Friday, May 21, 2010

'What Are They Doing in Washington?'

Via Newsbusters

Rick Santelli and Maria Bartiromo discussed potential reasons the Dow Jones took a tumble of 376 points yesterday.  With fears over problems in Europe on the minds of investors, the Dow has lost over a thousand points in the last month.  Santelli and Bartiromo certainly include Europe in their analysis but noted the cloture vote for financial regulation may be adding to investors' fears as well:
"Well, a couple of things," Santelli said. Well, first of all, if you look at the high-grades, they widened out with the high-yields widened out more today at levels today that are wider than the day of the flash crash. That's ‘a.' And ‘b,' you know Maria, we have a 1.2511 on the Euro. This is so much more than just focusing on the Euro."

The other problem - it is the vote for cloture in the Senate, which all but ensures passage of financial regulation, creating a lot of uncertainty for investors.

"We were down 192 and we talked about it when the headline came out, they're going to pass that tonight, and breaking news on CNBC, and we then subsequently dropped 200 points. A lot of today's action, not all of it, but a lot of the late action is because of fin-reg is scratch your head. The markets are deleveraging on their own. What are they doing in Washington?"

And "Closing Bell" host Maria Bartiromo agreed.
Santelli hits the key question as always, "what are they doing in Washington?"  Nouriel Roubini sees risk of double-dip recession in some parts of the global economy and expects stocks to tumble another 20%.  In the US, Roubini sees the market reacting to political policy and regulatory uncertainty:
“There is this policy uncertainty that is also affecting the markets negatively. We don’t know what’s going to be the shape of financial regulatory reform—that uncertainly is negative for financial stocks. We don’t know whether they are going to raise taxes or how much next year, or deficit is going to remain large. We don’t know how much more government intervention is going to occur in the economy and the two parties are so divided that the chances of bipartisanship are very limited. If you have division of the government, chances are this problem will not be resolved and therefore, the markets are worried about political policy and regulatory uncertainty,” he said.
 It should be noted Roubini was one of the few economists who correctly predicted the financial crisis.  While the US economy may show signs of tentative growth, this growth is threatened by global economic instability and political policy here at home.  It's almost as though financial reform is timed to reap a political advantage, yet hits at a time when it may also do the most harm to the economy.

As Keith Hennessey points out, at the current rate of growth it will take years before employment and GDP return to maximum levels.  This is far too slow.   Add financial reform to the mix and we are likely to see growth impeded by the new levels of government regulation and bureaucracy created through a bill that doesn't even address the primary causes of the financial crisis to begin with.  As Santelli said, "What are they doing in Washington:

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