Wall Street Goes To Washington Day Two
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Stocks finished mixed today as Wall Street focused its attention on the developments in Washington on the $700 billion financial bailout plan for the second straight day. While it is clear Congress understands something must be done, there is a growing push to add provisions to the plan including limits on executive compensation. The Dow lost 29 points, the Nasdaq finished up 2 points and S&P 500 fell 2.
Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson continued to push the plan aggressively, saying if something is not done quickly mainstreet will suffer. In prepared remarks, Bernanke said, "stresses in financial markets have been high and have recently intensified significantly. If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse." Paulson said, "... bad loans have created a chain reaction and last week our credit markets froze up – even some Main Street non-financial companies had trouble financing their normal business operations. If that situation were to persist, it would threaten all parts of our economy." Both pushed the fact that the $700 billion program is not a spending program, but an asset purchase program. They said the assets which are bought and held will ultimately be resold with the proceeds coming back to the government.
Bernanke indicated yesterday that buying the troubled assets from banks in a reverse auction somewhere near 'hold-to-maturity' prices instead of 'fire-sale' prices will protect bank balance sheets. Banks are required to mark their assets to the market, which in this current environment of fire-sale asset sales exacerbates the problems creating write-offs and restricting capital and lending. Bernanke said valuing assets at 'hold-to-maturity' prices versus 'fire-sale' prices will provide confidence to the system and bring back liquidity.
One of the smartest points in today's testimony was made by Congressman Ron Paul. Paul said paying above market prices for the assets amounts to price fixing. He said price fixing was a major cause of the great depression and said it will only cause bigger problems this time around. He said the illiquid assets are illiquid because they're not worth anything. He said the market is saying the prices must be lower and to artificially boost them would be an error. Bernanke countered the comments from Paul saying the auction process will find fair prices for the assets, and while he agreed that price fixing was one of the causes of the great depression, he said government's failure to intervene was another. Watch the video!
President Bush will address the country on the plan tonight at 9PM ET.
Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson continued to push the plan aggressively, saying if something is not done quickly mainstreet will suffer. In prepared remarks, Bernanke said, "stresses in financial markets have been high and have recently intensified significantly. If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse." Paulson said, "... bad loans have created a chain reaction and last week our credit markets froze up – even some Main Street non-financial companies had trouble financing their normal business operations. If that situation were to persist, it would threaten all parts of our economy." Both pushed the fact that the $700 billion program is not a spending program, but an asset purchase program. They said the assets which are bought and held will ultimately be resold with the proceeds coming back to the government.
Bernanke indicated yesterday that buying the troubled assets from banks in a reverse auction somewhere near 'hold-to-maturity' prices instead of 'fire-sale' prices will protect bank balance sheets. Banks are required to mark their assets to the market, which in this current environment of fire-sale asset sales exacerbates the problems creating write-offs and restricting capital and lending. Bernanke said valuing assets at 'hold-to-maturity' prices versus 'fire-sale' prices will provide confidence to the system and bring back liquidity.
One of the smartest points in today's testimony was made by Congressman Ron Paul. Paul said paying above market prices for the assets amounts to price fixing. He said price fixing was a major cause of the great depression and said it will only cause bigger problems this time around. He said the illiquid assets are illiquid because they're not worth anything. He said the market is saying the prices must be lower and to artificially boost them would be an error. Bernanke countered the comments from Paul saying the auction process will find fair prices for the assets, and while he agreed that price fixing was one of the causes of the great depression, he said government's failure to intervene was another. Watch the video!
President Bush will address the country on the plan tonight at 9PM ET.
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