Tuesday, September 23, 2008

FBI to investigate financial firms

No details but the Associated Press is saying the FBI is investigating Fannie Mae, Freddie Mac, Lehman Brothers and AIG.

This comes after Congressional hearings today on what basically amounts to a government attempt to prop up the stock market and prevent a "run on the banks."

Times Online

Stocks tumble on bailout woes
CNN - 44 minutes ago
NEW YORK (CNNMoney.com) -- Stocks slumped Tuesday, as the heated debate in Congress on the proposed $700 billion bank bailout dampened hopes that the ...
In search of an answer: Why is the Bush/Wall Street bailout so ... Los Angeles Times
Bailout extends to foreign banks, small and regional institutions Bizjournals.com
The other bailout: Main StreetChristian Science Monitor

Voice of America

Bailout plan under fire
CNNMoney.com - 2 hours ago
NEW YORK (CNNMoney.com) -- The debate over whether Washington should enact an extraordinary bailout of the nation's financial system reached a fever pitch ...
Why Congress Objects To The Bailout Plan NPR
Senate attack on bailout lacks explicit threat Reuters
Bailout plan sparks wide debate in Congress MSNBC

 Main Street is starting to rally against Wall Street. Protesters came together today to demonstrate against Washington's bailout plan. CBS 2's Deborah Garcia was there and has more from lower Manhattan.Play Main Street Protests Wall St. Bailout Plan CBS 2 New York via Yahoo! News - 1 hour, 14 minutes ago image unavailableReuters
Rough Cut
Sep 23, 2008
image unavailableReuters
Sep 23, 2008
 South Carolina Republican Jim DeMint calls the proposed bailout completely unacceptable.Play GOP senator says bailout wrong CNN via Yahoo! News - Sep 23 9:32 AM  Treasury Secretary Henry Paulson told the Senate Banking Committee Tuesday that Congress has to quickly pass the administration's 700 billion dollar bailout of the financial industry. (Sept. 23)Play Paulson seeks quick passage of bailout plan AP via Yahoo! News - Sep 23 12:01 PM  Financial leaders are grilled during a Senate hearing about the $700 billion federal bailout plan.Play Heat at bailout hearing CNN via Yahoo! News - 1 hour, 5 minutes ago image unavailableReuters
Rough Cut
Sep 23, 2008
image unavailableReuters
Sep 23, 2008
 Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson told Congress Tuesday the country faces a deep recession if lawmakers don't approve a $700 billion plan to buy up bad mortgage loans. But despite the dire warnings, there is plenty of resistance to the bailout. KVUE's Mike Goldfein has more one the testimony from Washington.Play Resistance to bailout persists despite warnings KVUE-TV Austin via Yahoo! News - 37 minutes ago  U.S. Treasury Secretary Henry Paulson urged Congress to act swiftly to put in place a $700 billion financial system bailout, warning delay would put the economy at risk.Play Paulson warns of bailout delay costs Reuters via Yahoo! News - Sep 23 9:51 AM  Barack Obama said Americans need assurances about the future of the economy if they are expected to help fund the $700 billion bailout of the nation's financial markets. (Sept. 23)Play Obama: Americans need assurances about bailout AP via Yahoo! News - 2 hours, 57 minutes ago

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What if the bailout doesn't stop market meltdown?

Supposedly the idea is that by buying hundreds of billions of dollars of shares in failing financial companies, the U.S. government hopes to halt the down spin on Wall Street.

If we distill the meaning, the hope is mainly to stop the instability in the stock markets. By shoring up the investment companies, the idea is that confidence will be restored and the indexes will stop plunging or swinging wildly. This is an idea that seems to register on Wall Street itself, or at least among the day and swing traders. After news of the bailout, not only did the markets rebound but oil prices dropped sharply.

The drop in oil seemed to indicate that people thought the economy would rebound after the bailout and that demand in oil would go up.

However, long-time observers of stock markets will know that taking any drastic action based on perceived future action of these markets is very risky.

The markets themselves showed uncertainly when Monday stocks went in the opposite direction and oil prices experienced a record rise. And that was just over one weekend! What happens if taxpayers get stuck with half a trillion in toxic assets, but the market does not respond in the manner that the administration hopes it will?

There may be more to this economic crisis than appears on the surface. It may not be long before other companies from different sectors also show signs of failing en masse. Does the government keep borrowing money to bail out these companies also.

Supporters of the bailout claim the action is needed to prevent a "run on the banks" were people rush to withdraw money from retirement accounts and money market funds. The use of the phrase "run on the bank" probably is not being used accidentally. It's something most people understand from watching Hollywood movies.

However, one must ask whether the government's buying of bad stock can in any way stop people from relocating their assets to safer havens. In a free market, one has to consider that investors may not react in the way you are assuming they will.

However, with an election coming up in November, it is certain that Congress and the administration must do something to show that they are on top of the situation. Most experts agree they will pass some type of package. The details though could differ widely. They may decide, for example, to put more money into helping struggling homeowners.

Whatever they do, all eyes will be focused on the stock markets after the legislation goes into action.


Congress balks at banks bailout plan
guardian.co.uk, UK - 2 hours ago

But the key problem not addressed by the bailout – a point also made by Krugman – is that some banks remain under-capitalised, ie they don't have enough ...

Bush offers $500 billion bailout Minneapolis Star Tribune
US financial rescue plan could cost one trillion dlrs: senator AFP

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