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Brace yourself for stock market activity with all the twists, turns and plunges of the Intimidator 305 roller coaster ride. The roller coaster ride is evident with the impact of the Standard & Poor’s downgrade, which gave the markets the worse day since the financial meltdown of 2008: The Dow Jones industrial average dropped more than 5.5 percent, or about 630 points, while the S&P 500, a broader measure of stocks, plunged about 6.6 percent. Investors fled to the new safe haven of the day: gold, which soared to a record high price of over $1,700 per ounce.

From predictions of a double-dip recession to the unprecedented decision of Standard & Poor’s to downgrade the nation’s AAA credit rating, last week’s market performance left investors queasy. Each major index took a steep vertical drop: the S&P 500 plummeted 7.2%, the Dow Jones Industrial Average tumbled 5.8% and the Nasdaq fell 8.1%.

President Barack Obama was finally able to sign legislation to raise the debt ceiling and avert default by the Aug. 2 deadline. Putting an end to the ugly month-long battle between Democrats and the GOP over deficit reduction, the act did little to move the market.

Nervous investors sold shares responding to reports that American consumers had cut spending for the first time in 20 months and manufacturing barely grew in July. The news came a week after investors became jittery over the Commerce Department‘s announcement that the U.S. economy grew less than 1% for the first half of 2011. To make matters worse, a downbeat economic review from Federal Reserve Chairman Ben Bernanke and fears over a widening European debt crisis contributed to the Dow’s 513-point nosedive last Thursday, the largest point decline since Oct. 22, 2008.  Then Friday the Dow had another wild ride, a 416-point swing as investors in response to the better-than-expected jobs report, progress on the European financial front and news of the debt downgrade, which S&P announced after financial markets closed.

Informing the agency of $2 trillion error in its deficit projections, U.S. Treasury officials stated the miscalculation raised “fundamental questions about the credibility and integrity of S&P’s ratings action.” In a conference call with reporters on Saturday, the agency defended its move, asserting the debt ceiling stalemate demonstrated  “a degree of uncertainty around the political policy-making process which we all think is incompatible with a AAA rating.”

The downgrade from AAA to AA+ could lead to higher interest rates and borrowing costs on everything from credit cards to mortgages. And local governments may find access to funds much more expensive.

It also brings another element of uncertainty to the markets. Policy makers and investors are preparing for even more turbulence. Global exchanges had a negative reaction to the downgrade when markets opened Monday: Major Asian indexes in Tokyo and Shanghai were all down more than 2% after the opening bell. Treasury yields fell as gold hit a record.

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Expect Wall Street to be just as volatile. And this seesaw activity will continue as markets react to every financial event, political upheaval, policy decision and economic report.  But even in this environment, you can still make basic moves to fortify your portfolio and protect assets. Studies have shown that African American investors have a greater tendency to avoid risk and volatility than their White counterparts. As a result, large numbers have pulled dollars out of the market, converting paper losses into wealth-depleting capital losses.

In most cases, it’s costly to get off the ride before it’s over. In fact, turbulent markets and economic downturns can present wealth-building opportunities for strategic investors. The following tips may help you find a smoother, more profitable course:

• DON’T PANIC: Our rule-of-thumb: engage in disciplined, long-term investing. It’s true the past can never fully predict future outcomes but it serves as a valuable reference. Note that the stock market crash of 2008 extended to two months of 2009 before equities began to rebound. Between the Great Recession market low of 6,547 on March 9, 2009 to the post-crisis market high of 12,810 0n April 21, 2011,  the Dow posted a spectacular 95% gain in a two-year period.
• LOOK FOR DIVIDEND STOCKS: With increasingly unpredictable environment, consider purchasing shares of companies that make cash distributions to shareholders on a quarterly basis. These stocks tend to be high-quality blue chips that can provide you with additional cash flow from a yield of 2% to 3% . Also, the capital gains taxes on qualified dividends are no higher than 15%.
• TAKE ADVANTAGE OF 401(k) PLANS: In our recent August issue, BLACK ENTERPRISE CEO Earl G. “Butch” Graves, Jr. stresses the value of contributing to employer-sponsored 401(k) and 401(b) plans in his Executive Memo column. For good reason, it’s a systematic way to build your retirement nest egg.  As many of you know, funds are deducted from your paycheck and you get to invest in an array of investment offerings with tax-free dollars. An added bonus is that in many cases your employer will match a portion of your contribution—the maximum is currently $18,500 per year. By doing so, you benefit from dollar cost averaging—the process of investing equal dollar amounts at regular intervals—which enables you to purchase more shares of quality companies when the stock price drops, a likely event in today’s capricious market.  Since these tax-deferred vehicles are designed for retirement, you’ll face stiff penalties and tax liabilities if you withdraw funds before age 59 1/2.
• GO INTERNATIONAL BUT BE PICKY: In diversifying your portfolio, you should still get some foreign exposure. Among our recommended financial power moves is making investments in emerging markets like China and India through mutual funds. Experts suggest such vehicles represent no more than 10% of your holdings, however.
• GET DEFENSIVE. Identify recession-resistant stocks. Companies in sectors such as pharmaceuticals, personal care, household products, food and consumer staples—products consumers purchase in economies weak or strong—will offer some portfolio stability.

U.S. Treasuries are still safe bets. As the debt ceiling battle in Washington came to a close, I asked Jason Tyler, senior vice president of Investment Research for Ariel Investments, L.L.C. (No. 6 on the BE ASSET MANAGERS list with $5.5 billion assets under management) whether investors should still flock to government bonds as safe havens.  He unequivocally asserted that these securities represent the world’s most solid investment—even with the downgrade. “People hold U.S. Treasuries because there’s extraordinary financial stability underneath it and that’s still the case,” he says, adding that the European debt crisis has made that continent’s securities less attractive. “U.S. Treasuries should continue to be seen as the safest place to park money. At the end of the day, nobody holding U.S. Treasuries is going to lose principal.”

Even though you employ these strategies, the market may still take you for a loop or two. Some days you’ll have to hold on tight. If you stay focused, however, when you return to terra firma, you’ll be richer for it.

The clock is ticking.

If President Obama and congressional leaders don’t reach an agreement to increase the $14.3 trillion debt ceiling by August 2 then the United States will wind up becoming a deadbeat nation unable to meet its obligations for the first time in history. A number of leading economists and policymakers, including Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke, warn that the U.S. would face nothing less than a “huge financial calamity” far greater than the meltdown of 2008.

Washington officials have become increasingly concerned that the nation is headed for crisis. And with good reason. In a recent interview with CBS News, the president maintains he cannot guarantee that 70 million checks will be delivered to social security beneficiaries, veterans, folks on disability and the like come August 3. And Moody’s Investors Service announced on Wednesday it has put the AAA credit rating of the U.S. government on review for a possible downgrade based on the likelihood the debt limit will not be raised by next month’s deadline.

The president is once again involved in talks with the GOP that can only be characterized as hostage negotiations. In December 2010, he was forced to extend the Bush tax cuts for wealthy Americans for two years as a means of avoiding a middle-class tax increase that could have derailed economic recovery and extending unemployment benefits set to expire for millions. To avert a government shutdown in April, Obama and congressional leaders reached a historic, last-minute deal  to slash about $38 billion in federal spending. Over the past week the president has taken a give-and-take posture with a recalcitrant Republican leadership opposed to tax hikes and big government. The GOP’s stance has been driven by the increasingly influential Tea Party caucus in the House.

Obama has rejected short-term solutions though. After clashing with House Majority Leader Eric Cantor (R-Virginia), who sought to to make a tactical delay with his proposal for an extension, the president maintained there was too much “positioning, posturing and catering” to lawmakers’ political bases. When he left Wednesday’s meeting, he said, “Enough is enough. ” He then gave lawmakers a Friday deadline to agree on a resolution.

The reality is that the talks have been mired in politics as the 2012 presidential contest heats up.  In a CNN interview, Massachusetts Gov. Deval Patrick says that “the Radical Right will let the economy fall off a cliff to stop President Obama.”

As this high-stakes drama continues to play out, we cannot afford to be oblivious to what this byzantine Beltway activity means for the nation’s economic health as well as our financial well-being. Here’s how we got here: Similar to your management of household finances, when the government spends more than it takes in that gap between spending and taxes represents  the budget deficit. Over the past decade, the size of the deficit has swelled due to several factors including significant revenue reduction related to the enactment of the original Bush tax cuts and last year’s extension; costs associated with the Iraq and Afghanistan wars; increased expenses for Medicare and Medicaid; and our government’s response to the Great Recession, which boosted stimulus spending and expanded safety-net programs like unemployment benefits.

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To cover the deficit, the U.S. Treasury borrows money by issuing securities. The treasury is authorized by Congress to engage in such actions but a limit is placed on the amount of debt the government can issue. That limit, known as the debt ceiling, has been raised repeatedly—in fact, since Ronald Reagan’s presidency it has been increased more than 30 times. Treasury officials estimate they will need additional borrowing capacity by August 2 but Geithner says the “true deadline is July 22,” enough time to draft legislation, make its way through Congress and onto the president’s desk for his signature.

Without a boost in the debt ceiling Treasury can’t borrow more money.  According to an analysis by the Bipartisan Policy Center, a Washington think tank, the federal government is expected to collect about $172 billion in revenue while being hit with roughly $307 billion in bills. That means the government would have funds to pay a bit more than 55% of such commitments.

If the U.S. sinks to deadbeat nation status, expect the following:

• Major credit rating agencies to downgrade U.S. debt, forcing bondholders that invest in highly-rated securities to sell their holdings.
• Once the default is resolved, the federal government would face an immediate hike in interest rates in order to borrow money. The ripple effect is that consumers like you would also have to contend with higher rates for mortgages, cars, student and credit loans.
• The erosion of investor confidence could collapse the market for U.S. Treasuries, considered one of the world’s safest assets. Administration officials say uncertainty in the bond market would foment additional financial chaos.
• Some analysts estimate that the market could plunge by roughly 9% in the three months after a default, heading into bear territory.
• Banks, still jittery from the Great Recession , would significantly reduce commercial financing, a development that would result in businesses failures and  job losses.
• If the US was forced to create a European-style austerity program, hundreds of thousands would be added to unemployment lines and, in turn, cripple an already fragile economic recovery.

To avoid default, Obama met with GOP congressional leaders for four straight days offering his “grand bargain” of spending cuts and tax increases to reduce the budget deficit by $4 trillion, putting such sacred cows as Medicare and Social Security on the table. House Speaker John Boehner (R-Ohio) appeared to seriously consider the proposal but the Republican leader couldn’t control the Tea Party caucus that refused to budge.

Senate Majority Leader Mitch McConnell (R-Kentucky) offered another proposal in which Obama could request increases up to $2.5 trillion in the government’s borrowing authority in three separate installments over the next year while simultaneously proposing spending cuts. McConnell’s power move: Allow for an increase in the debt ceiling and avoid the risk of default while putting the entire political onus on the president and Democratic lawmakers who support his requests. Conservatives once again rejected the plan, citing it would essentially diminish the GOP’s leverage to force deep cuts in the federal budget.

To break the stalemate, there has been speculation that the president may seek to employ a different power move, invoking his powers under the 14th Amendment to surpass the debt limit set by Congress. The 14th Amendment states that the national debt’s validity “shall not be questioned.”

So where does these political machinations leave the rest of us?  I don’t advise any of us to position ourselves on the sidelines. With a Black unemployment rate of 16.2%, the debt default scenario would be even more disastrous regarding the future job prospects and  financial standing of large numbers of African Americans as well as our nation as a whole. Cuts in government services will mean slashing of safety-net programs as well as reduction in public sector payrolls that employ legions of Blacks and other ethnic minorities. Even if the debt ceiling is raised, African Americans will still be negatively impacted by painful budget cuts.

We, too, can make a power move. There is strength in numbers and we must reignite our activism. Contact your congressional representative to push for a resolution to the debt crisis and to advocate policies that will advance our financial future. We must be aggressive in voicing concerns to both the White House and Congress so they can be held accountable. Social media also offers a powerful tool for sharing information and rallying troops to take action.

You must be part of the dialogue. Act now. Time is running out. Tick…tock…

Fed chairman Ben Bernanke faced a tense session Thursday before the House Committee on Oversight and Government Reform.

The grilling was led by Rep. Edolphus Towns (D-N.Y.), the Congressional Black Caucus member chairing the committee. Most of the questions, accompanied by several Fed e-mails shown on a monitor in the hearing room, centered on whether Fed officials threatened to remove CEO Kenneth Lewis and his board if Bank of America pulled out of the deal. Bernanke replied repeatedly that he did not threaten or use coercion to ensure that the deal went through.

In a show of solidarity that is rare these days on Capitol Hill, Democrats and Republicans seemed unconvinced by Bernanke’s testimony. Rep. Darrell Issa (D-California), the committee’s ranking member, charged Bernanke with engaging in a cover-up.

In interviews, Towns maintained that “there’s something rotten in the cotton,” and may call Bank of America Chairman Ken Lewis, Bush Treasury Secretary Henry Paulson, and FDIC Chair Sheila Bair to testify. He says the answers he gains once the investigation is complete will also determine how he will vote on the Obama administration’s financial market regulation overhaul. He has pledged to hold more hearings throughout the summer.

Here are Towns’ comments from an exclusive interview the lawmaker had with Black Enterprise:

Black Enterprise: Do you believe that the Federal Reserve abused its power in Bank of America’s acquisition of Merrill Lynch?

Rep. Edolphus Towns: I’m concerned about some of the things that we heard. For instance, there seems to have been force, that they were coerced. Bank of America said, “Look, we’re not going to move forward with it. Ken Lewis said the Fed threatened to remove him and his board, which led to him reconsidering. A private deal ended up with $20 billion of taxpayers’ money. I just don’t understand how this happened. We have to talk to the SEC to find out if they were asleep at the switch and what happened here. We need to talk to the FDIC because it was concerned about the deal and reluctant for it to move forward. So there are a lot of unanswered questions. We know there was a shotgun wedding; we’re just having some difficulty figuring out who had the shotgun.

Questioning of Bernanke was led by Rep. Edolophus Towns (D-N.Y.), right, chair of the committee.

I don’t know who’s lying, but I’m convinced there’s a lie being told. Once we finish with this, we can refer [the matter] to the Justice department, because after all, [the witnesses] testify under oath, and then the department can make a decision as to what they would do from that point on.

Bernanke’s term is up in January. Do you think he should be reappointed?

I want to talk to all the players, get a feeling in terms of their actions and then make a decision based on that as to whether he should be reappointed. But right now I have some concerns.

Do you believe that the Fed or Bernanke abused its powers in its role related to other aspects of the financial bailout in its dealing with either the Bush or Obama administrations?

I think that if the Fed indicated that [the Bank of America/Merrill deal] was a marriage that must take place that becomes a problem because these are private companies and the Fed should not be allowed to force them to merge with any entity. That’s what I’m troubled by. There are clearly some companies that are too big to fail but once we make a decision to bail them out, what do we do from this point on? We need to go to find out what we need to do to prevent these things from happening. I agree that some of these companies we could not allow to go under but what are we doing to correct that?

The Obama administration is proposing that the Fed’s powers should be expanded to oversee other financial institutions that may cause systemic risk? Do you agree with that?

I would prefer to reserve my views and feelings until we complete this investigation. We are now finding there are some other people we need to talk to based on information we’ve received up to this point. When we spoke to Ken Lewis, we got one story; when we talked to Bernanke, we got another story. And now we’re being told that Paulson is saying something altogether different. We need to get to the bottom of it before I can make a decision as to whether I would support the Fed having additional power. I’m concerned that there’s a whole lot of back scratching. I’m on your compensation board and you’re on mine. To me, that’s a mess, and until we can sort this out and come up with some definite guidelines, I’m not prepared to say they should have additional power.
What are your impressions of Obama’s proposed financial regulatory overhaul proposal?

I have great admiration and respect for the president, and I’ve tried to be supportive where I can, but I’m not prepared to move forward until we collect additional information. I can then decide whether I’d sign on. He’s a very capable person and providing tremendous leadership, but I’m not sure that additional powers are what the Fed needs.

What specifically is your impression of the proposed Consumer Financial Protection Agency and the recent credit card reform proposals?

I’m not sure we need another agency. I think we need to make certain that the ones that we have are functioning in the manner that they should. Where was the SEC when all this happened? They had a role they didn’t perform. The FDIC raised questions but still went along. So I’m not sure that we need to create new agencies.

What about the credit card reforms the House recently voted for?

I think we have to reform because a lot of people are getting in trouble and don’t even realize they’re getting into trouble. The credit card companies are taking advantage of people so there should be some control over it. The main thing is that young people getting out of college get these cards and ruin their credit as a result. They have no jobs but still have these bills to pay. These things have to be put it check because they’re ruining their credit for life.

Minorities have had higher relative foreclosure rates or have been greater victims of subprime lending and other financial malfeasance. Should there be targeted measures to protect black consumers, investors, home buyers and homeowners?

We have to come up with something because of the number of foreclosures that are in the black community lets you know that there’s something rotten in the cotton. It says we must look at things differently because this is not an accident or a coincidence that all these people are losing their homes. So it’s very clear that a lot of people were put into bad mortgages because they didn’t have a lot of knowledge. These companies targeted them. We have to correct that.
What pieces of legislation will you or the CBC develop to protect African American consumers, investors, and home buyers?

First, we need to look at brokers who will give mortgages to individuals who don’t have jobs or the income to maintain the loans. There is a need for some sort of checks and balances. There have to be some penalties. We have to make sure that it’s considered a crime. If not, they’re going to continue to do it.

How closely are you working with the CBC’s Economic Recovery Task Force on providing opportunities for black financial firms as a part of the PPIP program related to TARP or the TALF program?

Very closely. We’re now looking to see how we can hold some hearings through my committee in conjunction with the CBC to get additional information about what’s really going on to assist minority companies that are being left out. Some are prepared to provide services but can’t get in the door. We want to make it possible for them to get inside.

What needs to be done to strengthen black community banks?

I really feel that we should encourage people to utilize them so that we can keep them open because that has a lot to do with how well your community does. They’re the ones that should be getting the bailouts.

Should they be given them access to TARP money as Rep. Maxine Waters proposes?

Sure, I do. They deserve it more than the others because they’re making loans to people in the community and that, to me, is crucial. Right now these big banks are getting TARP money but still not making the loans.

Bernanke

Federal Reserve Chairman Ben Bernanke says he’s “fundamentally optimistic” about the nation’s economy, expressing confidence that the U.S. will pull itself out of its current financial rut during an address Tuesday at Morehouse College in Atlanta.

While Bernanke says “recently we have seen tentative signs that the sharp decline in economic activity may be slowing,” referring to recent data on home sales, residential building, consumer spending, including new motor vehicle sales, he admits “it’s hard to forecast the economy now because it’s hard to forecast how the financial crisis is going to evolve.”

“Confidence is a key issue,” Bernanke says, explaining being realistic and talking about long-term opportunities are important. It’s been nearly two years since the housing market began its decline, sending a shockwave throughout the financial markets that worsened last fall when several major financial firms toppled or neared collapse. The problem has grown beyond the nation’s borders, with Bernanke calling the current global financial crisis “very severe.”

The Fed chief, who began by reading from a prepared speech that focused on the ongoing distress in financial markets and the global economic recession, spoke to students, faculty and staff members at Morehouse (No. 3 on the 2008 B.E. Top 50 Colleges for African Americans list). Local business leaders, including former Atlanta Mayor and United Nations Ambassador Andrew Young, were among the 350 people who attended the event, which was closed to the public.

In a question-and-answer format, Bernanke responded to queries from four Morehouse senior economics students, discussing topics ranging from financial bailouts, the mortgage crisis, stimulus packages, consumer confidence, federal financial student loans, and the wealth disparities between minorities and whites.

When asked about the wealth gap between the median black household and white household – where the net worth of an average black family is 10% of the net worth of a white family – Bernanke says the disparity has in part to do with the need to broaden understanding of financial education in minority communities along with the importance of joining the mainstream financial market via establishing a savings account or credit history, something he says all Americans need to do.

Tristan J. Allen, a graduating economics senior who was one of the four student panelists, says he enjoyed participating on the panel but wanted Bernanke to provide a better explanation for why the wealth disparity between the average white households and average minority households exists.

“I wanted to see a more direct answer,” says Tristan Allen, who will be headed to Columbia University London School of Economics as a Thomas R. Pickering Fellow following his graduation.

A number of Morehouse students rely on federal student loans to fund their college education but with existing credit limitations, some are finding their educational pursuits jeopardized.  Bernanke, who says the problem is “serious,” and that credit is necessary to fund education, assured students that Washington is looking to restructure the student loan process that would make it easier for students secure funding for school.  “I think it’s important to find ways to maintain the student loan market,” Bernanke says. “It’s a very important market because educated people are our future.  It’s an investment in human capital.”

Bernanke also says “people ought to go into a profession that they enjoy” and find value in for themselves and their community, instead of just for financial gain.

Overall, Morehouse students and staff found the presentation positive and felt Bernanke answered most of the questions they had.

Chieoke Moore, 21, a junior business major at Morehouse who has a summer internship in PricewaterhouseCoopers’ tax accounting department, believes the panel covered a wide range of topics and that Bernanke answered the responses thoroughly.

Cheryl Allen, dean of the division of business and economics at Morehouse, says Bernanke gave a “great presentation,” adding that as a college professor, she tries to help her students realize benefits from this current financial situation.

“Our students are in the position to come in and be a part of the solution. Even though it’s gloomy, there’s a silver lining,” she says.

Najee Johnson, 20, a junior economics major who will spend his summer working on the campaign of an Atlanta City Council hopeful, also was pleased with the presentation, especially the issues surrounding federal student loan programs. “These are the types of things we need to know because we will be out in the real world,” Johnson says.

Echoing Bernanke’s acknowledgement that t his year’s college students are facing the toughest labor market in 25 years, Keith Hollingsworth, chair of the Morehouse Business Department, says, “For the student who’s about to graduate, its tough economic times. Getting a job is not as easy as it was in the past.”

As a result, a lot of Morehouse students, like Tristan J. Allen, are opting to go to graduate school, Hollingsworth observes, explaining that in the past, 20 to 30 Morehouse students graduating with business and economic degrees were headed to Wall Street to work.  With graduation only a few weeks away, that number has dropped down to 10, he says.  Although Moore and Johnson have lined up paid internship opportunities, many of their classmates haven’t been as fortunate, with the number of students receiving internships for business and economic majors declining as well.

But Hollingsworth is optimistic the economy will turnaround. “My guess is the end of next year.”

Bernanke was appointed Fed chairman in February 2006 and served as chairman of the President’s Council of Economic Advisers from 2005 to 2006.

“This is an opportunity for our students to gain a better understanding of how the Federal Reserve Board and Federal Reserve Bank interact and clarify their role in the economy as a whole,” said Cheryl Allen, dean of the division of business and economics at Morehouse (No. 3 on the BE 2008 List of Top 50 Colleges for African Americans).

Four students, chosen because of their academic performance and their community service work, will query Bernanke on a variety of economic topics during a discussion with students, faculty, and staff. Bernanke, will address “bank mergers, mortgage crises, stimulus packages and consumer confidence,” the school said in a statement.

“It is a once in a lifetime opportunity for our economics students, with Mr. Bernanke’s background as an economics scholar and professor,” Allen said.

The event isn’t open to the public.

Deborah Creighton Skinner is the editorial director at BlackEnterprise.com

We just had a terrific conversation with Ben Bernanke, Sheila Bair, and our entire regulatory group to talk about progress that we’re making on the economy. And I wanted to just give you a little bit of a sense of the efforts that we’ve been making in stabilizing the financial markets.

And I want to thank SEC Chair Mary Shapiro, as well as Comptroller of the Currency John Dugan, for joining us. They weren’t with us the last time we met.

We discussed ongoing stabilization of the financial system and the steps that have already been taken. I spoke yesterday about the progress that’s been made in the housing market. As a consequence of some excellent work by Ben and some coordinated activities between the various agencies, what we’ve seen is mortgage interest rates go down to historic lows and we’ve seen a very significant pick-up in refinancings. That has the effect of not only putting money in the pockets of people but also contributing to stabilization of the housing market.

We discussed the public-private investment mechanisms that we have set up so that we can start getting some of these toxic assets off the books. And all the agencies here have been involved in further refining the ideas and making them work effectively, and we feel confident that even as we’re dealing with the problems within the banking system, that we’re also addressing some of the problems in the non-bank financial system that was such a huge proportion of our credit flow when it came to things like auto loans and credit cards and so forth.

We feel very good about the progress that we’re making in unlocking lending in some particular markets, for example the small business area. Some of you will recall that a couple of weeks ago we made a presentation about how we were going to help thaw lending to small businesses, and I’m pleased to discover that because of our actions we’ve seen a 20 percent increase in the largest SBA loan program in the last month alone.

And what that means is that small businesses are starting to get money that allows them to keep their doors open, make payroll, and that is going to contribute to our overall economic growth, as well as help make sure that people are able to keep their jobs.

And we have also seen this month people starting to get their first checks in terms of the tax cuts that were initiated through the recovery package. And when you combine it with the other efforts that are being made across the country for infrastructure projects, for the kinds of innovative energy programs that were part of the recovery package, what you’re starting to see is glimmers of hope across the economy.

Now, we have always been very cautious about prognosticating and that’s not going to change just because it’s Easter. The economy is still under severe stress and obviously during these holidays we have to keep in mind that whatever we do ultimately has to translate into economic growth and jobs and rising incomes for the American people. And right now, we’re still seeing a lot of job losses, a lot of hardship, people finding themselves in very difficult situations either because they’ve lost their home, they’ve seen their savings deteriorate, and they’re still at risk of losing their jobs.

So we’ve still got a lot of work to do. And over the next several weeks you will be seeing additional actions by the administration. What I just wanted to emphasize today, and I think that Ben Bernanke and Sheila Bair and our economic team as a whole would agree, we’re starting to see progress. And if we stick with it, if we don’t flinch in the face of some difficulties, then I feel absolutely convinced that we are going to get this economy back on track.

All right? Thank you very much, guys.

Q Is it still going to get worse before it gets better?

THE PRESIDENT: Thank you, guys. Appreciate it.

Q Sir, are you saying the recession is abating?

THE PRESIDENT: I’m saying we’re seeing progress.

Q You’re saying what?

THE PRESIDENT: I’ve said that we’re seeing progress.

Okay, thank you, guys. Have a wonderful holiday.

Q Thank you, sir.

Q When is the dog coming?

THE PRESIDENT: Oh, man, now, that’s top secret. (Laughter.) That’s top secret.

Q Exactly.

THE PRESIDENT: Oh, no, no, this is tightening up. Any of you going to be at the Easter Egg Roll?

Q Oh, yes.

THE PRESIDENT: That’s big. (Laughter.) That’s big. So we look forward to seeing you on Monday. Thanks, guys.

Q Thank you.

(Source: White House)

From left, U.S. Treasury Secretary Henry Paulson, Federal Reserve Bank Chairman Ben Bernanke, and Federal Deposit Insurance Corp. Chairman Sheila Bair testify before the House Financial Services Committee today. (Source: Getty Images)

In prepared testimony to the House Financial Services Committee oversight hearing on the Troubled Asset Relief Program, Paulson said that the program has helped “prevent the collapse” of the U.S. financial system, but there’s still work to be done.

“There is no playbook for responding to turmoil we have never faced,” said Paulson. “We adjusted our strategy to reflect the facts of a severe market crisis always keeping focused on Congress’s goal and our goal – to stabilize the financial system that is integral to the everyday lives of all Americans.”

Members of Congress took Paulson to task on recent changes he made to TARP, expressed their concern about his lack of consistency, and questioned his reasons for not supporting a bailout to automakers.
Also at the hearing were Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair.
Last week, the Bush administration abandoned the original strategy behind the rescue. Instead of stabilizing the financial system by buying bad assets from financial institutions, the centerpiece of the original plan, the government is now focusing TARP on putting billions into banks to boost their capital and bolster lending to customers.
“We recognized that a troubled asset purchase program, to be effective, would require a massive commitment of TARP funds,” Paulson said. “It became clear that, while in mid-September, before economic conditions worsened, $700 billion in troubled asset purchases would have had a significant impact. Half of that sum, in a worse economy, simply isn’t enough firepower. If we have learned anything throughout this year we have learned that this financial crisis is unpredictable and difficult to counteract. So early last week, we concluded it was only prudent to reserve our TARP capacity, maintaining not only our flexibility, but that of the next administration.

Several members of Congress including Rep. Barney Frank, chair of the House Financial Services Committee expressed concern that the $700 billion given to the Treasury Department isn’t being used appropriately and that the businesses and individuals who need it most do not have access to bailout funds.

“I have serious concerns about the improvised and ad hoc nature of Treasury’s implementation of the Capital Purchase Program and other elements of the TARP,” said Rep. Spencer Bachus (R-AL), a ranking member on the committee in his opening statement. “We all understand that when conditions on the ground change, policymakers must be agile enough to adjust to those changed circumstances.  But changing too quickly, without adequately explaining why you’ve changed or what you’re going to do next, risks sending mixed signals to a marketplace that is in dire need of certainty and a sense of direction.”

Rep. Carolyn Maloney (D-NY), vice chair of the joint economic committee, and Rep. Maxine Waters (D-CA), chairwoman of its Subcommittee on Housing and Community Opportunity chastised Paulson for funding mergers and acquisitions and not getting credit out into the communities.

“The fact that you ignored the direction that this Congress gave you amazes me,” said Waters, who said she had faith in Paulson’s ability to help out homeowners, but is now disappointed that he did not utilize his authority.

Bernanke also defended results of TARP. He cited the distribution of funds to nine banks, a move by the FDIC to extend insurance guarantees to certain transactions that TARP was working.

“These actions, together with similar measures in many other countries, appeared to stabilize the situation and to improve investor confidence in financial firms,” said Bernanke in his testimony. “Going forward, the ability of the Treasury to use the TARP to inject capital into financial institutions and to take other steps to stabilize the financial system–including any actions that might be needed to prevent the disorderly failure of a systemically important financial institution–will be critical for restoring confidence and promoting the return of credit markets to more normal functioning.
Paulson also told Congress that the administration remains firmly opposed to using any part of the financial bailout fund for a $25 billion rescue package for the Big Three automakers.
“There are other ways” to help battered automakers, Paulson said
Auto executives insist they need more emergency loans — on top of the $25 billion already approved — to avert a collapse of one or more of their companies before year’s end.

By definition, a recession is a significant decline in economic activity, lasting for two or more successive quarters of a year, which is normally visible in a decline in real gross domestic product (GDP), real income, employment, industrial production, and wholesale-retail sales. For all of 2007, the economy advanced an anemic 2.2%, the weakest performance in five years. Consumer spending grew 5.5%, the weakest growth since 2003. GDP increased at an inflation-adjusted 2.2% rate compared to an increased 2.9% in 2006. Depressed housing markets, with foreclosures hitting a record high, and elusive bank credit were contributing factors. The subprime mortgage crisis and high prices at the gas pump created a general lack of confidence among consumers.

Even if we’re not officially there yet, a recession is inevitable, some economists say. “For the last month, all we’re getting is bad news,” says Gerald D. Jaynes, professor of economics and African American studies at Yale University and a member of the Black Enterprise Board of Economists. “When that happens, everyone starts tightening their belts from companies to households and that pretty much makes the recession inevitable.”

The March 2008 unemployment report was the latest blow, with joblessness rising from 4.8% to 5.1%. Last week, Federal Reserve Chairman Ben Bernanke met with the Joint Economic Committee and the U.S. Senate Committee on Banking, Housing, and Urban Affairs, where he discussed the state of the economy and defended the Fed’s role in last month’s bailout of investment bank Bear Stearns. “Overall, the near-term economic outlook has weakened,” Bernanke told the Joint Economic Committee on Wednesday. “It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly.”

During his testimony, Bernanke also defended the Federal Reserve’s decision to extend a $30 billion credit line to help JP Morgan Chase buy Bear Stearns. “Our financial system is extremely complex and interconnected, and Bear Stearns participated extensively in a range of critical markets,” he said. “With financial conditions fragile, the sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions in those markets and could have severely shaken confidence.”

Jaynes agrees, saying that if Bear Stearns had collapsed, “there would have been a huge panic. The possibility of the downside was just too great to risk.”

Economists are mixed on the effectiveness of other moves the Federal Reserve has made in recent weeks, including the lowering of the discount rate–what it charges to lend money to banks.

“The cuts in the discount rate are designed to reduce mortgage rates and make credit more readily available to ordinary consumers,” says Thomas D. Boston, CEO of EuQuant, an economic and statistical research company in Atlanta, and member of the BE Board of Economists. “However, banks have become so conservative, because of the credit crisis, so the new money made available to them through the Federal Reserve actions is not being loaned out at rates the Fed would like to see. The banks are afraid that they will not have enough cash to meet their internal demands and therefore are reluctant to lend.” The result: “In general, reductions in the mortgage rate have not had a significant effect on investment or on consumer spending,” Boston adds.

The Economic Stimulus Act of 2008 may provide some relief to Americans who receive a tax rebate of up to $600 for singles and $1200 for couples. However, rather than opting to spend it, many Americans may save it or use it to pay down debt–a move that won’t be much help to the economy, Jaynes points out.

A possible bright side could be the economic growth being experienced outside of the U.S., Boston says. “Economies outside of the U.S. are continuing to grow, and they will drag our economy along in the process. In times past, foreign economists relied on the U.S. for growth momentum. The process is reversed today.”