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Government
Responds to Market Instability
Federal
Reserve Chairman Ben
Bernanke, Treasury Secretary
Henry Paulson,
and Securities and Exchange Commission Chairman
Christopher Cox
met with congressional leaders in Washington on Thursday night to create a
plan to try and calm the roiling financial markets. Their announcement on
Friday morning is changing the financial markets around the world. Here’s
what they did:
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SEC
temporarily bans investors from short-selling 799 financial companies.
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US
Government guarantees money market funds.
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A plan to
create legislation to remove devalued mortgage assets from companies'
balance sheets is currently in the works.
Additional Steps:
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Fannie
Mae and Freddie Mac will increase their purchases of mortgage-backed
securities.
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Secretary
Henry Paulson, and Treasury will expand the MBS purchase program
announced earlier this month to help facilitate mortgage availability
and affordability.
SEC temporarily bans investors from short-selling 799 financial companies.
Short selling is a common trading method in which investors bet that the
stocks will go down by "borrowing" shares at a higher price and selling
them in the open market at a lower price. The SEC said short sellers "add
liquidity to the markets during normal conditions, but recent unbridled
short selling has contributed to the recent tailspin in the stock market."
The SEC has banned this practice for 10 days, which can be extended for
30-day increments.
On
Wednesday, the SEC also banned "naked" short-selling, in which investors
short the stock without actually borrowing it first.
On
Thursday, Britain's Financial Services Authority also temporarily banned
short-selling for financial companies.
Hopefully, this will add another level of calm to the current financial
crisis.
US Government guarantees money market funds.
The US Treasury said its decision to provide guarantees "should enhance
market confidence and alleviate investors' concerns about the ability for
money market mutual funds to absorb a loss." According to Treasury
Secretary Henry Paulson, "Nearly $2 trillion in money market mutual fund
assets will be covered by the guarantees."
European
Central Bank, Swiss National Bank and Bank of England also offered up more
cash Friday – a combined $90 billion into money markets.
It
should be noted that this does not include high-yield, enhanced type, or
riskier money market funds.
A plan to remove devalued mortgage assets from companies' balance sheets.
"Illiquid assets are clogging up our financial system, and undermining the
strength of our otherwise sound financial institutions," said Treasury
Secretary Paulson. "As a result, Americans' personal savings are
threatened, and the ability of consumers and businesses to borrow and
finance spending, investment, and job creation has been disrupted."
To
restore confidence in our markets and our financial institutions, the
federal government will create a new vehicle to purchase this mortgage
debt and provide a liquid marketplace.
These
three steps will not fix everything, but it's a major step in the right
direction for the overall health of our financial systems.
Please
call me with any questions with regard to how this impacts your specific
situation.
Courtesy of
John
John
Simpson - VP
Cell ..
789-5250 .. 24/7
Ofc/Fax ..
231-8840 .. 231-8850
First State
Home Loan
3305
Northland Drive Suite 208
Austin,
Texas 78731
Online Loan
Application..Http://emacmoney.com
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