used to take money out of your checking account at the time of sale. The transaction is similar to writing a check or using a credit card, except using a debit card removes funds from your checking account immediately. When using a debit card, consider the following:

• Because your checking account will be automatically debited, you have to make sure you subtract the right amount from your checking account balance.
• Before you use the debit card, consider how much money is in your checking account and what other expenses (rent, mortgage, utilities, other monthly payments, etc.) you have.
• Unlike a credit card, if your debit card is stolen or used by an unauthorized user, you could be held liable for the entire amount of the loss unless you report the unauthorized transactions to your financial institutions within 60 days of receiving your statement. Also, unlike credit cards, the money has already been deducted from your account. Your money is gone and to get it back you must be able to prove that the transactions were unauthorized. Additionally, your checks may be returned for non- sufficient funds before you receive your next statement because all the money in your account was removed by the unauthorized user.
• Unlike a check, you can't stop an electronic debit once it has been authorized because funds are removed immediately from your account. And unlike a check, there is no lag time between when funds are deducted from your account. And unlike a check, there is no lag time between when payment is made and when funds are deducted from your account.
• If you return the item, can you get cash back or will you be able to get only a store credit? As with cash, if only a credit is available for returns you may want to use another means of payment if you don't think you'll be able to use a store credit.
• Debit cards should not be used for pre-authorized, recurring payments such as insurance premiums or health club dues. Doing so can lead to problems later if you want to cancel your authorization. Safer methods of direct payment are available via your financial institution.

Personal Computer

Paying your bills using your personal computer can be fun and easy. More and more financial institutions offer this type of "home banking" over the Internet. Using your computer to pay bills usually functions the same way as using any electronic means to make a payment-an electronic debit is made to your account. Using your home computer to pay bills is just like using your debit card because the amount of the payment is deducted directly from your account, and there is no lag time or float between when the payment is made and when funds are deducted. When you pay bills online, it is important that you make sure your transactions are secure, and that your personal information is protected. Here are some precautions you may want to consider when making payments online:

• Keep personal information - address, telephone number, social security number, and account numbers or e-mail address-private. It is not recommended that you provide this information unless you've initiated the transaction. Don't disclose your personal information unless you know who's collecting the information, why they're collecting it, and how they'll use it.
• Give payment information only to businesses you know and trust, and only in appropriate places like order forms.
• Never give your password to anyone online, even your Internet service provider.
• Protect your account numbers and personal information by using software that encrypts or scrambles the purchase information you send over the Internet.
• Create and keep records of your online transactions just as you do for your credit and debit card transactions. Review your periodic bank and credit card statements for any billing errors or unauthorized purchases. Notify your credit card issuer or bank immediately if you find any discrepancies.
• Read the policies of Web sites you frequent and especially the disclosures about their security, refund policies, and privacy policy on collecting and using your personal information.

Automated Transactions

Direct Payment is a safe, reliable service that allows you to pay your bills automatically. With Direct Payment, you authorize a company to deduct money from your checking or savings account in order to pay a monthly bill.

Direct Payment transactions are generally prearranged or recurring payments, such as monthly utilities, insurance premiums, and mortgage payments.

Automated transactions can also be credits or deposits to your account. Many people work for companies that use Direct Deposit to automatically deposit pay into their employees' checking or savings accounts instead of distributing checks on payday. Direct Deposit of Social Security benefits, expense reimbursements, and pension benefits are other examples of automated credit transactions.

Direct Payment and Direct Deposit transactions flow through the Automated Clearing House (ACH) payments network. The ACH network is more than 25-years-old and is an established network responsible for transferring billions of dollars each day between financial institutions. You can learn more about Direct Payment or Direct Deposit by visiting the following sites:

DirectDeposit.org - operated by the Direct Deposit and Direct Payment Coalition.

Report Unauthorized Transactions Immediately

Whether you use a credit card, a debit card, a personal computer or ACH, the transaction is electronic and is governed by the Electronic Funds Transfer Act, or Regulation E. The regulation includes procedures for resolving errors and provides limited liability for unauthorized transactions. Send written notices by certified mail, return receipts requested, and keep a copy of your letter for your own files. However, be aware that liability for credit cards is different than electronic debit transactions. Your maximum liability on a credit card is $50. On an electronic debit, unless you contact your financial institution within 60 days of receipt of your statement, there may be no limit to your liability for unauthorized transactions. Additionally, before you receive your next statement, your checks may be returned for non- sufficient funds.

Final Tips

• Since debit cards and credit cards look the same, be sure you know which one you're using when making a transaction.
• Consumer liability on a credit card is generally limited to $50. Be sure to report a lost or stolen credit card immediately to prevent its misuse.
• Under certain conditions, consumer liability on a debit card can be unlimited.
• Save your receipts for transactions made with credit cards or debit cards. Review your statement regularly and report discrepancies at once.
• Do not download files sent to you by strangers or click on hyperlinks from people you don't know. Opening a file could expose your system to a computer virus.

Budget Your Finances Now, to Minimize Damage Later

s the process of healing and rebuilding continues ever so slowly in areas ravaged by Hurricane Katrina and Hurricane Rita, many of us are taking a closer look at our own lives. While most of us don't live in hurricane-prone areas, we are all reminded of the possibility of disaster knocking at our door. Mother Nature may provide the most striking examples with hurricanes, earthquakes and tsunamis, but a house fire, car accident, serious illness, or a lost job could prove just as devastating.

We all hope it never does, but if disaster should strike, finances are the last thing you'll want to worry about. You can make it easier on yourself, and your loved ones, if your finances are in order. Disaster-proof your finances with a budget. Here are a few suggestions to help in the same

Create a monthly spending plan.
The US Bureau of Economic Analysis estimates that personal savings as a percentage of disposable personal income was negative 0.7 percent in August. That means the average person spent more money than he or she made in August. If you're on par for average here, you probably won't need to wait for Mother Nature to create a disaster, you're creating your own.

Create a budget, and stick to it. Since budgets are in that same category as diets – most of us begin one every January and are done by February – you need to find one that works for you in order to stick with it. For most of us, that means finding a software program that is automatic and able to easily track transactions from multiple checking accounts, debit cards and credit cards. But even if you use cash and the paper envelope method of budgeting, create a spending plan, and stick to it. Make sure you set aside some money for personal spending for those impulse buys. This will give you some freedom without negatively affecting your overall plan.

Back up your financial records, or use a web-based system.
If you are not taking advantage of the Internet to track and control your finances, you may be taking an unnecessary gamble. PC-based systems, as well as paper, can be destroyed in a disaster. In his September 8th column for the Baltimore Sun, titled "Flood might destroy your PC, but not off-site backup files," Mike Himowitz described how even a broken water pipe or a small house fire could destroy your computer, and the records held on it.

"More importantly, with online banking, you can access your account and pay bills from any PC that has an Internet connection," stated Himowitz. "One of the main concerns voiced by those who fled their homes to escape Hurricane Katrina is that they have no access to their money and no physical way to pay their bills. With online transactions, your physical location - and the location of the PC you're using - no longer matter."

Himowitz suggests that using a storage company to provide online backup, although pricey, can be a wise investment. However, for far less money, you can also use a secure online spending management program, like Mvelopes Personal (www.mvelopes.com). It will help track and control your finances, and pay your bills from any computer with an Internet connection – and you don't have to worry about expensive backup storage.

Set aside the equivalent of three to six months' living expenses in an emergency fund.
An easily accessible emergency fund is one of the single most important things you can do for your financial wellbeing. In the event that disaster strikes, if you don't have enough set aside to cover basic living expenses, including mortgage, food, and car payments, things could quickly go from bad to worse.

If setting aside this much money seems unattainable, start small. Cut out those daily trips to the vending machine. You'll be amazed how quickly the money adds up. Use cash gifts, tax refunds and annual bonuses to build your fund. When you set up your monthly spending plan, include a contribution to your emergency fund, and make it automatic.

Your emergency fund needs to be easily accessible. That means in a savings or money market account, not real estate investments or stocks. Select an account with no service fees, which can be as high as $100 a year. Also, make sure you are getting a good interest rate – many online banks, like NetBank, EverBank or EmigrantDirect, currently have savings accounts paying three to four percent – that uses an average daily balance instead of minimum daily balance.

This account should only be used for real emergencies, not holiday spending sprees or other indulgences. If you do draw from the account, make repaying it a top priority.

The American Experience With Money

The Beginnings... and Beyond

From the earliest times when commodities such as tobacco and beaver pelts were used as money, to the present when credit and debit cards are commonplace, money has always played a central role in the American experience.

Early in our history, our monetary system consisted of numerous foreign coins and paper currencies issued by the thirteen colonies and the Continental Congress. More than two hundred years later, we now have a single national currency and privately owned banks chartered by state and federal governments. Furthermore, a central bank, the Federal Reserve, has replaced gold as the regulator of the value of our money.

The evolution from a decentralized system to a more centralized system has been marked by controversy and slowed by a general suspicion of banking power. Each change has involved extensive legal debate focusing on the rights of state and federal governments and the freedom of the individual.

Another important dimension of our nation's economic development is the role of gold. Once a cornerstone of the financial system, gold has gradually but perceptibly become less important, both as a medium of exchange and as a regulator of the money supply. This process was driven by the nature of gold itself as well as by the changing needs of our modern and complex economy.

The Constitution and Money

The framers of the Constitution were apparently undecided about the form of financial system they should establish. Some preferred a centralized system with most of the power residing in the federal government. These framers wanted a national currency and a single federally chartered bank with branches throughout the country.

Others involved in developing the Constitution envisioned a decentralized financial system with principal authority resting in the states. They preferred that each state charter its own banks, and each bank issue its own bank notes-that is, its own paper currency. There would be no uniform national currency and no central bank.

After long debate, the framers of the Constitution permitted the federal government "to coin money, (and) regulate the value thereof and of foreign coins . . ." They also declared that "no state shall . . . coin money, [nor] emit bills of credit [i.e., paper currency] . . . " Significantly, no mention was made of a national currency nor federally chartered banks.

The Constitution specified little involvement for the federal government in our financial system. Congress was expressly permitted only the right to mint metal coins, regulate the percentage of precious metal in those coins, and determine the metallic content of the many kinds of foreign coins that circulated throughout the states. In other words, Congress' involvement in the financial system focused on the intrinsic value of coins, which was determined by the amount of precious metal in the coin.

Fear of Paper

Many of the framers of the Constitution opposed paper money largely because of their experience during the Revolutionary War. In 1775 the Continental Congress faced the problem of fighting a war without the means to pay for it. The British blockade of our ports limited trade, reducing revenues from tariffs, and European nations were reluctant to lend us money. Left with little alternative, the Continental Congress authorized $2 million of Continental currency. This was the first of many issuances. In total, between 1775 and the adoption of the Constitution in 1787, Congress authorized the printing of about $242 million in "Continentals."



This $5 Continental bill was worth only 5 cents when it was redeemed in 1790.
Congress promised to pay the holders of the currency the face value of the bills in gold or silver or in Spanish coins, widely circulated at the time. However, Congress did not have enough gold or silver to make payment. In reality, there was no "backing" for the Continentals; that is, there was no mechanism, except the authority of the Continental Congress, to fix the value of Continentals or to limit the amount that could be issued. As a result, Congress issued more Continentals than the economy could handle without inflation.

The colonies experienced a rapid increase in inflation as the government printed money without restraint. The resulting oversupply of money undermined the purchasing power, and therefore value, of the Continentals.

To support the faltering currency, Congress declared that any person convicted of refusing Continentals at face value was an enemy of the country and should be "precluded from all trade . . . with the inhabitants of these colonies."

Despite such efforts to maintain the Continental's value, people paying in these notes were charged more than people paying with foreign coin of gold and silver. In other words, Continentals were discounted.

Although the printing of Continentals was an emergency measure that helped to win the war, this episode illustrated the perils of issuing too much currency.

Bankers probe finance issues

MANAMA: A total of 60 senior bankers from Bahrain, the GCC, Malaysia and Indonesia took part in a two-day seminar on corporate governance issues in Islamic finance.

The event was held at the Regency InterContinental.

The event was organised by the Islamic Financial Services Board (IFSB), the World Bank corporate governance departments and the Global Corporate Governance Forum and hosted by the Central Bank of Bahrain.

"The IFSB has drafted a series of principles on Islamic finance and this event was designed to raise awareness of these issues," said Global Corporate Governance Forum senior projects officer Eugene Spiro.

"We will be following this up with further seminars dedicated to raising awareness and to provoke discussion and debate on governance."

HOSPITAL FINANCE

A LONG history of money worries within the local NHS will be eradicated permanently as a result of the ongoing shake-up, say health bosses.

Already the PCT has managed to persuade the Government to wipe out its historic debts on the back of the Closer to Home proposals. Now it is working to tackle its finances for the long term, ensuring that the books balance year-on-year.

To do this bosses have come up with a £31.3m cost improvement plan over the next three years, which will be achieved by moving more services into the community and out of the expensive and unnecessary acute settings.

But they anticipate major initial investment will be needed in order to reap long-term benefits.

As a result, £10m has been set aside to develop community services over the first three years of the plan, with a further £9.2m available between 2009 and 2012. An additional sum of £8m a year, over five years, will help the acute trust cover costs of the shake-up.

This subsidy will decrease year-on-year until the services become self-financing. John Critchley, the PCT’s director of resources, said this will ultimately deliver financial stability to Cumbria. “Nine months ago we were in a position where the economy was effectively broke. There was an £18m recurring deficit, massive cost improvements to find, together with a huge historic debt. I am now 150 per cent confident this plan will give us a much better ability to manage risk, instead of no plan at all and financial free-fall,” he said.

He added that the work within the PCT has to be combined with better management of social service funding to be a complete success, but said he is fairly confident that this is starting to happen.

Finance chiefs urge mortgage market revamp

WASHINGTON: America's top financial chiefs yesterday urged mortgage firms, credit rating agencies and banks to overhaul their practices as a spreading credit crunch rocks Wall Street and the US economy.

US Treasury secretary Henry Paulson, Federal Reserve chairman Ben Bernanke and Securities and Exchange Commission chairman Christopher Cox endorsed a set of recommendations aimed at boosting business transparency and risk management.

Paulson said the President's Working Group on Financial Markets wanted mortgage firms, credit rating agencies and banks to reform their business practices to avert liquidity crunch.

Among numerous recommendations backed by the panel was a call for federal and state regulators to strengthen oversight of mortgage lenders.

Meanwhile, US consumers cut spending last month and the labour market continued to weaken, suggesting the household-spending pillar that had supported the economy's expansion may be giving way.

Retail sales unexpectedly plunged 0.6 per cent, while the ranks of workers remaining on state unemployment benefit rolls hit the highest level in nearly 2-1/2 years.

Today's Business Headlines

WANH board will quit if Stokes gets seat at table
All four of West Australian Newspaper Holdings' non-executive directors will quit the board rather than serve alongside Kerry Stokes. The West

BHP Billiton's bid to keep China at bay
Canberra has become the new fornt in the battle for control of Rio tinto, as Don Argus wraps himself in the Australian flag. The Fin Review

US group throws troubled pSivida $83m lifeline
US pharmaceuticals group Alimera Sciences has thrown Perth-founded biotech pSivida a lifeline by agreeing to amend its licence and collaboration deal by taking an extra 30 per cent stake, delivering the cash strapped outfit up to $83 million over four years. The West

Fed bails out Bear Stearns
The US Federal Reserve used powers not employed since the Great Depression to bail out one of Wall Street's top five firms, Bear Stearns, on Friday. The Fin Review

Free trade dirve 'Aussie ute' exports
Holden will export its iconic Australian ute and a new high-performance sedan to North America in a major boost for the Aussie automotive industry. The Fin Review



THE WEST AUSTRALIAN
Business: All four of West Australian Newspaper Holdings' non-executive directors will quit the board rather than serve alongside Kerry Stokes.

US pharmaceuticals group Alimera Sciences has thrown Perth-founded biotech pSivida a lifeline by agreeing to amend its licence and collaboration deal by taking an extra 30 per cent stake, delivering the cash strapped outfit up to $83 million over four years.

THE AUSTRALIAN FINANCIAL REVIEW

Page 1: The US Federal Reserve used powers not employed since the Great Depression to bail out one of Wall Street's top five firms, Bear Stearns, on Friday.

Page 3: Holden will export its iconic Australian ute and a new high-performance sedan to North America in a major boost for the Aussie automotive industry.

World: US President George Bush is seeking to calm investors, saying policy-makers will stabilise the financial system following the near collapse of Bear Stearns.

Markets: Following the plunge of key US indices on Friday, investors in Australia face another day of losses when trading starts this morning.

Ministry remains mum on financial setbacks

혻혻 By Koh Byung-joon
SEOUL, March 17 (Yonhap) -- South Korea's Finance Ministry stayed tight-lipped on a recent stock plunge and the drop of the nation's currency against the U.S. greenback on Monday, apparently underlining the severity of ongoing financial market instability.

혻혻 "No comment," said Kim Kyu-ok, a spokesperson for the Ministry of Strategy and Finance, during a weekly press conference. Asked about how the ministry is responding to the current situation, he also remained mum, expressing concern that any comment might have a negative impact on the market. "No one in our ministry will talk about the issue," he added.

혻혻 Finance Minister Kang Man-soo didn't attend the press conference as he was at a government policy review meeting, Kim said. The conference was held on the heels of worsening financial woes in the local bourse and currency markets.

혻 혻 South Korea's benchmark KOSPI plunged more than 3 percent to 1,549.92 as of 11:54 a.m., the lowest level in nearly one year, as foreign investors unloaded shares on renewed concerns over a credit crisis in the United States.

혻혻 The won was down 28.6 won to 1,025.9 won, marking the first time in more than two years that the Korean currency has fallen below the 1,000-won mark.

혻혻 A bearish stock market could result in a drop in consumer spending, and a weak local currency is feared to raise inflation pressures. South Korea is already struggling to boost corporate spending and rein in price hikes amid higher energy and commodity prices.

혻혻 Since its inauguration last month, the new government has pledged to put top priority on controlling inflation to help stabilize people's livelihoods. It also aims to achieve around 6-percent economic growth this year by encouraging corporate investment and domestic consumption.

혻혻 Experts say that the fall of the local currency could help boost exports in overseas markets but might serve as a downside factor for Asia's fourth-largest economy, as it may cause a buildup in inflationary pressures by raising prices of imported raw materials.

World Bank finances health project

WASHINGTON — The World Bank on Thursday decided to finance US$60 million of the Northern Highlands Health Support Project to strengthen district hospitals and improve access to health services.

The project will improve health workforce capacity and hospital management, develop pilot models to increase staff retention and provide basic medical equipment.

It will also provide financial support for the Government’s Decision 139 to provide health care for the poor. The project will support provincial and district agencies to strengthen monitoring, reporting and supervision of the Health Care Fund for the Poor’s implementation until 2014. — VNS

PM backs Finance Ministry plan to spur economy with village fund

BANGKOK, March 17 (TNA) – Prime Minister Samak Sundaravej on Sunday expressed his support for the Finance Ministry's plan to inject Bt15 billion to stimulate the country's economy through the small-, medium-, and large-village fund (SML).

Speaking during his weekly 'Samak Talk' program broadcast live on Channel 11, the prime minister said Finance and Deputy Prime Minister Surapong Suebwonglee met and discussed with him on Saturday proposed spending of Bt15 billion using the SML scheme to ensure that people at the grass-roots level have access to such budgets in a wide-ranging manner.

The premier insisted the establishment of the SML fund is not economic populism.

"We neither mean to hand out money nor support borrowing. Instead, we intend to bring money to finance village development projects. People in the village are encouraged to jointly decide what they want to do," he said.

Mr. Samak conceded he had ordered the suspension of the OTOP Fair event originally set for March 29 since he disagreed with officials' decision to spend Bt85 million to hire the event organiser. (TNA)-E005

Fed Cuts Lending Rate to Financial Institutions to 3.25%

WASHINGTON -- Federal Reserve Chairman Ben Bernanke said new steps announced by the central bank Sunday should help squeezed financial institutions get cash infusions-- a fresh effort to provide relief to a spreading credit crisis that threatens to plunge the economy into recession.

The central bank approved a cut in its lending rate to financial institutions to 3.25% from 3.50%, effective immediately, and created another lending facility for big investment banks to secure short-term loans.

"These steps will provide Finance Programs with greater assurance of access to funds," Bernanke told reporters in a brief conference call Sunday evening.

The new lending facility will be available to financial institutions on Monday.

It will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25% and a range of collateral -- including investment-grade mortgage backed securities -- will be accepted to back the loans.

The steps are "designed to bolster market liquidity and promote orderly market functioning," the Fed said in a statement. "Liquid well-functioning markets are essential for the promotion of economic growth."

The Fed also approved the financing arrangement announced Sunday in which JPMorgan Chase & Co. ( will acquire rival Bear Stearns Cos. The deal valued at $236.2 million, a stunning collapse for one of the world's largest and most venerable investment banks. The Fed will provide special financing to JPMorgan Chase for the deal, JPMorgan Chase said. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets.

Treasury Secretary Henry Paulson said he was pleased by Sunday's developments.

"Last Friday, I said that market participants are addressing challenges and I am pleased with recent developments. I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liquidity and orderliness of our markets," he said.

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Europe Longs for a Weaker Euro

Ever since the Euro was rolled out in 2002, champions of the currency have worked long and hard to establish the tender as a serious, strong rival to the dollar. Now many of those euro enthusiasts are growing nostalgic for the money's runtier days. Because with the dollar falling to a new record low of $1.5624 during trading Thursday, many European economists and business leaders are worried about how they'll ever be able to sell their products to customers who use dollars. The Euro sign has become an alarm for "expensive."

Commentators in Europe point out that the dollar's continued slide against most international currencies has largely been fueled by domestic American factors — notably the credit tension and business failures in the wake of the subprime crisis, and wider signs that the U.S. has or is entering into recession. But plummeting investor confidence in the American economy has only accelerated the greenback's erosion, which in a little over two years has depreciated from $1.1826 per euro in January, 2006 to Thursday's $1.56. The result is that products manufactured by companies paying euro-fixed salaries and supplies wind up in stores with dollar-denominated price tags looking prohibitively expensive to shoppers.

For example, A Dolce & Gabanna woman's watch marked down on Bestfinancnews.com France to 192.72 euros — or $300 — is hardly a bargain compared to the same watch on Amazon's U.S. site selling for $225. Why should dollar-spenders even think of shopping Europe? On the other side, the profits European companies make on dollar sales are shrunken by the time they get converted back to euros. For the euro-zone economy with a projected growth rate of only around 2% in 2008, the upshot is a major pinch on export revenues threatening to stunt growth even more.

That discomfort is especially great on companies and countries that have been slow to reform their economies — such as France and Italy, whose considerable price tags for cars, trains, airplanes, luxury goods and food products have become absolutely daunting once they've traversed the euro-dollar exchange. In places like the Netherlands, Germany, and Austria — where enormous pressure on salaries and production costs have made goods and companies more competitive in recent years — the rise of the euro has been less catastrophic, though only in relative terms. Whereas Germany has watched the plummeting dollar eat at its healthy trade surplus, France blames that slide for worsening its growing trade deficit. The consequences have been similar in both countries: as BMW warned that the 5,600 jobs it was eliminating as part of a cost-cutting plan would increase if the euro surged substantially beyond $1.50, plane maker Dassault said it might have to follow the example of other heavy manufacturers in Europe by shifting production to dollar-dominated markets to save money.