Economy - Thursday

• Investor's Business Daily
• On 6:46 pm EST, Thursday November 5, 2009

Dr. Doom fears new megabanks

Massive consolidation among U.S. banks could breed too-big-to-fail institutions, which pose a huge risk to fin'l stability, said NYU Prof. Nouriel Roubini, known as "Dr. Doom" for predicting the fin'l crisis back in '06. "We are creating a bigger monster" than in the past and there is "no way to deal with insolvency in an orderly way," Roubini said. Financial supermarkets that combine commercial and investment banking with insurance and asset management have proved to be a "disaster," he said, adding that "banks should be banks, providing credit to the real economy."

U.S. mortgage rates dip under 5%

The 30-year fixed rate mortgage fell to 4.98% this week vs. 5.03% the prior week, said Freddie Mac. That is still above April's record-low 4.78%, but well below 6.2% a year ago. The 15-year fixed-rate mortgage fell to 4.4%. Industry experts view 5% as a key level because when rates drop below this threshold, home loan demand tends to rise as it did last week for the first time in a month.

Central banks leave rates at lows

The Bank of England and the European Central Bank both left rates at record lows, following the Fed's Wed. affirmation to keep borrowing costs near zero for "an extended period." The BoE decided to pump another $41 bil into its economy -- which continued to contract in Q3 -- taking its quantitative easing to $331.7 bil in total. Central banks are reluctant to withdraw support to their economies to fight the fin'l crisis. However, the ECB moved closer to the exit by signaling that 1-year loans to banks will not be extended.

Euro zone retail sales fell 0.7% in Sept. vs. Aug., the biggest drop since Oct. '08, Eurostat said. That raises questions about the strength of the economic recovery. U.K. industrial output rose 1.7% in Sept., the best gain since July '02. That reversed Aug.'s near-2% fall. COMING UP FRIDAY

Employment report for Oct., 8:30 a.m. EST (forecast: payrolls -175,000; jobless rate up to 9.9%; hourly wages up 0.1%). Wholesale inventories for Sept., 10 a.m. EST (forecast: -1%). Consumer credit for Sept., 2 p.m. EST (forecast: -$10 bil).

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