Wall Street Speaks: Fix Washington!
In a slow motion repeat of the famous five minutes of two weeks earlier (May 6, 2010), the markets on May 20, 2010 sent a resounding message to Washington in the final hour of trading. “There’s a problem that needs fixing,” said the markets, “but it resides in Washington (and Europe and in government in general).”
With bad news from Europe and a surprisingly bad employment report in the morning, the market opened down. Things got progressively worse. After bottoming out at 1:00pm, the market started to reverse itself. At 2:31pm, the Senate began voting on a cloture motion regarding the financial reform filibuster. Dramatically gaining roughly 200 points from its low, the Dow reached its high point at 2:53pm. At the same time, the first reports announcing the Senate broke the filibuster started crossing the wires. At 2:54pm the market took a tail spin. It never recovered and ended the day at its lows, losing almost 4%.
Coincidence or causal?
Teirnan Ray thinks the Senate’s actions may have been the tipping point for an already tipsy market. “…the announcement around 3 pm that the Senate voted to put a limit on debate of financial reform legislation, leading the way to a full Senate vote on a bill by as soon as this evening, pushed the indices into the final capitulation,” wrote Ray (“Stocks Mauled as Bears Take Charge: Dow Plunges 376 Points,” Barrons.com, May 20, 2010).
Last month the New York Post reported “Congress is poised to rip the heart out of New York’s economy – i.e., Wall Street… Draconian regulation and confiscatory taxation are in the works. That’s very good news for London and Hong Kong…” (“Where’s Chuck?” New York Post, April 14, 2010). Speaking to FiduciaryNews.com, Ary Rosenbaum, Managing Partner at The Rosenbaum Law Firm P.C. believes “The immediate drop after the cloture vote is Wall Street’s reaction to the financial reform bill. While Wall Street factored in some financial reform, the cloture vote woke Wall Street up to the fact reform was reality.”
Charles Payne, the morning after the Senate passed its bill, explains the possible reason for Wall Street’s backlash when he concludes his stinging article with, “The real problems in America are reflected in the ever-growing Problem Bank list compiled by the FDIC. In the second quarter of 2006, there were 50 problem banks with assets of 45.5 billion, and now there are no less than 775 with assets of $431.0 billion. With housing teetering again and jobs still elusive, it is unlikely banks are going to step up lending. Add in some of the measures in the Financial Regulation bill, and capital isn’t going to get to Main Street and a lot more banks will go out of business. (“New Financial Regulation Greeted With Market Meltdown,” Seeking Alpha, May 21, 2010).
Washington has not been kind to Wall Street these last few weeks. While the passage of Health Care Reform muted the market’s momentum in late March, the Goldman Sachs hearings proved the turning point. Paul G Escobar, Managing Director, Retirement Planning, US Wealth Management, told FiduciaryNews.com, “most legislators have very little real understanding of finance or trading – you could see that blatantly with the Goldman Sachs hearings.” Stocks have been heading down since then, most recently fueled by the growing Grecian crisis. But even the one day drop on May 6th proved temporary – until the market again tested the lows following the passage of Financial Reform.
One wonders when, instead of ratcheting up its war with Wall Street, Washington will start listening to investors. After all, it’s the folks on Main Street who just lost 10% of their retirement savings in less than a month. You can’t blame Wall Street for that.