Have lawmakers become a new market force? The past week of wild stock-price swings that dropped bank share prices down to 20-year lows has whipped up a hum of comments from market observers about the power of voices on Capitol Hill.
Last week, as fear grew in the market that the government would take over ailing banks, traders seemed to hang on every word out of Washington. On Friday, stocks were down most of the day and then posted some gains around 3pm, following a statement from the White House assuring investors that the government did not want to nationalize any banks. But the market dipped again after Sen. Chris Dodd, D-Conn., said Washington might indeed have to take over a few of the really bad institutions (he apologized yesterday for those comments.)
In an interview yesterday, a market analyst who wished to remain nameless breezily suggested that things might get better if certain loose-lipped members of Congress could learn to quiet down. "We were joking this morning that if Obama said in his speech tonight `and I´m going to keep [Sen. Nancy] Pelosi [D-Calif.] and [Sen. Harry] Reid [D-Nev.] quiet for a week,´ stocks would go up 15%," he said.
Enter Federal Reserve Chairman Ben Bernanke. His testimony to the Senate Banking Committee yesterday, which included reassuring words on the usefulness of stress tests and a hopeful prediction that the recession could end in 2009 was credited with yesterday´s stock market gains.
But linking lawmakers to fickle markets isn´t a sound science, as today´s prices demonstrate. Stocks are down right now, with a little under an hour left in trading, despite more attempts at encouragement by Mr. Bernanke today in the House.