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Markets head lower Wednesday

NEW YORK, Dec. 17 (UPI) -- U.S. markets were lower Wednesday a day after the U.S. Federal Reserve lowered its lending rate to historic lows.

The Tuesday afternoon announcement that the Fed would cut interest rates to a range between zero to 0.25 percent gave stocks a boost Tuesday. But the rally was over Wednesday morning.

In late-morning trading, the Dow Jones industrial average fell 124.73 points, or 1.40 percent, to 8,799.41. The Standard & Poor's 500 fell 1.43 percent, 13.07 points, to 900.11. The Nasdaq composite index fell 22.28 points, 1.40 percent, to 1,567.61.

The benchmark 10-year U.S. Treasury bond rose 1 8/32 to yield 2.128 percent.

The euro rose to $1.4296, compared to $1.4128 Tuesday. Against the Japanese yen, the dollar fell to 87.56 yen, down from Tuesday's 88.78 yen.

In Tokyo, the Nikkei average rose 44.50 points to 8,612.52, up 0.52 percent.

Hope for Homeowners program criticized

WASHINGTON, Dec. 17 (UPI) -- A federal program designed to help 400,000 struggling U.S. homeowners has attracted only 312 applicants since October, a government agency said.

Secretary of Housing and Urban Development Steve Preston panned the Hope for Homeowners program as "tough to use," The Washington Post reported Wednesday.

Preston blamed Congress for creating a program with too many hurdles for homeowners, the Post said.

Rep. Barney Frank, D-Mass., who helped create the program, blamed the Bush administration, which, he said, "kept putting pressure on us to make it cheaper and more restrictive."

The program was set up to insure loans up to 90 percent of the home's value.

Lenders balked and Congress recently pushed the insured amount to 96.5 percent, but "getting lenders to agree … has been our biggest challenge," said Peyton Herbert, director of foreclosure services at HomeFree USA. "They want dollar-for-dollar what's owed on that loan or something close to it," he said.

Other hurdles included having homeowners provide two years of financial records and split any profits with the government when the house is sold.

"This falls into the category of 'We want your first- born'," said John Taylor, chief executive of the National Community Reinvestment Coalition.

Deflation steps in as economic factor

WASHINGTON, Dec. 17 (UPI) -- Consumer prices have fallen 3 percent in the past three months and may drop another 1 percent in 2009, economic forecasters at HIS Global Insight said.

The price decline is the sharpest three-month drop in prices since 1933, The New York Times reported Wednesday.

Deflation alarms economists, but has a silver lining for some families, the Times said.

Economists fear that falling prices cause shoppers to hesitate. With prices likely to be lower next month, why buy a car, a refrigerator or a DVD player today?

That kind of hesitancy causes industrial production to stall, contributing to declines in profits and further layoffs.

But some families can find their standard-of-living increase because of a phenomenon known as the "sticky wage" issue.

In other words, wages in a recession rarely drop.

Employers almost always choose layoffs instead of making pay cuts, explained Yale economist Truman Bewley.

"Reducing the pay of existing employees was nearly unthinkable because of the impact of worker attitudes," Bewley wrote in his book "Why Wages Don't Fall During a Recession," the Times reported.

"The advantage of layoffs over pay-reduction was that they 'get the misery out the door.' " Bewley wrote.

Canadian auto bailout could reach $25B

OTTAWA, Dec. 17 (UPI) -- As Washington grapples with a bailout for automakers, Moody's Investors Service said Canada's share could soar from $3.4 billion to as much as $25 billion.

Officials with the government of Canada and provincial government of Ontario have said Canada will proportionately match 20 percent of the final U.S. settlement, and estimated during the weekend it would be about $3.4 billion.

Tuesday, Moody's said long-term U.S. efforts to prevent the collapse of Chrysler, Ford and General Motors would cost between $75 billion and $125 billion, the Globe and Mail reported. In the worst-case scenario, Canada's commitment would jump about seven times to $25 billion, the report said.

Ontario Finance Minister Dwight Duncan told reporters Canada and Ontario had to be involved in a bailout or face disastrous economic effects.

"I think we need to be there to protect the footprint of our industry. If we lose those jobs, if the industry leaves Ontario and … survives in the United States, that would have a devastating impact on our economy," he said.

The Moody's report said if the U.S. automakers can maintain holding 50 percent of the North American market, the cost of keeping them solvent will be about $75 billion, although if the share falls to 40 percent, the cost will soar to $125 billion.