A tough day on Wall Street, with stocks falling 400 points on increased credit concerns over the struggling mortgage lending market. And the news isn't getting any better.

Insurance giant AIG released a report today showing that borrowers in the category just above subprime are showing increased residential mortgage delinquencies

AIG is a good position to know. The company is the world's largest insurance company and will have its hands full if lenders can't collect from borrowers. It's also one of the largest mortgage lenders in the
world. The company says that more than 10% of its subprime mortgages were 60 days overdue, while 4.6% in the category just above subprime were late during the second quarter.

In addition, total delinquencies in AIG's $25.9 billion mortgage insurance portfolio clocked in at 2.5%.

Delinquency rates for first mortgages, which represent 90% of AIG's domestic mortgage business, also jumped to 3.89% in June, up from 3.56% in April, AIG says.

Although second-lien mortgages only made up 10% of AIG's mortgage insurance portfolio, it incurred $159 million in the losses during the second quarter.

These mortgages are susceptible to defaults and are especially sensitive to falling home values, the report adds.

With banks and lenders tightening credit, and with borrowers struggling to keep up with payments, the landscape for the rest of 2007 looks rough. The rest of us will just have to ride it out.

A while back, I pointed out that a tight money supply could prevent companies, especially smaller ones, from getting money to grow their businesses, make new hires, do more research -- that sort of thing. I said that if companies couldn't get access to money, the economy would suffer. The Federal Reserve had to act (okay, I didn't mention the Fed specifically, but calling Batman wasn't going to help).

So what's the big deal with a tight money supply? Imagine you're a small web design firm looking to roll out a new service or product. You go to a lender to get a line of credit only to have the teller window slammed down on your fingers.

So, yes, lending decisions have a ripple effect that goes way beyond some poor guy who can't pay his mortgage.

But with lenders still smarting over the hammering they've taken in the mortgage market, banks and other lenders were reluctant to lend money to anyone.

Enter the Federal Reserve Board, which cut its key discount rate by 0.5 percentage points on Friday. In plain English, that means the rate the Fed loans money to lenders just got cheaper. That should alleviate some concerns on the part of lenders to lend money. It won't cost as much for them to do so, which is always a good thing in business.

So that small web design firm now has a better chance of getting that line of credit, allowing them to grow their business and contribute to the overall health of the economy.

It's also an emotional lift for investors, who drove the Dow Jones Industrial Average up 240 points after the Fed announcement. Says Jim Cramer, the CNBC investing guru; `They obviously heard us, they acted,'' he said on his show Mad Money. "This is the beginning of the run to 14,500.''

"It's a brilliant move by the Fed,'' Cramer added. "Two weeks ago they were doing the exact opposite.''

We'll see about that. Short term, no doubt the Fed rate cut stopped the bleeding on Wall Street. But long term, the Federal Reserve only has so many options.

Besides, why is the Fed bailing out rich bankers, anyway? Last time I looked, licking the boots of Wall Street lenders wasn't in the Fed's charter. Richard Yamarone, chief economist for Argus Research in New York sums it up well.

"My mother always told me those who play with fire get burned,'' he said. "Here, that apparently doesn't hold true. Someone is making my mother out to be a liar, and that's not a good thing.''

But you have to walk in Fed Chief Ben Bernanke's shoes for a while. People were losing faith in the U.S. credit system. Not good. Investors were pulling money out of the stock market in droves. Understandable, but once again, not good.

A confidence boost was needed and that's just what the economy got when the Fed cut its discount rate.

The questions now is . . . how long can that confidence last?

Friday was a weird day on Wall Street.

First, the head of troubled Countrywide Financial predicted that the ongoing credit slump would lead to a recession. He also said that things would be better if the Federal Reserve lowered interest rates (isn't that how we got into this situation in the first place?)

My guess is that the Fed will probably cut interest rates, not by the .50 percent rate that many economists are predicting, but by a quarter-point. The Fed is historically loath to cut rates because Wall Street tells it  to. It's also reluctant to cut rates too much because of inflationary fears (they don't want money to become too cheap). The Federal Reserve Board next meets on September 18.

But wait. Later on Friday the U.S. Commerce Department reports that sales of new U.S. homes unexpectedly rose 2.8 percent to an 870,000 annual sales pace in July, reversing two months of declines. Analysts were expecting new home sales to dip to an 820,000 sales pace. New home sales in June were revised to an annual rate of 846,000 from the previously reported 834,000 rate.

It's early, but that's potentially great news for the economy. The housing and lending sectors are bleeding badly right now, and any sign showing a turnaround could be a real shot in the arm for both industries, which right now are struggling with big financial losses, heavy layoffs, and a general crisis of confidence.

Let's see what happens, but for now, there could be a glimmer of hope on the horizon.

I spent last week in Key West at a friend's house and had a great time.

Okay, outside of the fishing, snorkeling, and the plaque I should get from all the bar stool time I spent at the Green Parrot, I won't rub it in.

But on the flight back I read in the Miami Herald how consumer confidence in the Sunshine State was off three points this month. That seemed strange -- Florida is job-heavy and leads the country in new construction and new residents. That's not to mention the absence of a state tax.

So I read where nationally, consumer confidence was way up in May, fueled by optimism about the job market and the seeming ease in housing woes across the country.

So is Florida an aberration? I think so. Economic numbers spike up and down all the time, especially at the state and regional levels. Not so much with the national figures, where today the Conference Board reported that its Consumer Confidence Index rose to 108.0 in May, up from a revised 106.3 in April. Wall Street numbers-crunchers had forecast the Index to fall to 104.5. The May reading was the highest since March when the index was at 108.2.

Most analysts are, as usual, hedging their bets. But I do note a sense of encouragement on consumer sentiment. "The short-term outlook remains cautious and rising gasoline prices are having a negative impact on consumers' inflation expectations," says Lynn Franco, director of The Conference Board Consumer Research Center, in a statement. "(But) All in all, confidence levels continue to suggest growth, albeit at a slow pace."

Growth at a small pace after five years of high growth? I'll take that any day of the week. The economy can't be running on all cylinders all of the time -- there has to be periods of readjustment along the way. As long as such periods stay in positive territory, as we're seeing now, then we're in good shape.

The Federal Trade Commission routinely warns consumers and businesses about online fraud. They're doing so again -- but this time the scam artists are using the FTC's good name in an email spyware gambit.

According to a statement from the FTC, consumers, including corporate and banking executives, appear to be targets of a bogus e-mail supposedly sent by the Federal Trade Commission but actually sent by third parties hoping to install spyware on computers. The bogus e-mail poses as an acknowledgment of a complaint filed by the recipient, and includes an attachment. Consumers who open the attachment to this e-mail unleash malicious spyware onto their computer. The agency warns consumers who get this e-mail that 
purports to be from the FTC:

-- Don’t open the attachment.
-- Delete the e-mail.
-- Empty the deleted items folder.

According to the FTC, the hoax e-mail is personalized, and contains the name of the recipient and their business. The bogus message explains how the complaint will be used, who will have access to it and states, “Attached you will find a copy of your complaint. Please print a hard copy of the complaint for your records in the upcoming investigation.” Opening the attachment downloads the malicious spyware.

Emails touting spyware offers  is one of the most common forms of online fraud out there. What makes this particular campaign perilous is the fact that the perpetrators are using an official U.S. government agency, it's logo and letterhead, and email address. I don't have any actual studies on this, but my get tells me that consumers respond more aggressively to directives bearing Uncle Sam's imprint.

So the watch word here is "caution". Don't go for the FTC gambit and don't open any email offering spyware offers with the FTC's name on it.

Consumers can learn more about protecting themselves from malicious spyware and bogus e-mails at OnGuardOnline.gov, a Web site created by the FTC in partnership with other federal agencies and the technology industry to help consumers stay safe online. The site features modules on spyware and phishing, at http://onguardonline.gov/ spyware.html and http://onguardonline.gov/phishing.html