Wednesday, July 16, 2008

Working Together - Bush Administration, The Fed, The SEC, and Congress

Can anyone remember a day where the President, Secretary of Treasury, Chairman of The Fed, and SEC Chairman all were busy outlining the ideas and policies of the financial markets?

The President dealt with trying to persuade Congress to change legislation allowing offshore drilling... a move he believes will start to help oil prices drop. Essentially, he reiterated his speech from Monday in The Rose Garden.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and U.S. Securities and Exchange Commission Chairman Christopher Cox discussed their recent actions to shore up support for Fannie Mae (FNM) and Freddie Mac (FRE) and all other economic topics before the Senate Banking Committee on Tuesday.
  • Paulson went after being given a "blank check" to deal with the current credit crisis. The feeling was that if Congress said a certain limit (a water gun), then the market would look to hit that limit. If you are given unlimited funds (a bazooka), then you might not need any of the funds. He also said the Fannie Mae and Freddie Mac plans are there if needed, but are not a foregone conclusion.
  • Bernanke stated that The Fed was "particularly alert" to any sign that inflation was getting out of control. With that said, Bernanke also acknowledged that the economy was currently growing very slowly and that several risks could dampen that growth. These comments essentially put an end to any thought that The Fed would raise rates at its next meeting. The market also started to back off rates being raised at the September meeting.
  • Cox said the Securities and Exchange Commission will try to limit so-called "naked" short selling of shares in Fannie Mae, Freddie Mac and big brokerage firms. Cox stated that the SEC will issue an emergency order stating that all short sales of shares in these companies will be subject to a "pre-borrow" requirement that will last for 30 days. The SEC is also planning more rule-making focused on short selling in the broader market.
These four men along with Congress are definitely looking for ways to boost the economy and market. We will definitely watch as they collectively and independently make changes that alter the financial landscape.

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