Following the worst downturn in decades, housing is beginning to show signs of a fragile recovery.

To hasten that upturn, Congress last week extended the federal $8,000 first-time home buyer tax credit and added a $6,500 tax credit for the “move up purchaser. This will help sell existing inventory and get the housing market on the move again.

The new legislation signed into law by President Barack Obama allows owners who have lived in a home for at least five years to claim a $6,500 credit if they purchase a new home. Income eligibility limits for both credits were raised to $125,000 for individuals and $225,000 for married couples.  The tax Credit extension has been extended until April 2010.

Fed: Banks Constrict Q1 Mortgage Lending  Carrie Bay | 05.05.09  

Banks continued to tighten lending standards during the first quarter of the year, according to the Federal Reserve™s  senior loan officer survey  published on Monday.The central bank’s first quarter lending review showed that 50 percent of U.S. banks tightened their standards for prime mortgage loans, up from 45 percent at the end of 2008. Sixty-five percent said they constricted requirements on nontraditional mortgages, compared to only 50 percent who did so in the previous quarter.Even with tighter underwriting standards, 35 percent of the banks reported increased demand for prime mortgages. According to the Fed, it’s the first time market demand for these mortgage products has risen since early 2007. The increase coincides with the substantial drop in interest rates for long-term fixed-rate mortgages during the first quarter. Only two of the banks in the Federal Reserve’s study said they are still offering subprime loans.Despite the stiffer standards, more than 70 percent of the banks surveyed told the Fed that the quality of their loan portfolios is likely to deteriorate this year.The central bank’s first quarter survey includes responses from 53 domestic banks and 23 U.S. offices of foreign banks.

Bernanke: The End Is Near

Joshua Zumbrun,  05.05.09, 11:20 AM EDT

If the financial system does not relapse, the economy will return to growth this year, Fed chairman says.

WASHINGTON, D.C. – Testifying before Congress Tuesday morning, Federal Reserve Chairman Ben Bernanke said the Fed expects the economy to return to growth later this year.

The key elements of the Fed’s forecast are expectation that the housing market is stabilizing, that the fall in business investment will slow, and that the actions of the Federal Reserve and the White House’s stimulus package will all contribute to growth.

But, crucially, recovery depends on the health of the financial system. “An important caveat is that our forecast assumes continuing gradual repair of the financial system,” Bernanke said. “A relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall.”

Bernanke addressed Congress just two days before a crucial phase in the government effort to stabilize that system. Thursday afternoon, the Federal Reserve will release the results of the “stress tests” in which the largest 19 banks in the U.S. were tested to see how they would weather a deep recession.

The stress-test results seem unlikely to suggest any bank is in immediate trouble. Bernanke emphasized that “following the announcement of the results, bank holding companies will be required to develop comprehensive capital plans for establishing the required buffers. They will then have six months to execute those plans.” In follow-up questioning from Congress, he said the tests would not show that any banks needed to raise money imminently and that he was hopeful banks would be able to raise any capital they needed in private markets.

Bernanke said the news on the health of the financial system was still mixed. Although many of America’s largest banks reported profits in the first quarter–Bank of America  (  BAC  -news  -  people  ),  Citigroup  (  C  -  news  -  people  ),  Wells Fargo(  WFC  -  news  -  people  )and  JPMorgan Chase  (  JPM  -  news  -people  )–the recipients of $100 billion of TARP money, surprised markets with profits in the first three months of 2009.

Bernanke also noted that demand for several of the Federal Reserve’s emergency facilities, such as the term securities lending facility and commercial paper facility, which provide emergency or short-term financing for businesses, are seeing declining demand. “That’s a good sign that demand for short-term liquidity is diminishing or being replaced by private-sector liquidity,” said Bernanke.

Tempering his optimism, Bernanke noted credit markets indicate that substantial concerns about the banking industry remain. And he said that although mortgage rates are low, mortgage activity depends largely on the massive government support of  Fannie Mae  (  FNM  -  news  -  people  ) and  Freddie Mac  (  FRE  -  news  -  people  ).

It is welcome news that the Federal Reserve expects a bottoming and return to growth during 2009. But unlike some forecasts, including that of the White House, that predict the economy will return to rapid growth following the deep recession, Bernanke expects a sluggish recovery.

The White House anticipates a V-shaped recovery, where, following a sharp decline, the economy has a quick turnaround and a sharp period of growth. Pessimistic economists predict an L-shaped recovery, in which the decline stops but the economy bumps along at a low level for years. Bernanke seemed to throw his support behind an intermediate scenario: a U-shaped recovery, with a gradual, not swift, return to robust growth.

“We expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly. In particular, businesses are likely to be cautious about hiring, implying that the unemployment rate could remain high for a time, even after economic growth resumes.”

The prolonged slack in the job market accompanying a U-shaped recession is also expected to keep inflation under control, Bernanke says. If he’s right, the road to recovery is still fraught with land mines. But at least we’re moving along.

Article courtesy of Forbes.com | click HERE –  http://www.forbes.com/2009/05/05/bernanke-congress-economy-business-washington-bernanke.html

In an effort to boost the economy and jumpstart real estate sales, Congress recently enacted a bigger and better tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence on or after Jan. 1, 2009 and before Dec. 1, 2009.  This tax credit is $500 higher than the home buying incentive that was included in the legislation passed last summer and it does not have to be repaid.  To learn more about the tax credit go the National Association of Home Builders Website located  here.

The Senate  yesterday  approved a revised version of the Emergency Economic Stabilization Act of 2008 in a  74 to  25 vote, clearing the way for full consideration by the U.S. House of Representatives. The House voted down an earlier version of the plan on Monday.

The revised plan, which is designed to shore up the nation’s financial markets, includes a temporary one-year increase in Federal Deposit Insurance Corp. (FDIC) caps for bank and credit union accounts. The cap increases are critical because they increase the funding backstop the public relies upon should their banks fail. The plan also includes extensions on several business tax breaks and adjustments to the alternative minimum tax (AMT) for individual taxpayers. These, as well as the FDIC cap changes, are amendments lawmakers believe will help bolster a smooth approval by the House.

Once approved, the financial rescue plan would allow the government to buy residential and commercial mortgage-related assets, including mortgage-backed securities and loans, in an effort to ease current credit constrictions impacting businesses across all sectors, including the housing market. Provisions to help struggling homeowners avoid foreclosure; increased oversight of the plan; and a limit on compensation for executives of the troubled financial firms that receive assistance; also are included in the revised plan.

C.A.R. and NAR strongly support Congress’s efforts to quickly craft and pass the proposed plan in order to calm the nation’s financial markets and free up credit to both families and businesses.

On Tuesday, NAR sent a Call-for-Action to all REALTORS ®  asking that they urge members of Congress to swiftly take action on the proposed $700 billion rescue plan. C.A.R. also is urging members to respond to the NAR Call-for-Action. Be on the lookout for an e-mail from NAR President Dick Gaylord with more details

Prices have dropped. A lot. But it’s still surprisingly hard to find buyers.

(Money Magazine) — Maybe you’ve started thinking that now you can finally find a buyer for your house. After all, this summer the National Association of Homebuilders asserted that houses were more affordable than at any time during the previous four years. Prices have slid so far that many homes are now within the reach of people who couldn’t buy during the bubble.

Other faintly cheery facts have emerged too. Sales of existing homes were 3% brisker in July than June, and in several metropolitan areas – among them Boston and Denver – the markets.

When examined closely, however, those glimmers of better times ahead seem to fade. Sure, lower prices can help you sell, but you also have to know whether there are enough people who can afford to pay the price you want.

That, in turn, depends on a mix of factors including the financing that buyers can get, whether there are enough of them who want to live where you do, their other housing options and how they feel about investing so much in an asset whose future appreciation is iffy.

“Price is just one of many variables that go into a decision to buy a house,” says real estate analyst Michael Larson of Weiss Research, a Jupiter, Fla. investment newsletter publisher. “Many other factors are overriding price right now. That’s why the market remains challenged.”

The long fall

Price, though, is still the primary measure of affordability for any buyer. And while the median price for an existing house has tumbled 8% from $230,100 to $212,400 since its peak in 2006, according to the National Association of Realtors, many potential buyers still see asking prices as expensive.

And they’re not wrong. That $212,400 house, after all, costs 39% more than it did back in pre-boom 2001 when it sold for about $153,100. Prices in red-hot markets such as Miami became even more inflated during the boom and are still up about twice as high as they were in 2001.

So while homes are selling at a discount, they’re not on clearance – not yet anyway. Peak to trough, the median-priced home nationwide is projected to fall as much as 20%, bottoming out around $185,000 by late 2009, according to a July report from Wachovia.

“Houses may be more affordable, but they will probably be even more affordable next year,” says Nigel Gault, chief U.S. economist at Global Insight, an economic forecasting firm. “So why buy now?”

Crunched credit

The price may be right, but if buyers can’t borrow enough, the house isn’t affordable. Difficulty borrowing is keeping many Americans from buying. “The industry went from little or no credit standards to credit standards on steroids,” says Marc Savitt, president of the National Association of Mortgage Brokers.

According to the Federal Reserve Board, about 85% of lenders, worried about falling prices and rising foreclosures, have stiffened requirements for borrowers in the past three months. Those with a credit score of 600 or lower cannot get loans at all, says Keith Gumbinger of HSH Associates, a mortgage information publisher.

The upshot: 21 million, or 13% of those who have credit records, many of whom would have qualified for mortgages during the bubble, can no longer do so.

Those whose credit scores are high enough to qualify for a mortgage will likely pay more. Fannie Mae and Freddie Mac, which set the lending criteria for most loans, in November will require a 740 score, up from 680 for buyers to escape a surcharge that ultimately increases their interest rate.

As a result, the 33 million Americans whose scores fall between 680 and 740 (roughly 20% of adults with credit histories) may have to pay half a percentage point more to borrow. On a $300,000, 30-year loan, that would add about $100 to a buyer’s monthly payment.

Adios, easy money

Back in the go-go years, lenders fell all over themselves to make no-down-payment loans. Those are gone, and lenders want some skin in the game, at least 5%. But to avoid paying extra, most buyers need the full 20% demanded in days of yore. To buy a $400,000 house, a family would now have to amass $80,000 in cash, up from $20,000 or less a few years ago.

Buyers also face higher interest rates, which allow them to borrow less. In mid-2004 a borrower with good credit could have qualified for a rate of 5.87% on a 30-year fixed $300,000 loan. That translates to a monthly payment of $1,774. Now, with the rate for the same loan at 6.57%, the same monthly payment could support a loan of just $278,500.

Back in the day, option ARMs and other exotic mortgages with low teaser rates helped struggling purchasers stretch to buy houses that they could not otherwise afford. Those deals have largely disappeared.

And while banks once allowed a homeowner’s monthly principal, interest, taxes and insurance (PITI) to make up as much as 45% of a family’s before-tax income, now buyers are restricted to using only 32% for a house payment. If PITI rises beyond that limit, banks consider the loan unaffordable and the family cannot receive a mortgage.

That limit boosts the amount of income a homeowner needs to purchase. Say your house has dropped from $425,000 to about $395,000. A couple of years ago a family needed an income of only $80,000 to buy. Now, even though the house costs less, a prospective buyer must have an income of $92,000.

Less expensive options

Rental prices are looking good in many areas. Christopher Mayer, a Columbia University real estate professor, recently found that in 11 of 16 top cities, renting is a better deal compared to buying than it has been historically.

The extra expense of owning was offset by rising house values – at least a few years ago. Now that new buyers can no longer count on steep appreciation, they have less incentive to buy.

And it’s not as if rents are standing still while your house’s price falls. “Competition from vacant houses or condos that people can’t sell is driving down rental rates,” says Hessam Nadji, managing director of research at Marcus & Millichap Real Estate Investment Services in Encino, Calif.

The big pinch

A house is only affordable if a homeowner can meet its monthly payment and have enough left over to live on. Incomes rose by about 5% in the first half of the year, but few people feel as though they’re better off.

Americans spent an extra $165 billion, or 26% more, on gasoline and oil in the first six months than over the same period last year, and food bills rose by 7%. Without a doubt, most Americans feel pinched.

If you live in an area dominated by financial companies or car makers, two sectors shedding jobs in the current downturn, you may encounter even less appetite to buy.

If the economic turmoil continues, vacation destinations like Las Vegas or Orlando could suffer a drop-off in business that would leave prospective buyers with less in their pockets.

“Not only is the amount of money people have to spend on housing in decline but because a house is a risky asset, the amount they want to spend on it is falling too,” says Michael Englund, chief economist at Action Economics, a forecasting firm.

Buyers being wary

That fear may be the biggest obstacle keeping buyers from knocking on your door. During the boom, people were willing to spend as much as they did on housing because they thought that they were putting away money for retirement or college. And they could draw on their equity for renovations or other goodies.

If homes rose in value faster than stocks, as they did for a few years, homeowners could console themselves that forgoing 401(k) contributions for high mortgage payments was a sensible strategy.

Few these days think of real estate as a safe place to invest, however. According to Gallup, only 27% of the population believe a home is their best long-term investment, down from 50% in 2002.

“Nearly a quarter of potential buyers are on the sidelines waiting for some form of encouragement,” says Walter Molony, spokesman for the National Association of Realtors. Maybe they’re looking for some sign that houses have truly become more affordable. The price declines haven’t done that yet.

eems to be turning around.

by Gregory Zuckerman and Karen Damato
Tuesday, September 23, 2008provided by

Back from the brink.

The U.S. financial system last week was rocked by the biggest crisis since the 1930s — and the federal government responded with a multi-pronged intervention that is the most sweeping since the New Deal.

Over the course of just three days, Americans were shaken to see venerable investment bank Lehman Brothers Holdings file for bankruptcy protection, Merrill Lynch abruptly sell itself to Bank of America and the U.S. hurriedly launch an $85 billion bailout of American International Group, one of the world’s largest insurers. Just one week earlier, the government had bailed out mortgage giants Fannie Mae and Freddie Mac.

The turmoil has people worrying about the safety of their brokerage accounts, their insurance policies and even their “safe” stashes of cash — as the problems at Lehman produced losses for investors in at least one money-market mutual fund.

In the midst of the financial-industry carnage, the Dow Jones Industrial Average was down more than 8% for the week at one point midweek.

But stocks soared Thursday and Friday as the government announced a massive effort to try to keep the financial system from unraveling. Key components: a plan to help financial institutions unload toxic mortgage assets and new federal insurance for money funds.

How did all this happen and where do we go from here? We tackle those questions and others below:

Q: What’s behind the financial crisis?

A: The latest woes are a continuation of the housing meltdown and the resulting “credit crisis” that have been bedeviling the U.S. Home prices have been tumbling and foreclosures soaring since the bursting of the housing bubble just over a year ago — and the effects extend throughout the economy.

Banks have taken huge write-downs on bad mortgages and become stingier with new loans. Moreover, many problem loans were sliced up and resold to investors as mortgage-backed securities and other products, producing losses for a host of banks, securities firms and insurance companies.

Other companies, including AIG, have suffered big losses on contracts they sold providing insurance against losses on mortgage-related investments.

Q: How could conditions deteriorate so quickly that companies rushed to sell themselves or couldn’t survive without U.S. help?

A: Part of the problem has been a crisis of confidence. Lending markets that form the backbone of the capital markets froze up. Many financial firms had become so big and their holdings so complex that no one was sure what their exposure was to the mortgage market. In recent weeks, fear that housing-related losses would sink even large firms made it impossible for some companies to raise the cash needed to support their operations.

In recent years, many companies, like many families, loaded up on debt — which magnifies profits when times are good but also increases losses when things go sour.

Recently, giant financial firms have tried to get their houses in order by “deleveraging” — selling off assets, reducing debt and building up capital. But widespread efforts to sell distressed securities only push prices down further, leading to further write-downs that leave companies desperate for even more capital.

Q: What does this financial-industry meltdown mean for the broader economy?

A: “Companies and consumers alike are finding it more difficult to borrow,” which likely will crimp business activity, says Jeff Fishman, who runs JSF Financial, a Los Angeles-based financial-advisory firm. “This could lead to an uptick in bankruptcies, which we’ve already seen, and the attendant job losses, cuts in consumer spending and confidence.”

And remember that the recent crisis on Wall Street follows months of debate among economists on whether the U.S. economy is already in a recession or on the verge of entering one.

Q: How would the government’s new plan stem the crisis?

A: The plan likely will involve spending hundreds of billions of dollars to buy distressed mortgage investments from financial institutions at deeply discounted prices. That should add a dose of confidence to frozen lending markets by assuring participants that at least one large investor — the U.S. government — stands ready to buy these assets. Congress has signaled that it is open to working with the administration; approval could come this week.

Q: Will that intervention turn things around?

A: The hope is that it will prevent the crisis from spinning out of control and will thus buoy the economy.

A revival of the credit markets and a bottoming of the housing market are keys to a revival. The government’s debt plan may reduce the level of fear in the market, enabling the credit markets to operate properly. But such a plan wouldn’t do anything about the excess supply of homes and the large number of mortgage borrowers in dire straits.

Q: So what’s the outlook for the economy and the stock market over the next few months?

A: Housing could take many months to bottom, and then rebound, analysts say. Meanwhile, economies around the globe could weaken dramatically, something many investors aren’t counting on.

Still, investors shouldn’t get too gloomy.

The stock market’s decline of about 20% from last fall’s peak is close to the average fall for the market in periods of recession, notes Citigroup strategist Tobias Levkovich. “One can suggest that a bottom is near,” he says.

Adds Peter Brodie, director of investments at a unit of Bryn Mawr Trust: “History has shown that it is crises such as these that create the extreme pessimism required to set the stage for meaningful market recoveries — and we feel that the resiliency of our economy will again be exhibited as we enter ’09.”

Q: Is there any other good news out there?

A: Yes. The recent collapse of energy and commodity prices will make it easier for consumers to fill up their gas tanks and heat their homes. It also will reduce pressures on many companies.

At the same time, inflation fears are subsiding, as the consumer price index fell 0.1% in August, the first monthly fall in almost two years. That all makes it virtually certain that the Federal Reserve won’t raise interest rates any time soon, and might even cut them.

Moreover, hard as it is, investors should work to see the bright side of low stock prices. “Only those who will be sellers of equities in the near future should be happy at seeing stocks rise,” famed investor Warren Buffett noted in 1997. “Prospective purchasers should much prefer sinking prices.”

Video will educate consumers about the importance of the GSEs

LOS ANGELES (Sept. 4) “ The CALIFORNIA ASSOCIATION OF REALTORS ® (C.A.R.) today released œFannie and Freddie: Why They Matter to You, a new video featuring C.A.R. Executive Vice President Joel Singer. A former economist, Singer is a real estate industry veteran and has held the Association’s top staff position since 1989.

In œFannie and Freddie: Why They Matter to You, Singer explains the often confusing but critical role Fannie Mae and Freddie Mac play in the housing market.

œCalifornia™s housing and real estate market is currently in a precarious state, Singer said. œWe have just recently begun to see an increase in home sales, and the most significant, reliable source of home loans in California today are either financed by Fannie Mae or Freddie Mac. Their role is to provide continuous and competitively priced capital to the mortgage markets in both up and down markets and to promote homeownership and affordability.

œWhen private lenders have not been able to participate in the market, Fannie and Freddie historically have been there, he said. œThey™ve been there with affordable mortgages and they™ve also been there with innovative programs, particularly for low-income and first-time buyers.

C.A.R. is concerned that the critical countercyclical role which Fannie Mae and Freddie Mac are currently playing in today™s housing market often is misunderstood or misrepresented. C.A.R. is urging lawmakers to support Fannie Mae and Freddie Mac in their current role, and to urge the U.S. Treasury Dept. to exercise restraint in its new authority to purchase equity in Fannie and Freddie.

œIf Fannie and Freddie were not in the marketplace, we would see a disastrous loss in housing activity, Singer said. œThat loss would extend to the economy, and opportunities for homeownership would be very much reduced. Wall Street and financial institutions have long seen Freddie and Fannie as competitors. They™re able to charge much more in those areas where Fannie and Freddie can™t participate — for example, high-cost loans.

œConsumers need to keep involved in the political process and the public policy process and urge their elected representatives to be supportive of Fannie and Freddie, he said. œSimply put, California™s housing market needs Fannie Mae and Freddie Mac to continue in their current role of guarantying a constant and reliable supply of capital.

NEW YORK – Wall Street entered into another round of speed dating, with bankers representing Morgan Stanley and Washington Mutual scrambling to put together deals in the biggest realignment of the financial industry since the 1930s.

Once vaunted investment banks like Bear Stearns, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. have lost their independence or been toppled at a breath-taking pace. And for a time on Thursday, fears intensified that the spreading credit crisis threatened to drag down the remaining global financial institutions and Main Street banks alike.

Shares of financial stocks initially plunged, then recovered as part of a dramatic afternoon reversal for most stock indexes after CNBC reported that Treasury Secretary Hank Paulson might back the creation of a new Resolution Trust Corp. to soak up bad loans and defaulted mortgages, their shares reversed course. The RTC was created by the government during the savings and loan crisis of the 1980s.

Treasury officials declined comment about whether that report was accurate.

Morgan Stanley slumped more than 46 percent in early trading as investors fretted about its ability to quickly find a buyer or cash infusion from a foreign investor. Rival Goldman Sachs Group Inc. skidded 25 percent.

Morgan Stanley shares rallied to close up about 4 percent while Goldman Sach’s stock was lower by almost 6 percent. And Washington Mutual Inc. shares soared more than 48 percent.

Sen. Charles Schumer, D-N.Y, put forth his own proposal, calling for the government to lend struggling banks money in exchange for an equity stake. In return, banks would back legislation allowing homeowners who have declared bankruptcy to renegotiate their mortgages in order to keep their homes. Schumer contends an RTC-like entity could find it difficult or impossible to sell off complex mortgage-related investments.

That might provide the lifeline needed to help prop up the ailing banks and investment banks, said Anthony Sabino, professor of law and business at St. John’s University. He notes, however, that CEOs might still go ahead with deals they believe make sense.

“This is history repeating itself,” he said. “The debacle of the S&L crisis created the RTC, and we are faced with a similar crisis because we didn’t learn from history. This is yet another lifeline.”

But the question is whether such a plan could be turned into reality soon enough to take the pressure off Morgan Stanley and Goldman Sachs to do deals.

“People are finally realizing that we are probably in the worst financial crisis since the Depression,” said Alfred E. Goldman, chief market strategist for Wachovia Securities, a 49-year veteran of Wall Street. “We’re in a period of excessive fear.”

Recent market turmoil has heightened fears that investment banks, which rely heavily on short-term borrowing to finance their proprietary trading and lending businesses, need to find more stable sources of funds to ride out market volatility.

Some investors believe that the investment banks must combine with an institution that offers a stable base of bank deposits. That was one of the reasons Merrill Lynch agreed to be acquired by Bank of America Corp. earlier this week.

Economists including former Federal Reserve Chairman Alan Greenspan and investors like Wilbur Ross predict more banks will fail in a shakeout reminiscent of the Great Depression. After the stock market’s crash in 1929, 9,000 institutions failed and $140 billion of deposits were wiped out in the following decade.

The government adopted policies to protect bank depositors since then and government agencies have already closed nearly a dozen insolvent banks while making provisions to reopen them under new ownership in recent months.

Global banks and brokerages have written down more than $350 billion of distressed investments since the crisis began last year, and now bankers are looking to avoid becoming another statistic.

Morgan Stanley, the No. 2 U.S. investment bank, is in talks with a number of potential suitors and investors to help it survive, according to people familiar with the situation who asked not to be identified by name because the discussions were still ongoing.

John J. Mack, chief executive of the 73-year-old securities firm, on Thursday told the company’s 48,000 employees in a townhall meeting that he’s doing everything possible to keep the embattled bank afloat. Mack, a day earlier, said his bank was “in the midst of a market controlled by fear and rumors.”

He made a round of telephone calls late Wednesday to strike a deal or raise cash in a bid to calm investors and prevent more damage to Morgan Stanley’s free-falling shares, these people said. The stock has plunged about 76 percent this past week, and the market remains worried that the company faces collapse if Mack fails to secure some kind of arrangement.

Morgan Stanley has opened up talks on a number of fronts. Discussions are taking place with deep-pocketed investors such as China’s sovereign wealth fund and state-owned bank Citic Group, and the Singapore Investment Fund about a possible cash infusion, people familiar with the discussions said.

There are also advanced negotiations with executives from retail bank Wachovia Corp., one person said. Other suitors could include big global banks such as Britain’s HSBC Holdings PLC and Germany’s Deutsche Bank.

Wachovia declined to comment about a potential deal. Spokesmen for GIC and Citic could not immediately be reached for comment.

Meanwhile, Seattle-based Washington Mutual, which has lost billions and seen its shares plummet due to subprime mortgage exposure, has hired Goldman Sachs to contact potential bidders ” a list that so far includes Wells Fargo & Co., JP Morgan Chase & Co. and HSBC.

And in London, Britain’s Lloyds TSB Lloyds TSB announced a $21.85-billion deal to take over struggling HBOS PLC, Britain’s biggest mortgage lender.

“This isn’t just a U.S. problem, it is a global problem,” Stu Schweitzer, JPMorgan Chase & Co.’s global markets strategist told the bank’s institutional clients on a conference call this week. “The economy has its problems, the financial system has its problems, we can believe in Armageddon or believe that in the end, step by step and trial and error, the authorities will get it right.”

The U.S. government, which helped organize an $85 billion bailout of insurer AIG on Tuesday, also sought to break the grip of worsening global credit crisis by pumping billions into financial markets in a concerted action with central banks of other countries. The Federal Reserve Bank of New York, in two operations, injected $55 billion into temporary reserves in the United States, a move aimed to help ease a strained financial system in danger of freezing up.

The move helped steady Wall Street after the previous session’s massive rout. However, market participants still moved into safe assets such as gold and Treasury bills, a sign that they remain skittish during the most troubling period for the world’s financial system in most investors’ memory.

_____

AP Business Writers Jeannine Aversa in Washington, Michael Liedtke in San Francisco, and Tim Paradis in New York contributed to this report.