The Multifront War
Over Investor Confidence
By JOSEPH SCHUMAN
THE WALL STREET JOURNAL ONLINE
European and Asian markets are tanking today, and so is the dollar, the latest signs that the U.S. government's full engagement on the Fannie-Freddie front hasn't ended a much broader assault of investor uncertainty on the financial markets.
Investor confidence levels are so unstable that sources tell the New York Post that Lehman Brothers chief Dick Fuld is seriously thinking of taking the besieged Wall Street firm private. Rumors about Lehman's solvency in the wake of Bear Stearns's implosion earlier this year have shattered the firm's stock price, "attracting hungry vultures hoping to snap up the ailing fixed-income shop on the cheap," as the Post puts it. One source tells the paper that Mr. Fuld's "idea is why sell to someone else at so cheap a price when they could buy themselves." The insight from these undescribed sources coincides with a report from a Fox-Pitt bank analyst suggesting Lehman could go private by paying a 25% premium on its stock price. Still, as The Wall Street Journal cites analyst Brad Hintz as saying, "the strengthening of Lehman's funding base and balance sheet combined with the continued support of the Federal Reserve, means that the firm should be able to survive any confidence crisis ahead."
Like the unsubstantiated doubts about Lehman's solvency, it is market uncertainty about the capital levels of government-sponsored mortgage giants Fannie Mae and Freddie Mac -- amid a surging if not yet overwhelming foreclosure rate in the U.S. -- that pushed the Bush administration to act so forcefully over the weekend. While key members of Congress yesterday said they would quickly act on proposals to give Treasury and the Federal Reserve more latitude to financially back Fannie and Freddie, along with more government oversight, Senate Banking Committee Chairman Chris Dodd tried to assure investors the problem was less financial than mental. "The fact is that Fannie and Freddie are in sound shape. We're trying to deal with fear," he told reporters, as The Hill reports.
That seemed to help, at least temporarily, since investors yesterday bought $3 billion in short-term debt in a Freddie auction that drew more bids than usual and thus allowed the company to offer lower yields and keep down its borrowing costs, as The Wall Street Journal notes. This confidence stems from the powerful promise Treasury Secretary Henry Paulson essentially made to back Fannie and Freddie on Sunday, however much he expressed a preference for keeping their shareholder-owned structures. As BusinessWeek's Michael Mandel argues, the two seem to be "on the inevitable road to being bailed out, nationalized, and shrunk," since the placement of "the full faith and credit of the U.S. government behind two private financial companies" can't be undone. Still, if Mr. Paulson's weekend moves helped shore up short-term confidence in Fannie and Freddie's ability to keep pumping money into the housing market, they didn't solve long-term worries about their capitalization, the Journal says.
The rescue of Fannie and Freddie came "after Wall Street executives and foreign central bankers told Washington that any further erosion of confidence could have a cascading effect around the world," officials tell the New York Times. And yet, the start-and-stop market cascades tied to the mortgage crisis that began early last year were at it again today. Yesterday's fall in U.S. banking stocks today is translating into hefty losses in Shanghai, Singapore, Hong Kong and Japan, and in London, Frankfurt and Paris, too. The dollar reached a new low against the euro, which was buying more than $1.60, and U.S. stock futures are down ahead of the market open in New York.
Over Investor Confidence
By JOSEPH SCHUMAN
THE WALL STREET JOURNAL ONLINE
European and Asian markets are tanking today, and so is the dollar, the latest signs that the U.S. government's full engagement on the Fannie-Freddie front hasn't ended a much broader assault of investor uncertainty on the financial markets.
Investor confidence levels are so unstable that sources tell the New York Post that Lehman Brothers chief Dick Fuld is seriously thinking of taking the besieged Wall Street firm private. Rumors about Lehman's solvency in the wake of Bear Stearns's implosion earlier this year have shattered the firm's stock price, "attracting hungry vultures hoping to snap up the ailing fixed-income shop on the cheap," as the Post puts it. One source tells the paper that Mr. Fuld's "idea is why sell to someone else at so cheap a price when they could buy themselves." The insight from these undescribed sources coincides with a report from a Fox-Pitt bank analyst suggesting Lehman could go private by paying a 25% premium on its stock price. Still, as The Wall Street Journal cites analyst Brad Hintz as saying, "the strengthening of Lehman's funding base and balance sheet combined with the continued support of the Federal Reserve, means that the firm should be able to survive any confidence crisis ahead."
Like the unsubstantiated doubts about Lehman's solvency, it is market uncertainty about the capital levels of government-sponsored mortgage giants Fannie Mae and Freddie Mac -- amid a surging if not yet overwhelming foreclosure rate in the U.S. -- that pushed the Bush administration to act so forcefully over the weekend. While key members of Congress yesterday said they would quickly act on proposals to give Treasury and the Federal Reserve more latitude to financially back Fannie and Freddie, along with more government oversight, Senate Banking Committee Chairman Chris Dodd tried to assure investors the problem was less financial than mental. "The fact is that Fannie and Freddie are in sound shape. We're trying to deal with fear," he told reporters, as The Hill reports.
That seemed to help, at least temporarily, since investors yesterday bought $3 billion in short-term debt in a Freddie auction that drew more bids than usual and thus allowed the company to offer lower yields and keep down its borrowing costs, as The Wall Street Journal notes. This confidence stems from the powerful promise Treasury Secretary Henry Paulson essentially made to back Fannie and Freddie on Sunday, however much he expressed a preference for keeping their shareholder-owned structures. As BusinessWeek's Michael Mandel argues, the two seem to be "on the inevitable road to being bailed out, nationalized, and shrunk," since the placement of "the full faith and credit of the U.S. government behind two private financial companies" can't be undone. Still, if Mr. Paulson's weekend moves helped shore up short-term confidence in Fannie and Freddie's ability to keep pumping money into the housing market, they didn't solve long-term worries about their capitalization, the Journal says.
The rescue of Fannie and Freddie came "after Wall Street executives and foreign central bankers told Washington that any further erosion of confidence could have a cascading effect around the world," officials tell the New York Times. And yet, the start-and-stop market cascades tied to the mortgage crisis that began early last year were at it again today. Yesterday's fall in U.S. banking stocks today is translating into hefty losses in Shanghai, Singapore, Hong Kong and Japan, and in London, Frankfurt and Paris, too. The dollar reached a new low against the euro, which was buying more than $1.60, and U.S. stock futures are down ahead of the market open in New York.
No comments:
Post a Comment