News & Current Affairs

July 20, 2009

Enduring allure of Egyptian belly dance

Enduring allure of Egyptian belly dance

Ahlan Wa Sahlan belly dance festival

The Ahlan Wa Sahlan festival has been a big hit this year

Hundreds of women of all nationalities sway their hips and twirl in time to the beat of a drum in a hotel ballroom by the pyramids in Cairo.

Belly dancing is said to have been practised in Egypt since Pharaonic times and now it has caught on around the globe.

It is well-established in Europe and the US and has recently spread to Asia. This year dozens of dancers travelled from China for the Ahlan Wa Sahlan belly dancing festival.

“Because this is the land of dance, women have to come!” declares Raqia Hassan, the festival organiser.

“When she comes she can meet famous dancers and musicians. She can see the pyramids. Anyone who comes to Egypt one time, she cannot stop coming back.”

Japanese belly dance fan

Safa Bakr’s shop attracts women from all over the world

Raqia, who has taught many belly dancing celebrities, leads her large class through the basic moves of the dance putting together a routine.

“It’s fun and you can do this at any age,” says Ewa Horsfield from London. “You can express your own personality. It’s an individual dance. You just listen and respond to the music.”

Many speak of the fitness benefits of belly dancing.

“In China all ladies like for their health,” says Angel from Shanghai.

“This kind of dance began here. Here teachers [are] very, very good so all Chinese ladies want to come.”

Contradictions

Belly dancing is big business in Egypt thanks to the global market.

Designer, Safaa Yasser Bakr, runs a belly dancing costume shop in the historic Khan el-Khalili bazaar.

She helps a Brazilian woman try on a sky-blue sequinned bra and a matching skirt with a split up one side.

“In one show big stars change costume many times,” she tells her. “You need maybe five different pieces.”

Nowadays Safaa sells most of her alluring outfits to foreigners.

Safa Yasser Bakr

Safa sells her wares in Khan el-Khalili – Cairo’s Islamic heart

“I see people coming from France, Italy, United States, Argentina, Spain, Japan,” she says.

But in Egypt at large, many experts fear the dance is losing its appeal.

Society has become more religious and conservative over the past generation and belly dancing is not considered a respectable profession.

“I don’t like belly dancing. I don’t like to see a woman half-naked dancing and moving her body like that,” says one man on the street in central Cairo.

“It has a kind of sexual movement. That’s why I don’t like to watch it,” adds his friend.

An older passer-by remembers the famous dancers of the 1960s with affection but says he would not let his wife or daughters dance in public today.

“I liked the old belly dancer because you could not see a lot of her body,” he remarks. “They were very respectable – not like the new ones now.”

Enduring art

Dance historian, Mo Geddawi, accepts belly dancing is facing a challenging time in Egypt but says this must be seen in perspective.

“Forget about different governments and religion,” he says. “When Christianity and then Islam came the dance was taboo, but people continued to dance.”

“Sometimes in public it is less but the dance never died.”

For now though international devotees help to ensure the dance goes on.

Diana Esposito from New York came to Cairo on a scholarship to study the social and economic reasons for its decline but has become an accomplished belly dancer herself.

“The first time I saw it I thought the movements were so sensual,” she says. “I decided to try something new and it became an addiction.”

“I don’t see the dance being done properly anywhere else in the world. That’s why everyone flocks here – this is the capital of belly dance.”

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July 19, 2009

Sink or swim in modern China

Sink or swim in modern China

Chris Hogg heads to the small Chinese village of Zhushanxia, 200km from Shanghai, to see how lives have been shaped by the economy under communist rule, the recession and the country’s economic recovery.

A farmer sells vegetables at a wholesale market on March 22, 2005 in Hefei of Anhui Province, China

China’s economic roller-coaster has divided communities and villages into those who have sunk financially, and those who managed to swim

Huang Jiao Ling lives at the end of a long dusty road.

Mobile phone numbers are daubed all over the walls of her home and those of her neighbours.

It is like a strange kind of mathematical graffiti, but the numbers are, in fact, advertisements for people offering goods and services.

In modern China, it seems everyone has something to sell.

Huang Jiao Ling, too, is an entrepreneur. She is in her 50s, but she looks younger.

In her front garden, where others might have planted vegetables, she has built a small workshop.

Inside, the walls are unfinished and the floor uneven, but there is just about enough room for a work-bench and a handful of basic machine tools.

Churning out widgets

On the floor are cardboard boxes filled with piles of tiny metal widgets.

They are simple to make – her husband sits at the bench turning them out rapidly by hand.

Fruit seller in China

Many Chinese run their own small businesses in order to get ahead

A few feet away, his bicycle-taxi is parked just inside the front door of the house.

The machine work is a lot less tiring than pedalling passengers around, but he still keeps the bike.

It is useful, he says, to supplement their income in leaner times.

The Huangs sell the boxes of widgets to the factory where Huang Jiao Ling has a full-time job.

For a while this year they had to shut the workshop as demand dropped, but now the machines are humming again.

They have two children, because if you live in the country and your first child is a girl, you are allowed to have another one.

The girls go to very good schools, the best Huang Jiao Ling can afford.

She spends more than half her income on school fees.

“We have to think of their future,” she tells me.

“It’s a Chinese tradition. Parents always think of their children, and when the parents get old, their children will look after them. It’s the same for every generation.”

Yu Feng Guo is Huang Jiao Ling’s brother-in-law.

She is doing well for herself in China’s new modern market economy, but he has been left behind.

He used to work in a state-owned brick factory.

Different lifestyles

When the economic reforms began 30 years ago he watched as some of his co-workers left their jobs to start up their own small businesses, many of them selling prawns or fish by the side of the road.

He decided to do what he thought was the right thing, what the communist party would expect of a loyal worker in a state-owned enterprise – he stayed.

Eventually, the brick factory went bust and he was out of a job.

Rice paddy field

Agriculture provides an income for many rural Chinese

Now, dressed in a shabby khaki jacket, he works as a security guard in an open-air food market.

Those early entrepreneurs who had left his factory to try their luck in the fledgling market economy are now much richer than him and to his family this seems unfair.

“Thirty years ago everyone in the village was poor,” his son tells me.

“Now the difference in lifestyle between the rich and the poor in our village is huge.”

There is an implicit bargain in modern Chinese society between the leaders and the led.

Beijing tells its people “we will give you opportunities” – to earn more, to enjoy a better standard of living than your parents did.

But you, in return, will behave yourself.

Back on track

In Zhushanxia village quite a few cars can be seen bumping along past the fields, something you would not have seen 30 years ago.

If you have got used to having more, whether it’s a car, or a bigger house, or a more expensive school for your child, you have more to lose when times get tough.

That is why it is so important for the government to get the economy back on track.

When it first faltered, when factories started laying off workers, there was a risk that they would start to feel the government was no longer keeping to its side of the deal, so why should they?

So in Beijing, of course, there will be relief that a recovery appears to be under way.

But the next challenge for the government will be to do more to try to ensure that everyone shares the benefits.

Huang Jiao Ling is happy her workshop is busy again, but still nervous about the future.

So she, like most other Chinese, is saving as much of her income as she can.

Her brother-in-law Yu Feng Guo, has no idea how he will be able to save enough to secure a state pension on his meagre wages from his unstable job.

He and others like him will be looking to their leaders for reassurance that they will be cared for as they approach old age.

But that will costly and complicated. Fixing the economy may prove to have been the easy part.

December 30, 2008

US consumer confidence plummets

US consumer confidence plummets

Shoppers at a J C Penney store

US consumers are increasingly gloomy about economic prospects

US consumer confidence has unexpectedly dropped to a record low in December, in the face of the US economic slowdown and continuing job cuts.

The index fell to 38, from November’s revised 44.7 figure, though it had been expected to rise.

The dismal job market appears to have outweighed falling oil prices in consumers’ minds, analysts said.

Meanwhile, October house prices in 20 US cities fell by a record yearly rate, according to a key home price survey.

Falling confidence

According to the Conference Board, those respondents saying jobs were “hard to get” rose to 42% in December – up from 37.1% in November, while those claiming jobs were “plentiful” dropped to 6.2% from 8.7%.

The proportion of consumers anticipating an increase in their incomes decreased to 12.7% in December from 13.1% in November.

And those claiming business conditions were “bad” increased to 46% in December from 40.6% in November, while those saying business conditions were “good” declined to 7.7% from 10.1%.

The survey is based on a representative sample of 5,000 US households.

Separately, house prices in 20 US cities fell by a record annual rate of 18.04% in October, according to the The S&P/Case-Shiller home price survey.

Record falls

The index shows that prices of homes is continuing to fall across the US with many areas showing record price falls.

David Blitzer, of Standard & Poor’s said that “home prices are back to their March 2004 levels”.

October’s annual fall was more than had been expected by analysts, who had been predicting a 17% drop.

The city which showed the biggest price-fall was Phoenix, where home prices plunged 32.6% in the year to October – followed by Las Vegas, which was down 31.7% and San Francisco, down 31%.

Overall, house prices for the 20 metropolitan areas in the survey fell 18.04% in the year to October, the largest drop since its inception in 2000.

The annual fall in prices for the top 10 metropolitan areas was 19.06%, its biggest decline in its 21-year history.

Both indices have now recorded annual declines for 22 consecutive months.

Prices in the 20-city index have dropped more than 23% since their peak in July 2006, while the 10-city index has fallen 25% since its peak in June 2006.

None of the 20 cities saw annual price gains in October – for the seventh consecutive month.

‘Decline slowing’

Wall Street’s reaction to this latest housing survey was initially muted, as November figures on the depressed state of the housing market have already been published.

Last week, figures from the Commerce Department showed that sales of new homes in the US had slowed to their lowest level in 17 years in November, while new home prices had dropped by the biggest amount in eight months.

Tim Ghriskey of Solaris Asset Management in Bedford Hills, said this survey was “pretty much right in line with expectations but very depressed”.

“There are signs we believe that the decline in housing prices is slowing and we’re in a bottoming process but clearly this does show that housing prices continue to decline significantly,” he said.

The US housing market is in the worst downturn since the Great Depression as a huge supply of unsold homes, the credit squeeze and record mortgage foreclosures has pushed down home prices.

Economists believe the market will not begin to recover until home prices fall far enough to stimulate demand, which has dropped off precipitously.

September 18, 2008

Central banks release more funds

Central banks release more funds

Dollar bills

The extra funds are aimed at easing banking sector woes

Global central banks are pumping billions of dollars of extra funds into money markets in a co-ordinated move to lift the amount of credit available.

The move is the fourth such joint effort since December last year. It will see the US Federal Reserve inject a further $180bn (£99bn).

The Bank of England is releasing $40bn, while the European Central Bank is to provide $55bn.

The Bank of Japan and Swiss National Bank have announced similar moves.

‘Appropriate steps’

“These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets,” said the Bank of England.

“The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures.”

It does help to release some of those immediate tensions that have been building up in the money market
Ian Stannard, currency strategist, BNP Paribas

The central banks of South Korea, India, Canada and Australia have also released extra funds.

The co-ordinated move comes after four days of almost unprecedented turmoil in the global financial industry.

Firstly, US giant Lehman Brothers filed for bankruptcy protection, while compatriot Merrill Lynch lost its independence in a rescue takeover by Bank of America.

The US government has also had to bail-out insurance giant AIG, while in the UK, thousands of jobs are predicted to go at banking group HBOS following its sale to rival Lloyds TSB.

Major problem

Analysts said the latest move by the central banks should help to ease immediate fears.

“Obviously it does not tackle the underlying root causes of the problem, but it does help to release some of those immediate tensions that have been building up in the money market,” said Ian Stannard, senior currency strategist at BNP Paribas.

Koichi Haji, chief economist at NLI Research in Tokyo, said the co-ordinated move “shows how serious the problem has become”.

“I think the root cause was letting Lehman fail,” he said.

“That made investors reluctant to supply funds to their counterparts, particularly to the smaller banks.”

September 10, 2008

Lehman reports third quarter loss

Lehman reports third quarter loss

Lehman Brothers office

Lehman has suffered heavy losses from the credit crunch

Troubled US bank Lehman Brothers has reported a third quarter net loss of $3.9bn as it unveils radical restructuring plans.

The losses were at the top end of analysts’ expectations.

The bank’s shares on Tuesday plunged 45% on fears about the state of its financial health.

Korea Development Bank (KDB) has said talks with Lehman Brothers have ended for now with regard to possible investment in the US bank.

KDB said in a statement: “We are announcing that we ended talks at this point in time because of a disagreement over conditions of a transaction and considering domestic and foreign financial market conditions.”

State-run KDB said the decision came because of disagreement over terms and current financial market conditions.

Lehman, the fourth-largest US investment bank, had hoped to secure a deal with the Korean fund before announcing its third-quarter earnings.

A Wall Street Journal report said Lehman might be considering selling UK property assets to BlackRock.

September 5, 2008

US jobless rate near 5-year high

US jobless rate near 5-year high

Worker rolls a spool of cloth at the Nice-Pak factory in New York state

Jobs are being lost in the service, business and manufacturing sectors

The unemployment rate in the US is at its highest level in nearly five years after a higher-than-expected 84,000 jobs were lost last month.

The jobless rate has risen to 6.1%, the highest since December 2003, adding to concern about the US economy and its ability to stave off a recession.

In a further blow, the Labor Department revised upwards job loss figures for each of the past two months.

The Federal Reserve said earlier that economic activity remained “weak”.

Worse than thought

The number of jobs lost last month was significantly higher than the 75,000 forecast by economists.

All sectors of the economy were affected with manufacturing worst hit, shedding 61,000 jobs.

This is more convincing evidence that the economy is still in trouble
Gary Thayer, Wachovia Securities

The labor market has worsened noticeably in recent months, reflected by the fact that it is now apparent that more jobs were lost in June and July than was previously thought.

Revised figures show that in June, 100,000 jobs were lost while in July 60,000 jobs disappeared. This was up from the 51,000 figure initially forecast for both months.

In the first eight months of 2008, 605,000 jobs have been lost.

Employers have now reduced their payrolls for eight straight months, with the dramatic downturn in the housing market and the credit crunch hurting all sectors of the economy.

“This is more convincing evidence that the economy is still in trouble,” said Gary Thayer, senior economist at Wachovia Securities.

“The economy is clearly deteriorating.”

Political focus

Both candidates in November’s Presidential election are under pressure to come up with concrete proposals to help the growing number of people out of work and families battling against rising living costs.

Although the US economy grew a robust 3.3% in the second quarter, businesses are struggling to cope with the high cost of raw materials and energy, fragile consumer confidence and weaker export markets.

The Federal Reserve, which meets to decide on interest rates next week, has warned that the US is facing the twin threats of weak growth and rising inflation.

The bleak employment picture means the Fed is unlikely to raise rates in the foreseeable future while further cuts seem equally unlikely against a background of rising inflation.

“The jobs number is weak again but we think this probably is not the time to panic,” said Steve Goldman, strategist at Weeden & Co.

August 30, 2008

Energy-hungry Europe warms to Norway

Energy-hungry Europe warms to Norway

Amid frantic newspaper headlines about the possibility of a new Cold War, more and more governments around Europe are talking about their need for “energy security”.

What most of them actually mean is that they are not sure whether or not to trust the Russians.

A gas platform off the coast of Norway

Norway remains one of only two major fossil fuel exporters in Europe

There are only two big exporters of fossil fuels in Europe: Russia and Norway, so the choice – for countries without energy reserves of their own or fast depleting them – is limited.

And, undiplomatic as it is to admit it, the Norwegians stand to do very well out of the current political situation.

Officially, a healthy and productive competition exists between the two countries who share a border well above the Arctic Circle.

“We are also partners,” says Norway’s Prime Minister, Jens Stoltenberg, “because both Russia and Norway have an interest in the development of the European oil and gas market.

“And we welcome them into the market, because the market will be bigger if there are several suppliers.”

Mr Stoltenberg was speaking at the opening of an international conference about offshore energy in Stavanger, southern Norway.

Transparency

And, alongside the reassurances to his Russian neighbours, he did hint at his country’s trump card, when asked why the rest of Europe should take Norway as its energy supplier of choice.

Norway's Prime Minister Jens Stoltenberg

Norway offers a reliable energy supply and a stable democracy

“We are a reliable supplier. And we have proved that over many years. And we have a very transparent, open energy sector.”

The head of the conference, ONS Director Kjell Ursin-Smith, was prepared to go even further.

“The situation is very interesting for Norway, of course. We are looked upon as a stable nation, whereas Russia still has a tainted reputation in that respect. So I think we will try to prove that we are a stable producer of oil and gas for Europe.”

The proof of the UK’s commitment to Norway as a gas provider of the future is a massive new pipeline – the biggest engineering project of its kind in the world – known as Ormen Lange.

The pipeline, whose name means “giant serpent” in old Norse will stretch from the Norwegian North Sea fields to Easington on the East Yorkshire coast.

Further afield

Some 745 miles of steel tubing have been painstaking laid up and down the canyons of the seabed, designed to deliver about 20% of the UK’s domestic gas needs for the next 50 years. It came on stream late last year.

The Ukraine issue sent a shiver down the European energy spine and Georgia is a recent episode which will focus a lot of minds.
Malcolm Wicks, UK energy minister

The days when Britain could rely on its own reserves to be self-sufficient in oil and gas are long gone – with a current annual depletion rate of about 8% a year – so there is no choice but to look abroad.

Britain has always made a virtue of its lack of political interference in the energy market, preferring to make deciding on a supplier a matter of pure economics and stress the need for “diversity of supply”.

But things might be changing.

“We’re aware of what’s going on now”, says the UK Energy Minister, Malcolm Wicks.

He still stresses the need to source from more than one country, more than one route.

High stakes

But, he adds, referring to the incident in 2006 when Russia turned off gas supplies to its neighbor in order to force higher prices: “The Ukraine issue sent a shiver down the European energy spine and Georgia is a recent episode which will focus a lot of minds.

Map

“I think we have to be – how can I put it? – streetwise, when it comes to issues around energy security. Norway is a great partner to have. It’s a very sophisticated democracy with a great record when it comes to human rights. So the new pipeline is a good piece of democratic politics.”

The proportion of its energy western Europe has to import is likely to rise to about 70% in the coming decades, so the market is guaranteed and the stakes are high.

It remains to be seen whether the big two suppliers – Norway and Russia – will clash or co-operate when it comes to developing what is a potential El Dorado of the North – vast swathes of Arctic territory, largely in the Barents Sea, which new technology is opening up to oil and gas exploitation for the first time.

The disputes have already begun as to who owns what territory. Vast amounts of money are to be made.

Norway has known great wealth for nearly 40 years now, mostly thanks to its fossil fuel resources.

Russia, with an average per capita income still about a tenth the size of that of its tiny Scandinavian neighbor, has not.

And in these days of ‘new’ Russia rediscovering its confidence, reasserting its power in the world, observers of geo-politics can almost certainly expect fireworks.

August 28, 2008

US GDP rebounds with 3.3% growth

US GDP rebounds with 3.3% growth

A US shopper

Tax rebates have encouraged consumers to spend more

The US economy grew at a revised 3.3% annually in the second quarter of 2008, the Commerce Department said, much higher than its first estimate of 1.9%.

The rebound was linked to strong US exports, helped by the weak dollar, while government tax rebates also boosted consumer spending.

GDP grew at a rate of 0.9% in the first quarter, after a 0.2% contraction in the last three months of 2007.

The Federal Reserve has warned the economy will remain weak this year.

“While we’re not out of the woods yet, maybe we’re beginning to see some sunlight,” said John Wilson, equity strategist at Morgan Keegan.

“At some point, the market will begin to look through the trough and gauge the strength of the coming upturn.”

‘No recession’

The data showed that exports grew at an annualized rate of 13.2%, higher than the government’s initial estimate of 9.2%.

Imports fell at a rate of 7.6% as the US economic slowdown reduced demands for goods made overseas.

The improved trade balance added 3.1 percentage points to second-quarter GDP, the biggest since 1980.

The slowdown in the housing market was evident, as builders cut back and businesses reduced their spending.

Consumer spending, boosted by the government’s $600 tax rebate payments, rose by 1.7%, slightly higher than the previous quarter’s 1.5%.

Some observers said that the figures lent support to the argument that the US was not heading for a recession.

“For a recession the economy is certainly growing very quickly,” said Avery Shenfeld, senior economist at CIBC World Markets.

“A lot of that growth is driven off exports and pessimists might say that can’t continue during slowing growth overseas.

“But I would say this happened precisely during the period of slowing growth overseas … this is still an economy that faces slow times but not a recession.”

16-year low

However recent data on the US housing market suggests a grim outlook for the sector.

US house prices were down a record 15.4% in the April to June quarter compared with a year ago, according to a closely-watched report released earlier this week.

The decline was recorded by the latest S&P/Case-Shiller survey of US national home prices.

The report said the fact that the falls were nationwide was the latest sign the US housing downturn is continuing.

Separate government data said sales of new homes were at an annual rate of 515,000 units in July, up slightly from June, but still near a 16-year low, and half the rate of new home sales one year ago.

August 13, 2008

Digital nomad drives laptop sales

Digital nomad drives laptop sales

Courtesy BBC

By Maggie Shiels
Technology reporter, BBC News, San Francisco

Dell poster

One of the demands of the new digital nomad is constant connectivity

The demands of the digital nomad are expected to drive laptop sales to over one billion in the next five years.

The prediction by Dell came as it unveiled 10 new laptop models aimed at this emerging working class.

The new Latitude line boasts as much as 19 hours of battery life for the always connected 21st century worker.

“There is no business as usual in the connected era,” said Andy Lark, Dell’s vice president of global marketing.

“Boundaries for businesses are virtual. This is a new class of worker who maybe doesn’t have an office and who maybe visits 10 offices in a day and visits several different customers.”

Andy Lark of Dell

Andy Lark says Dell has shipped 53 million Latitude laptops since 1994

Mr Lark told BBC News that the ranks of the digital nomad were swelling as were expectations about the functions their laptops and notebooks could perform.

“The majority of people coming online and buying their first computer today are doing it in emerging countries like China, India and Brazil.

“If you look at India, about 67% or more of their workforce is going to be entirely mobile and that is driving the demand for new features in the laptop like all day connectivity, long battery life, high-level security and uncompromising design and durability.”

‘Performance leaders’

At a press launch in San Francisco, Jeff Clarke, senior vice president of Dell’s business group, showed off the new line to reporters and analysts.

The laptops include seven Latitude business laptops and three Dell Precision workstation laptops which Mr Clarke described as “performance leaders and something the tech community will absolutely die for”.

The computers have just under 10 hours of battery life which can be extended with a so called “battery slice” to total 19 hours.

Mr Clarke said the company spent more than one million man hours and two years designing the updated Latitude line which range in price from $800 (£400) to around $1,400.

The company also consulted more than 4,000 customers to find out what they wanted in their laptop. As well as battery life being a priority, security was the other big concern.

Dell's Jeff Clarke

Dell’s Jeff Clarke shows off some of the new ultra mobile laptop colours

Mr Clarke told reporters: “With 17,000 notebooks being lost, left unattended or reported missing at airports around the world, many with important information on them, our customers asked for the notion of a vault to secure their information.”

Dell said it had done that by including the ability to track down or disable the device if it was stolen.

The machines also have a fingerprint reader and a “control vault” processor that stores an owner’s identity and credentials on protected hardware.

‘Tiniest of differences’

Dell may have declared “freedom from business as usual”, but is it enough to regain market share and compete with devices made by rivals such as Apple and HP?

Mr Clarke certainly seemed to think so.

“We have defined mobility for the business computer. We are at that forefront of being different.”

Dell launch

In discussions with customers, security emerged as a major issue

Charles King of technology industry analysis firm Pund-IT told the BBC Dell had produced a product for today’s workforce.

“I think what it comes down to is that for most of those customers, highly mobile, highly robust and highly secure systems are critical for large organizations’ ease of management and administration.

“I think what Dell has done here is really very much focused on meeting the needs and wishes of this different class.”

Dean Takahashi of VentureBeat.com said he wasn’t totally convinced.

“I am not sure this is going to do it for Dell. The differentiation in this space is based on the tiniest of differences. Still it gives Apple, HP, Toshiba and Lenovo a target to strike at.”

August 9, 2008

Fannie Mae unveils loss of $2.3bn

Fannie Mae unveils loss of $2.3bn

Courtesy BBC

Problems in the US housing market have pushed mortgage finance company Fannie Mae into the red.

The group sank to a net loss of $2.3bn in the three months to 30 June, against a profit of $1.97bn last year.

It comes days after its sister company Freddie Mac posted worse-than-expected results and its top executive warned house price falls are not over yet.

Both government sponsored firms own, or guarantee, nearly half of the nation’s mortgage debt.

Shares in Fannie Mae sank in the wake of the announcement, falling 9.8% to $8.98.

Difficult market

As mortgage guarantors, Fannie Mae and Freddie Mac, must pay out when people default on their loans.

But as a result of recent woes in the US housing market and subsequent sub-prime crisis the pair have run into severe difficulty.

Fannie Mae says it has the capital to weather the storm, but its looking more and more stormy by the day
John Raines,
Exclusive Analysis

Fannie Mae said that the current housing crisis had added to its woes to the tune of $5.3bn in credit expenses.

The latest losses at the firm – which came in at more than three times analysts’ estimates – followed a $2.2bn loss for the first three months of the year.

“Our second-quarter results reflect challenging conditions in the housing and mortgage markets that began in 2006 and have deepened through 2007 and 2008,” said Daniel H Mudd, president and chief executive officer of Fannie Mae.

Cost cutting

He added that the firm had also taken steps to raise an additional $7bn to help it tackle the “most difficult US housing market in more than 70 years”.

As part of the plan Fannie Mae is slashing its dividend by more than 85% to 0.05 cents, raising its fees and has taken steps to cut its costs by 10%.

The group also said it would stop purchasing ‘Alt-A’ loans – loans made to borrowers with good credit but little proof of their income, or people who either put down a small deposit, or no deposit, for their loan.

But there was little to offer hope in near-term future with Fannie Mae warning that increased volatility in capital markets and deteriorating credit conditions meant that it would face more losses.

Bail-out

Last month, the federal government offered a financial lifeline to the two beleaguered companies offering to extend their line of credit.

However, the financial aid may leave the taxpayer facing a bill of $25bn over the next two years.

“The taxpayer is stuck if they have to be bailed out,” John Raines, deputy director of political risk for Exclusive Analysis told the BBC.

He added that reports had suggested the actual cost could end up being anywhere in the region of between $10bn to $100bn.

“Right now, Fannie Mae says it has the capital to weather the storm, but its looking more and more stormy by the day.”

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