Wall Street Teeters, Obama Presses Economic Plan
The moves are part of a flurry of government initiatives aimed at helping to ease the economic crisis and boost the viability of the struggling U.S. banking system.
During his speech to a joint session of Congress Tuesday night, President Barack Obama sought to rally the nation around his economic recovery plan, promising an anxious nation “we will rebuild, we will recover” and urging lawmakers to move quickly on tightening regulation of financial markets.
For some on Wall Street, however, the president’s speech lacked too few details on his path to economic revival, sending shares lower in early trading.
“The market was up 4 percent yesterday and I think that was probably a little excessive given the economic backdrop,” Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles, told Reuters.
“There was a little bit of an overshoot to the upside yesterday and we’re just giving some of that back early as President Obama didn’t have anything substantive to say last night,” he said.
Mr. Obama is scheduled to meet Wednesday with Treasury Secretary Timothy Geithner and with the top members of the House and Senate committees that would be charged with drafting the new regulations.
In remarks on the economy prepared for delivery later Wednesday, the president did not plan to outline a specific regulatory system but would instead call for “core principles.”
“Let me be clear: the choice we face is not between an oppressive government-run economy and a chaotic and unforgiving capitalism,” the president planned to say, according to remarks obtained by the Associated Press. “Rather, strong financial markets require clear rules of the road, not to hinder financial institutions, but to protect consumers and investors.”
In the “stress tests,” banking regulators plan to scrutinize the financial conditions of Citigroup Inc., Bank of America Corp. and more than a dozen other banking institutions that have received billions from the Treasury Department’s $700 billion rescue fund.
The plan was outlined this week in a joint statement issued by regulators who sought to assure nervous investors and global markets. The announcement has since intensified the debate over whether the government may move toward taking large ownership stakes in some troubled banks.
“The main thing to understand here is that we’re running out of alternatives. We’re not saying, ‘Oh, here’s a bank. We just don’t like it in private hands. We’re going to seize it,’” economist and New York Times columnist Paul Krugman said on the NewsHour Tuesday. “These banks are already receiving huge infusions of taxpayer money. They’re already being supported. They’re already crippled in terms of their ability to support the economy.”
On Capitol Hill, Federal Reserve Chairman Ben Bernanke told a House panel Wednesday there was no plan to nationalize troubled bank Citigroup — news which led stocks on Wall Street to trim some losses.
“Nationalization to my mind is when the government seizes the bank, zeros out the shareholders and begins to manage and run the bank, and we don’t plan anything like that,” Bernanke said during his second day of testimony to Congress.
On Tuesday, Bernanke also weighed in on the criteria for the banking stress tests.
“The outcome of the stress test is not going to be fail or pass,” said Bernanke, whose agency is the primary regulator for many of the country’s largest banks. “The outcome of the stress test is, how much capital does this bank need in order to meet the credit needs of borrowers in our economy?”
Meanwhile, disappointing new housing data was reported Wednesday.
The National Association of Realtors reported that sales of existing homes fell 5.3 percent to an annual rate of 4.49 million last month, from 4.74 million units in December. It was the weakest showing since July 1997.
The median sales price in January dropped to $170,300, down 14.8 percent from $199,800 a year earlier and from $175,000 in December. It was the lowest price since March 2003 and the second-largest drop on record.