Financial Market Update: After the Closing Bell-Friday, Sept. 19
- Sep 19, 2008
It will be a strange weekend in Washington as Treasury and SEC officials say they will provide Congress with a plan–on Saturday–to deal with the financial turbulence of the past week. The proposal will not, in all likelihood, be a bona fide bill until Congress has had time to chew on it, but given the sense of urgency, movement by Congress will probably be preternaturally fast. But there may be time for a few add-ons. Sen. Charles Schumer (D-NY) has suggested bringing back, in some form, the Depression-era Reconstruction Finance Corp., an independent government agency that made loans to banks, railroads, farm mortgage associations, and other businesses. Schumer has also proposed allowing judicial mortgage modifications, an idea that the mortgage banking industry has vigorously resisted in the past. Whatever happens over the weekend, investors liked what they’ve heard so far. As of the closing bell today, the Dow Jones Industrial Average was up 368 points, or about 3.35 percent. Stocks worldwide had yo yoed upward overnight on Thursday on the prospect of U.S. government intervention in the financial markets, including the plans to crack down on short sellers, which are getting a good measure of the blame for the crisis (the British tabloid Daily Mirror featured a picture of a hedge-fund owner who made millions short-selling bank stocks under the headline “Greedy Pig”) The Stoxx 600 rose 8.3 percent and the FTSE was up a record 7.9 percent. Even Russia’s RTS Index jumped up 22 percent. Investors may be buying stocks, but Americans on the whole pulled roughly $89.2 billion from money-market funds on Wednesday, according to the Money Fund Report. The government is intervening there, too, with the U.S. Treasury Dept. announcing that will use as much as $50 billion from the federal Exchange Stabilization Fund to “temporarily” protect money-market fund investors from losses. As for short selling, the practice has been banned by the SEC for 799 financial stocks, and may be soon for others The action follows a similar ban by the British government on Wednesday. The SEC termed it a “temporary emergency action.” The attorney general of New York State has promised to intensify his office’s investigation into short-selling abuses, though stopping short of promising to stick it to “greedy pigs.” U.S. Treasury Secretary Henry Paulson (pictured), referring to a “working session” he had last night with Federal Reserve Chairman Ben Bernanke, SEC Chairman Chris Cox and various members of Congress, said this morning that the job of the government at this critical juncture is that of plumber–to flush out bad real estate debt one way or the other. “As illiquid mortgage assets block the system, the clogging of our financial markets has the potential to have significant effects on our financial system and our economy,” he said. “These illiquid assets are choking off the flow of credit that is so vitally important to our economy… These illiquid assets are clogging up our financial system, and undermining the strength of our otherwise sound financial institutions.” For more, see CPN’s the full coverage of the Secretary Paulson’s plans by Contributing Editor Scott Baltic.