Merrill to shut down subprime lending unit

Merrill Lynch & Co Inc plans to wind down most of its First Franklin subprime mortgage lending unit, responding to continued deterioration in U.S. mortgage markets, business news channel CNBC reported Thursday.

The move could result in the elimination of 400 to 500 jobs starting next week, CNBC reported. Merrill would keep First Franklin's loan servicing business, which could perform well in the current mortgage and housing markets, CNBC said.

Merrill, which ceased originating subprime mortgages on December 28, on Monday said it was "evaluating our continued involvement in this market."

Last year the unit, where losses mounted as demand for loans disappeared, contributed to distress stemming from exposure to markets slammed by the worst housing crisis in decades.

On Monday, Merrill Lynch in its 10-K annual report disclosed that last year it "substantially reduced" U.S. subprime home lending, mortgage purchases and securitization activities as well as extending credit facilities to other lenders.

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After the large amount of foreclosures because of sub-prime loans recently, it is no surprise that the unit of Merrill Lynch has been shut down, if only because of lack of demand. What is somewhat more surprising is that the unit is still losing money, since the collateral for these loans should to be more than what is being loaned.

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Loss of wind causes Texas power grid emergency

A drop in wind generation late on Tuesday, coupled with colder weather, triggered an electric emergency that caused the Texas grid operator to cut service to some large customers, the grid agency said on Wednesday.

Electric Reliability Council of Texas (ERCOT) said a decline in wind energy production in west Texas occurred at the same time evening electric demand was building as colder temperatures moved into the state.

System operators curtailed power to interruptible customers to shave 1,100 megawatts of demand within 10 minutes, ERCOT said. Interruptible customers are generally large industrial customers who are paid to reduce power use when emergencies occur.

No other customers lost power during the emergency, ERCOT said. Interruptible customers were restored in about 90 minutes and the emergency was over in three hours.

ERCOT said the grid's frequency dropped suddenly when wind production fell from more than 1,700 megawatts, before the event, to 300 MW when the emergency was declared.

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It is good to see that such failsafes are built into our infrastructure, but the proximity to disaster that the Texan’s power grid came is disturbing. Although the businesses were compensated, the loss of productivity should not have occurred. A simple combination of a calm night and cool temperatures should not result in loss of power, even for consenting parties with “interruptible” power.

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Assessment Complete

Food prices headed up in '08

Americans who dug deeper into their pockets for groceries last year will face sticker shock again this year when shopping for food, experts said on Thursday.

"There's going to be real food inflation in this country," C. Larry Pope, president and chief executive of U.S. beef processor Smithfield Foods Inc., said at the U.S. Agriculture Department's annual outlook conference.

"I think we need to tell the American consumer that things are going up," he said in a speech. "We're seeing cost increases that we've never seen in our business."

He added that "overall retail food prices for 2008 to 2010 are expected to rise faster than the general inflation rate."

The spike in grains prices stems partly from the growing biofuels industry, especially manufacturers of corn-based ethanol.

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Food may be a relatively small percentage of the average American family's budget, but every small increase makes a difference, especially when more Americans are in debt. If the small amount of biofuels that are currently made make this much impact on food prices, the prices of some foods are likely to be outrageous if biofuels begin to be used more ubiquitously.

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Snail mail gets more expensive

The cost of a first-class stamp will rise to 42 cents starting May 12, the U.S. Postal Service said Monday.

The price of the Forever stamp will go up at the same time, meaning those stamps can still be purchased for 41 cents but will remain good for first-class postage after the rate increase takes effect.

The charge for other services, such as advertising mail, periodicals, packages special services will also change. Changes in the price for Priority Mail and Express Mail will be announced later, the agency said.

Postage rates last went up in May, 2007, with a first-class stamp jumping 2 cents to the current 41-cent rate.

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As more and more standard mail is replaced with Email, prices for traditional mail have risen faster than ever before. Another reason for the increase in stamp prices so recently after the last price hike could be the rising gas prices that may increase operating costs for the USPS.

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Hi-Def DVD battle won, Price war begins

Consumers will be the winners, through better quality home movies and lower prices, when Toshiba finally calls time on its DVD technology, ending a long-running battle to set the format for next-generation discs.

Viewers seeking sharper movies on high-definition DVDs will no longer have to choose between rival incompatible formats. A single format should help accelerate the shift to the new technology in the $24 billion (12 billion pound) home DVD market.

"I would expect a more aggressive push towards Blu-ray in the second half, resulting in more movie content, more stand-alone DVD players, and prices for these players falling to attractive levels by Christmas."

"Prices for players need to fall to $200 and below before they get consideration from the mass market, and I would expect companies would push prices down aggressively now that the uncertainty over the format war is over."

Companies in the Blu-ray camp, which include Apple Inc (AAPL.O: Quote, Profile, Research), Dell Inc (DELL.O: Quote, Profile, Research), Philips (PHG.AS: Quote, Profile, Research) and Matsushita Electric Industrial Co (6752.T: Quote, Profile, Research), could start investing more aggressively in the technology and get a head-start in terms of launching products, analysts said.

Now that the high definition format war is over, Blu-Ray has another problem to worry about: getting people to let go of their cheap dvd players for the currently ridiculously expensive Blu-Ray Players. People will probably wait for the prices to drop before adopting the new format. It is good that the format war is over so that the product can be more widely adopted and used, but it probably won't be mainstream for a while.

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Oil hits $101

NEW YORK (CNNMoney.com) -- Oil prices set an intraday record above $101 a barrel and reached another settlement high Wednesday, as traders took the Federal Reserve's weak economic report as a signal that more interest rate cuts are coming.

Crude prices reached as high as $101.32 a barrel in afternoon trading - crushing the intraday mark of $100.10 reached Tuesday - before settling at $100.74, up 73 cents from the previous top close of $100.01.

The Fed statement fueled perception that it may cut interest rates again to keep the economy afloat, which would also sustain demand for oil, said senior analyst Phil Flynn of Alaron Trading.

"The Fed has voted for bear," said Flynn. "More rate cuts mean a weaker dollar which could mean higher oil prices, higher commodity prices. It was enough to give us a boost."

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Oil recently hit the one hundred dollar mark, and has now reached over one hundred and one. The fact that oil prices rise is shocking, but many people seem to think that it is special the oil prices passed a nice round number like one hundred. The interesting news is that this may be due in part to the interest rate cuts by the fed. The slight amount of inflation caused by lower interest rates could cause oil prices to increase faster than normal.

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Student Loans to Become More Expensive

The credit crunch that rattled mortgage lenders has spread to the education lending market, with dramatic results. If the situation doesn't ease in coming months, student lending experts say, borrowers can expect:

• Higher loan costs.
  
• Fewer lenders, which could mean tens of thousands of college students scrambling at the last minute to find money.
  
• Tougher standards that could prevent some students from borrowing at all.
  

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 This is caused mainly by three factors: defaults on loans are up, much of the investors for the loans have disappeared, and other sources of money are hard to come by. So, even the most reliable and cheap loans have been affected by the sub-prime loan crisis. The connection between normal loans and college loans is to close to separate the college students from the fallout.
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Fed Sees US Economy's Growth Slowing

The central bank said it now sees the economy growing at a rate between 1.3% to 2% this year, down from its previous forecast from October of growth between 1.8% and 2.5% for 2008.

The Fed also said it expects the unemployment rate for the year to be between 5.2% and 5.3%, up from the 4.8 % to 4.9% range previously given. Unemployment stood at 4.9% in January, according to the latest reading from the Labor Department.

In an attempt to ward off a recession, the Fed slashed rates by three-quarters of a percentage point on January 22 following an emergency meeting the day before and followed that with a half-point cut on January 30.

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Although this news is somewhat belated, it deserves some notice, with as large an impact it could have on the US economy. The Government is trying a few different approaches in fighting this recession. In this case, the central bank itself is getting involved by cutting interest rates and risking inflation in return for some way to reverse the newly announced “downturn.”

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