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The Federal Reserve continued its massive lending efforts to business in the past week, pumping $100 billion more into the credit stream through a new short-term funding program.

Fed numbers released Thursday showed that Fed lending in the so-called Commercial Paper Funding Facility increased to $243 billion from $144 billion a week earlier. The facility opened on Oct. 20.

The Fed’s program has helped lower borrowing rates and provided critical short-term financing to businesses and financial institutions in desperate need of cash. Businesses and financial institutions have turned to the Federal Reserve for funds, as the traditional source of lending from private banks dried up after the collapse of Lehman Brothers in mid-September.

As a result, the federal government has instituted several programs aimed at easing funding concerns for banks and encouraging lending between financial institutions. These include measures such as lowering interest rates, injecting capital into banks and providing insurance on all non-interest bearing accounts.

"The Fed is tapping all the keys on the keyboard, and it does seem to be helping," said Bill Bergman, senior equity analyst at Morningstar. "We have a financial market problem of historic proportion, and I think the Fed’s ability to liquefy is worth respect."

In another such program, the Federal Reserve’s emergency lending window, the Fed reported that commercial banks borrowed $110 billion a day, on average, over the past week. That’s down 1.7% from the $111.9 billion they borrowed from the discount window in the previous week.

For a long while before the credit crunch, the Fed has offered overnight funding for commercial banks at a rate slightly higher than its targeted funds rate. But after the collapse of Bear Stearns in March, the Fed for the first time opened its discount window to Wall Street firms like Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500), which were in dire need of lending.

Investment banks borrowed $77 billion a day, on average, down 11.9% from $87.4 billion a week ago.

Some analysts have suggested that investment banks’ borrowing needs have not decreased, but they are borrowing less from the discount window due to the Treasury’s $250 billion capital injection into financial institutions and access to the Fed’s commercial paper facility american cash advance.

"We haven’t seen any sign of a turnaround in lending yet," said Bergman. "The question is whether or not the Titanic is unstoppably sinking."

The Fed also reported Thursday that troubled insurer American International Group (AIG, Fortune 500) paid back $2.3 billion of its emergency loan from the Federal Reserve.

AIG now owes $81.2 billion, down from $83.5 billion as of last week. That’s equal to about two-thirds of the $122.8 billion loan the federal government has offered to the company.

In mid-September, the government agreed to bail out the world’s largest insurance company, which was on the verge of collapse, with an $85 billion federal loan. In addition to the bailout, the New York Fed later made available an additional $37.8 billion to the corporation through a special lending facility. The facility, which opened three weeks ago, was designed to provide funding for AIG’s businesses after its securities lending division ran into trouble.

AIG announced last week that it will refinance a big chunk of its original loan. Through four of its subsidiaries, AIG said it will sell $20.9 billion of debt to the Fed and use the proceeds to pay back some of the $85 billion government bailout loan. The move allows AIG to pay down about a quarter of the loan - on which it is currently paying about 11% in interest - with money it has borrowed at 4% through the Fed’s commercial paper program.

AIG has said it plans to pay off the $85 billion bridge loan by spinning off divisions.

In addition, the company’s new managers, headed by government-installed CEO Edward Liddy, have agreed to withhold big payouts to former executives and curtail corporate trips in the face of criticism from Congress and other government officials. With taxpayer dollars on the line, New York Attorney General Andrew Cuomo has demanded the company halt all "unreasonable expenditures." 

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U.K. consumer confidence dropped in October close to the weakest level since at least 1974 as the financial crisis spooked British shoppers, GfK NOP said.

An index of sentiment, based on a survey of 2,002 people between Oct. 3 and Oct. 19, fell 4 points from the previous month to minus 36, GfK said today in London. A gauge of consumers' willingness to make major purchases dropped 11 points to minus 42, the lowest since the series began in 1974.

House prices fell from a year earlier by the most since at least 1991 this month as banks tightened their grip on credit, Nationwide Building Society said yesterday. Policy makers will probably lower the benchmark interest rate by a half point to 4 percent next week, after they voted for an emergency cut on Oct. 8 to save the financial system from collapse, economists say.

“The turmoil surrounding the banking world and subsequent turbulence in the financial markets is making for an uncertain time,'' Rachael Joy, a spokeswoman for GfK, said in a statement. “Even the reduction of the interest rate and lower petrol prices are unlikely to have a significant effect on confidence in the upcoming months as consumers brace themselves.''

The pound dropped against the dollar today, heading for the biggest monthly decline in 16 years. The currency traded at $1.6228 as of 8:59 a.m. in London, down from $1.6451 yesterday.

Job Cuts

Retail sales in Germany fell 2.3 percent in September, the biggest decline since May 2007, a separate report showed today. Economists forecast a drop of 1 percent, according to the median of 15 estimates in a Bloomberg News survey.

Twenty-six percent of U.K. employers have backup plans to cut even more workers than currently intended in the next 12 months, a survey of 721 companies by KPMG and the Chartered Institute of Personnel and Development showed today freecreditreport. About one in five of those surveyed will seek to shed staff over 65, the age at which they can force employees to leave without providing a business reason, the report said.

The GfK consumer confidence gauge was last lower in July, when it reached minus 39, the weakest in at least 34 years.

A gauge of the general economic situation over the past 12 months fell 10 points to minus 72, the survey showed. An index measuring Britons' personal financial situation in the next year fell one points to minus 12, GfK said.

The financial crisis has crippled Britain's banking industry, forcing the government to buy stakes in some of the country's biggest lenders and ramp up public spending.

1929 Crash

U.K. policy maker David Blanchflower said this week the current crisis may turn out to be “more significant'' than the aftermath of the 1929 stock market crash. He said that the economy faces a recession for the next year and warned it will deepen if the central bank doesn't cut interest rates “significantly.''

The economy shrank 0.5 percent in the third quarter, the largest contraction since 1990. Unemployment rose in September, with jobless claims reaching the highest in almost two years.

The Bank of England will cut the benchmark interest rate by at least a half point at the next scheduled meeting on Nov. 6, according to 36 economists in a Bloomberg News survey.

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Iceland's government is “very close'' to a rescue deal with the International Monetary Fund that may also include financial help from Nordic neighbors and Japan, Industry Minister Oessur Skarphedinsson said.

The fund is preparing a plan to present to the government, which is also seeking a loan from Russia, Skarphedinsson said in a telephone interview from Reykjavik yesterday. The Financial Times and New York Times reported that the rescue will amount to $6 billion.

Iceland needs aid from the IMF and Nordic countries after the collapse of its banking system froze its foreign-exchange market, making it hard for importers to finance purchases. Glitnir Bank hf, Landsbanki Islands hf and Kaupthing Bank hf imploded with debts of $61 billion, or as much as 12 times the size of the economy.

“It's clear from our diplomatic contacts that if and when an agreement is made between the IMF and Iceland, then our neighbors would be quite willing to sail in their wake,'' Skarphedinsson said. “We in fact have confirmation of what I would label quite generous lending facilities.''

Norway, Sweden and Denmark would probably follow any accord with the IMF, with Japan also a candidate to provide the Atlantic island with aid, he said.

“We are part of the Nordic family,'' Skarphedinsson said. “It's really stating the obvious to say that definitely the Nordic countries would be among those that would seek to assist us through this crisis, when and if we go to the IMF.''

Nordic Family

The central banks of Denmark, Norway and Sweden in May provided Iceland with a euro swap facility worth a total of 1.5 billion euros ($2 billion). The central bank of Iceland has so far drawn on 400 million euros of that.

Skarphedinsson declined to comment on the Financial Times report that said $1 billion will come from the IMF and the remainder from Nordic governments and Japan. The New York Times said Russia will make a contribution.

The chief press officer at Sweden's central bank, Britta von Schoultz, declined to comment. Norges Bank head of communications said she wasn't “aware of'' any agreement with Iceland linked to a possible IMF deal. Calls made to Danish central bank spokeswoman Louise Buchter weren't immediately returned.

`Good Neighbor'

Swedish Finance Minister Anders Borg said his government was in discussions with Iceland.

“We will try to be a good neighbor,'' he told reporters in Berlin yesterday. “But eventually this is up to Iceland because they have to get into an IMF program, and that is an essential part of them re-establishing themselves.''

Japanese Finance Minister Shoichi Nakagawa said at a news conference today that he hadn't heard whether the IMF or Iceland asked his government for aid no fax payday advances. Nakagawa told his Group of Seven counterparts in Washington this month that Japan is ready to contribute to the IMF's emergency lending program.

“Japan wants to show its initiative in the global response to growing financial risks,'' said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo.

Iceland's opposition leader Steingrimur Sigfusson criticized the government's handling of the crisis, calling for better economic management.

“We know what to do if we have an earthquake or a natural catastrophe, we put up a control center, much the same as a country does if it has a war on its hands,'' Sigfusson said. “But the government hasn't done this so the management has been too weak.''

3 Cents

Bonds of Iceland's three biggest banks are on sale for as little as 3 cents on the dollar after the government began a restructuring that may leave debt investors with nothing, according to broker KNG Securities LLP.

The three lenders have together amassed debt equivalent to about 12 times the size of the economy, according to Bloomberg data. The government has yet to provide a clear plan on how that debt will be repaid since taking control of the banks. Glitnir and Kaupthing have already missed making bond payments.

The failure of banks on the island, with a population of only 320,000, is affecting investors and depositors across the globe. Kaupthing is poised to become the first European bank to default in Japan's samurai bond market after investors said the Icelandic lender missed a coupon payment. Kaupthing now has a seven-day grace period to honor the obligations.

“The samurai bond default is raising concerns among Japanese banks about whether more will arise and where they might arise,'' said Dai-Ichi Life's Kumano. That said, he added, “I'm not sure how much this funding to Iceland would reduce the chances of more defaults.''

Shrinking Economy

Iceland's economy may contract as much as 10 percent, according to Lars Christensen, chief analyst at Danske Bank A/S in Copenhagen. The central bank on Oct. 15 cut the benchmark interest rate by an unprecedented 3.5 percentage points to 12 percent, indicating policy makers have given up trying to control inflation. Prices may surge as much as 75 percent in coming months, Christensen estimates.

A nation that was ranked the fifth-richest in the world per capita in the United Nations 2007/2008 Human Development Index is now facing shortages of imports including food and clothing. The central bank on Oct. 10 called on commercial lenders to prioritize foreign-currency transactions to cover payment for essential imports such as food, fuel and medicine.

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U.S. Treasury Secretary Henry Paulson on Sunday tried to allay election-year fears about the economy amid growing market turmoil, saying the government was prepared to do what it takes to maintain stability in the financial system.

Paulson appeared on several Sunday television talk shows to express confidence in the U.S. economy and financial firms after the Federal Reserve moved on Friday to inject capital into Bear Stearns (BSC.N: Quote, Profile, Research), the fifth-largest U.S. investment bank, which ran short of cash to repay its lenders.

Paulson told “Fox News Sunday” the Fed made the right decision to come to the rescue of the investment firm and that maintaining stability in financial markets was a top priority of the government.

“The government is prepared to do what it takes to maintain the stability of our financial system,” Paulson said. “That’s our priority.”

Paulson said officials were continuing discussions about the financial market turmoil through the weekend cash advance flexible payments. President George W. Bush plans to meet with his top economic advisers on Monday. Many analysts believe the Fed will decide to sharply cut interest rates at its policy meeting next week.

The housing crisis, a broadening credit crunch, a weaker dollar and the softening labor market have put the economy ahead of the war in Iraq as the top concern of voters heading into the November presidential elections.

Continued market turmoil and a protracted economic downturn could bode ill for presumptive Republican nominee John McCain as Democrats have tried to link him to Bush’s economic policies.

Paulson said the $152 billion economic stimulus plan enacted in February should help lift the economy as soon as the government checks, up to $600 for individuals, are put in the mail as early as May. 

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Troubled bond insurer Financial Guaranty Insurance Co. asked New York state insurance regulators to split its troubled structured finance arm from its healthy municipal bond insurance business, New York Insurance Superintendent Eric Dinallo said Friday.

In a televised interview, Dinallo told CNBC that the New York-based FGIC proposed the offer after seeing its credit rating downgraded by the Moody’s Investors Service a day earlier.

Calls to FGIC were not immediately returned.

Moody’s downgraded FGIC to a ‘A3′ rating from ‘AAA’ Thursday, citing the company’s weakened capital position and its exposure to the mortgage market.

As part of the plan, FGIC would essentially split into two firms - one focused on its sound municipal bond business, the other on the troubled structured finance portion of its portfolios - ultimately protecting the insurers’ municipal bond customers.

Dinallo, who has been spearheading rescue efforts for the troubled industry, warned however that the break-up was "not a done deal."

Bond insurers like FGIC, Ambac (ABK) and MBIA (MBI) have occupied much of Wall Street’s attention lately.

The three firms, among others, guaranteed billions of dollars worth of toxic mortgage-backed securities in recent years that have plummeted in value how to get a free credit report. Worried that they will not be able to handle existing claims and retain enough capital, the credit rating agencies have threatened to strip them of their top-notch ‘AAA’ ratings.

Such downgrades would not only cripple the insurers’ municipal and corporate debt insurance business, but would spread across the broader financial landscape, possibly resulting in further writedowns at major U.S. financial institutions.

A downgrade would most likely raise the cost of issuing municipal bonds, which directly affects local governments and could create an additional drag on the already troubled U.S. economy.

On Thursday, Congress waded into crisis as lawmakers tried to both assess blame and prescribe a remedy. 

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About one million child safety seats made by Evenflo are being recalled because they could fail to protect children from vehicle side-impacts.

Seats affected by the recall are Evenflo Discovery child safety seat models 390, 391, 534 and 552 made between April 2005 and January 29, 2008. The serial number and date of manufacture can be found on a white label on the underside of the safety seat.

Tests by Evenflo and the National Highway and Traffic Safety Administration indicate that the safety seats can potentially separate from that base during an accident. Each product has a separate base that connects to the vehicle’s seat, allowing the safety seat to be removed from the vehicle without removing the base.

Owners of the affected Discovery safety seats are urged to immediately contact Evenflo and receive a free dual-hook fastener that will secure the seat to its base cash advance in one hour. Parents should continue using the safety seats while waiting for their fasteners to arrive, said NHTSA.

NHTSA urged parents affected by the recall to contact Evenflo at 1-800-356-2229 between the hours of 8am and 5pm EST, or visit the Evenflo web site: http://safety.evenflo.com/cs/sc/cssc_RD.phtml.

NHTSA also recommended that owners register their seat with Evenflo to receive any future safety notices.

Consumer Reports issued a negative report on the Evenflo Discovery car seat in January, 2007, given it a poor rating and requesting recall. However, the report and the recall request were both retracted just 14 days later when errors were uncovered in the magazine’s tests. 

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