Breaking Wall Street Market News & Reports

After 4 days of phenomenal gains, markets remain volatile. Yesterday’s last 60 minute drop was led by a report that the US government was seeking billions from US banks did not stem the selling. The Dow Jones Industrial Average opened sharply lower, led by BofA down 220 points to 11270. Employment growth  or the lack of exacerbated the selling, grounded to a halt in August as non-farm payrolls were unchanged, according to the Labor Department—the weakest reading since last September. Despite the lack of employment growth, the jobless rate held steady at 9.1 percent. So as long we stay above that 1270, markets can possibly regroup and come back. Anything below 1270, will signal a sell.

A lawsuit is being prepared against the big U.S. banks by the Federal Housing Finance Agency. Separately, the Fed has asked Bank of America (NYSE:BAC) to show what measures it could take if business conditions worsen, adding to the bank’s sharp decline. The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs, and Deutsche Bank. The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value. Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

Last month, the insurance giant American International Group filed a $10 billion suit against Bank of America, accusing the bank and its Countrywide Financial and Merrill Lynch units of misrepresenting the quality of mortgages that backed the securities A.I.G. bought.

Greek Drama

Meanwhile, Greece and its international lenders said that the country will miss its budget deficit target this year, adding to concerns that the region’s sovereign debt crisis may worsen. Greece’s 2011 budget deficit will be higher than originally thought. Just how high remains a point of disagreement between the Greek government and officials from the IMF and EU, as talks over handing over the next tranche of aid to the ailing euro zone member continue in Athens.

The IMF and EU now see the deficit hitting 8.6 percent of gross domestic product while the Greek government put the number closer to 8 percent, blaming a deeper than expected recession. The IMF and EU, while aware of the recessionary impact, are reported to believe failure to implement medium-term fiscal plans are behind the higher than expected shortfall.

To add further to the insult talks between Greece and international inspectors on whether it has met conditions for a new aid tranche have been put on hold, officials said on Friday, after disagreements over why and by how much its deficit cuts program has fallen behind schedule. Finance Minister Evangelos Venizelos said the talks had been suspended and would resume on Sept 14, after technical experts had had a chance to study relevant data. The first cycle of negotiations is completed. The inspectors will return in 10 days to see the budget plan for 2012 and conclude the procedure.

There are no Greek government bonds maturing before March next year, which means the country will not be at immediate risk of default even if it does not get this month’s 8 billion euro tranche from the rescue package as planned. But the country is continuing to generate large deficits and could at some point face cash shortages. An official close to the inspectors said on Thursday the 2011 budget deficit will be at least 8.6 percent of GDP compared to a target of 7.6 percent.

On Tap Next Week:

MONDAY: Labor Day Holiady—All Markets Closed
TUESDAY: ISM non-mfg index, Fed’s Kocherlakota speaks; Earnings from PepBoys
WEDNESDAY: Weekly mortgage applications, Beige Book; Earnings from Hovnanian
THURSDAY: BoE announcement, ECB announcement, international trade, jobless claims, quarterly services survey, oil inventories, Bernanke speaks, consumer cerdit, TI mid-quarter update, OECD’s global economic outlook, Obama talks jobs/economy; Earnings from Smithfield Foods
FRIDAY: McDonald’s August Sales, wholesale trade, G7 finance ministers meet; Earnings from Kroger, Lululemon Athletica