The United States Federal Reserve chairperson, Ben Bernanke, last week called for further action to prevent the US housing slump forcing more people out of their homes.
“This situation calls for a vigorous response,” Bernanke said, adding that in spite of relief efforts from the mortgage industry and the government, repossessions and late payments on home loans were likely to rise “for a while longer”.
Bernanke’s comments caused the dollar to weaken further against the euro and the yen and depressed US stocks, with the Dow Jones industrial average falling more than 1% to 12 113 by midday last Tuesday.
The Dow was also punished by fears over the future of Citigroup, the US banking giant that has been battered by the sub-prime fiasco and the credit crunch.
Analysts at Merrill Lynch sparked the sell-off by saying the bank could be forced to write down a further $18-billion in bad debts. Shares then continued to fall to a nine-year low on reports that powerful Arab investors believe the bank cannot survive without further cash injections.
Samir al-Ansari, chief executive of the Dubai sovereign wealth fund, said at a private equity conference that it would take more than the combined efforts of the Gulf’s wealthiest investors — who have pumped billions of dollars into the bank in recent months — to save Citi.
The overall economic picture in the US is gloomy. Rising repossessions threaten to make the problems in the housing market worse, pushing the US economy further towards recession, Bernanke said. — Â