Strange Day at the Market
Today (Aug. 16, 2007), the stock market began the day by plunging nearly points because of worries about mortgage and credit woes. Incredibly, by the end of the day, the Dow Jones Industrial Average gained back nearly all of its loses. Was this comeback a result of investors working through their worries (in a couple of hours no less) or government intervention? Ever heard of the President's Working Group on Financial Markets or the Plunge Protection Team?
I hope everyone is watching the Senate Banking Committee discovery session on the Bear Stearns bailout:
Lawmakers opened hearings into the dramatic rescue of Bear Stearns, with top officials of the Federal Reserve and the Treasury Department defending their actions to save the Wall Street giant from bankruptcy.
The officials said the sudden collapse of the nation's fifth largest investment bank would have had unpredictable but likely severe consequences on the nation's health. In short, stock prices may have plunged, and the resulting turmoil would have lowered home prices and credit for hoWhile there were risks to taxpayers and to financial regulators from the bailout, these paled in comparison to the economic risks, the officials said.
"Are there risks here? Yes, but the risks are modest in comparison to the substantial damage to the economy and economic well-being that potentially would have accompanied Bear's insolvency," said New York Federal Reserve President Timothy Geithner, who resume the central role in the 96 hours of behind-the-scenes rush to rescue Bear Stearns.
Reply to this