Posted by: Kim_Hamilton on 09/22/2008 08:03 PM
Updated by: Kim_Hamilton on 09/22/2008 08:03 PM
Expires: 01/01/2013 12:00 AM
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"Bailing Out the Markets....Unprecedented times produce unprecedented moves in Washington"~provided by Donna M. Stevenson
United they stood … and up the markets climbed. On a tranquil Friday morning in the Rose Garden of the White House, the financial “front line” of the U.S. government stood in solidarity and presented a bailout plan in response to the troubles in the stock markets. President Bush, Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and yes, even Securities and Exchange Commission Chairman Christopher Cox were present as a remarkable federal intervention was unveiled – with major details still to be determined, presumably to be worked out over a busy weekend......
How much will it cost taxpayers? Don’t ask. Will it restore confidence on Wall Street? It certainly did Friday, as stocks rallied dramatically for the second straight day.
Here’s the big picture. The federal government is moving to take bad debts off the hands of Wall Street firms. This is critical, because for months, investment banks have been redirecting profits from other types of investments to offset ballooning losses incurred from mortgage-backed securities. If the government relieves them of this chore, these firms can focus on making money through other, more profitable investments.
Some big moves. Friday morning, the SEC banned short selling of the stocks of 799 financial companies until October 2, in an effort to restore some stability to the markets. (Regulators in the United Kingdom had made the same move a day earlier.)1
The Treasury Department also made an extraordinary move, tapping into the Exchange Stabilization Fund (created back in the 1930s) to provide insurance for certain retail and institutional money market funds for up to one year. In addition, Fannie Mae, Freddie Mac and the U.S. Treasury will expand their efforts to purchase mortgage-backed securities – the Treasury will buy $10 billion during the first month of its program, up from an initially stated $5 billion.
As for the Federal Reserve, it will offer loans enabling banks to purchase “high-quality” asset-backed money-market securities, and it will also buy a yet-to-be-determined amount of short-term discount notes issued by government-sponsored agencies (i.e., Fannie Mae, Freddie Mac, and the Federal Home Loan Banks).2
And some big questions. Will the federal government create a new regulatory agency ASAP to manage all these government-owned investments and prevent such crises in the future? It would seem imminent. Otherwise, the Treasury Department might have to take on that role in the interim.
And what’s the bill for all this? No one really knows, but Paulson thinks it will take “hundreds of billions of dollars.” Sen. Richard Shelby (R-Ala.), formerly the chair of the Senate Committee on Banking, Housing and Urban Affairs, believes it will be “probably $500 [billion] to a trillion dollars”. Bloomberg News reports that the federal government is considering assigning as much as $1.2 trillion for the effort.3
Have you been thinking about your money lately? Almost certainly, you have. At the moment, we’re a very financially focused nation. If you are thinking about where your money is and whether you should make a move with your investments, may I suggest a face-to-face conversation with, or at least an e-mail to, your financial advisor? It’s a good way to gain perspective amid the turbulence.
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
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