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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: patron_anejo_por_favor who wrote (186493)	2/25/2009 1:24:30 PM
From: DebtBomb	Read Replies (2) \| Respond to of 306849

THE FED Bernanke tells Congress Fed knows what it is doing Focus on nationalization 'misses the point,' Fed chief says By Greg Robb, MarketWatch Last update: 12:11 p.m. EST Feb. 25, 2009WASHINGTON (MarketWatch) - Federal Reserve Board Chairman Ben Bernanke tried to assure Congress and investors that federal regulators are not grasping at straws in the response to the financial crisis. "We're not making it up," Bernanke told the House Financial Services panel. "We're working along a program that has been applied in various contexts," he said. "We're not completely in the dark." The sense that Washington was reacting to events rather than shaping them has grown since former Treasury Secretary Henry Paulson switched the focus on the first $350 billion in bailout funds he received from Congress last fall. Paulson had laid out to Congress a complex plan to take toxic assets of bank balance sheets, but has soon as he received the funds decided to purchase stock in the banks in return for capital. That switch in tactics still is a sore spot to many on Capitol Hill. Bernanke tried to assuage the hurt feelings, saying that the swift passage of the bailout funds prevented a much more severe crisis with many bank failures. Bernanke spent much of the hearing on Wednesday trying to reinforce his message to Congress that the Fed and the Obama administration now have at least the outlines of a bank rescue plan in place that will show results over time and that banks are not on an out-of-control course to nationalization. "The focus on nationalization kind of misses the point," Bernanke said. While the federal government may acquire large minority positions in the nation's largest banks, it has no plans to run the institutions and zero out shareholders, Bernanke said. "It may be the case that the government would have a substantial minority share in Citi [s: C] or other banks," Bernanke said. But the government has the tools already it needs "to make sure that banks just don't sit there," he said. "Nationalization, to my mind, is when government seizes the banks, zeros out the shareholders and begins to manage and run the bank and we don't plan anything like that," he said. Some analysts still believe that the government will discover after its stress test that some banks will need a more severe handling. For instance, Douglas Elliott, a scholar at the Brookings institution, a liberal think-tank, said that full nationalization may be needed for "one or two of the nation's larger banks." Bernanke assurance Tuesday to the Senate Banking Committee that the federal government doesn't want to nationalize the nation's largest banks was cited as a major factor in the stock market's rebound. Bernanke said regulators would ensure than banks did not turn into zombie banks. See full story. The Dow Jones Industrial Average snapped three days of losses after Bernanke's testimony, rising more than 3%. See full story. Today, Bernanke is on the House side of the Capitol, testifying to the House Financial Services panel. Members may press Bernanke on the price-tag of the latest plan to fix the banks. Bernanke said that the government was prepared to inject capital to fix holes in the banks caused to the sudden sharp drop in their assets. But the size of the holes remains an open question. On Tuesday, President Barack Obama told the nation for the first time that the cost was going to be higher than the $700 billion allocated by Congress. See full story. Rep. Barney Frank, the Massachusetts Democrat and chairman of the House panel, told members to curb their anger for the cost of the bailout. He said that it was impossible to send all culprits in the crisis to the gallows. Bernanke told Congress Tuesday that the key to ending the recession was fixing the financial system. "If there is one message that I'd like to leave you with, if we're going to have a strong recovery, it has got to be on the back of a stabilization of the financial system. It is black and white," Bernanke said. See full story. "If we don't stabilize the financial system, we're going to flounder for some time." Another interesting point from the first day of the hearing was that the idea that the Fed was planning to buy long-term Treasurys has moved to the back-burner. marketwatch.com