“Eye on The Economy” with Adam Perrotta

As top financial executives come to Washington hat in hand to appear before the House Financial Services Committee, they have some explaining to do. Since taking hold of hundreds of billions of dollars in taxpayer aid under the Trouble Asset Relief Program (TARP) last fall, the firms have come under heavy scrutiny for using the funds for purposes other than lending, including junkets and massive bonuses to top brass. Now, before handing out the remainder of the TARP funds, the Treasury is re-jiggering the program strategy and Congress is making banks eat a little crow on behalf of the American taxpayer.

Speaking of taxpayers, it looks as though the financial stimulus is nearing the end of its contentious run through Congress, with House and Senate negotiators having trimmed the bill to some $790 billion. Each chamber passed a different version of the bill, and it now must be reconciled into one package. A key aspect of the negotiations is keeping happy the three moderate Republicans—Arlen Specter of Pennsylvania, along with Maine’s Susan Collins and Olympia Snowe—who crossed party lines to vote for the Senate bill, the only Republicans to vote for the bill in either house. President Obama has said he wants some version of the bill on his desk for signing by Monday.

Meanwhile, the U.S. budget deficit continues to grow, jumping by $83.8 billion in January. The increase brings the total deficit for the first four months of the fiscal year to $569 billion. By way of comparison, 2008’s first four fiscal months saw a surplus of $89 billion. The government’s massive efforts to stabilize the financial system and jump start the economy account for most of the shortfall, combined with dwindling tax revenue as corporate profits plummet and the employment sector hemorrhages jobs. And it’s only going to get worse; economists predict the deficit to continue to grow throughout the year, with the Congressional Budget office projecting a $1.2 trillion hole for all of fiscal 2009.

In the single-family home market, demand for mortgage applications dipped by nearly 25 percent last week, sinking to an eight-year low, according to the Mortgage Bankers Association. Aside from much tighter credit restrictions and a lower overall availability of mortgages, prospective buyers who would qualify for a home loam are remaining on the sidelines waiting to get in at the bottom as prices and interest rates continue to drop. Home prices are off at least 25 percent from their peak of mid-2006 and rates are still sinking. Additionally, the Treasury Department has proposed injecting funds into the housing market to lower rates further and provide a $15,000 home-buying tax credit. For now, it seems those who are inclined to jump back into the housing market are waiting for the best possible time to do so.

(Adam Perrota is a news writer with Commercial Property News, an MHN' sister publication)