Investment Bank Woes Worry Traders
CNBC Executive News Editor
The health of Wall Street's investment banks and the possibility that they are holding hidden financial bomb shells has been one of the biggest worries on the minds of traders.
In fact, today is a kind of witching day for Wall Street as the firms shut their books on what has been an eventful quarter. Interesting, the New York Fed today releases its mid 2007 review and outlook for job growth in New York and New Jersey, two areas that are home to many finanacial industry workers.
The Fed economists for now expect job growth in the second half of 2007 to be similar to the first half in New York and New Jersey, 0.9 and 0.7 respectively -- "while New York City will lead the region, growing about 1.5 percent fueled by a continued expansion of services sector jobs."
But here's the caveat. The Fed economists say risks to that forecast would be a slowdown in the U.S. economy but also "recent developments in the financail markets have increased the risk of deceleration in employment growth for the region." Risk for sure. CNBC's Charlie Gasparino has been reporting job cuts are coming on Wall Street, and the Financial Times today says investment banks are set to cut 10 to 15% of their staff, victims of the market's turmoil.
A big event in September will be the earnings reports from the investment banks, which start on Sept. 12 with Goldman Sachs . Lehman and Bear Stearnsreport Sept. 13. All those stocks are up today, and one trader we like to talk to says it's the work of shorts.
Bail out with no buy out
Flanked by Treasury Secretary Hank Paulson, President Bush today introduced his "foreclosure avoidance initiative" to help homeowners facing foreclosure find a way to refinance. But he stressed the government would not bail out speculators.
"The governments got a role to play, but it is limited. A federal bailout of lenders would only encourage a recurrence of the problem. It's not the governments job to bail out speculators," he said. That comment pinged stocks and the dollar.
Those words also echoed a comment that Fed Chairman Ben Bernanke made not long before. "It is not the responsibility of the Federal Reserve--nor would it be appropriate--to protect lenders and investors from the consequences of their financial decisions," Bernanke said, in his highly anticipated speech in Jackson Hole, Wyo.
The stock market trended slightly away from its highs after both Bernanke's speech and President Bush's comments. But stocks moved back up and are breaking into the highs of the day at midday.
Bernanke walked a fine line, giving traders a little more confidence that he's on top of the markets concerns but not showing he will definitely pull the trigger on a rate cut. "I kind of expected Bernanke to be blunt and that's what he was. He did not hold anything back," said CNBC's senior economic correspondent Steve Liesman on 'The Call."
Liesman said Bernanke was clearly concerned about the economic fall out form the credit situation. "He was honest that there had been contagion," Liesman said.
Here's some Bernanke highlights:
--"The Federal Reserve stands ready to take additional actions as needed to provide liquidity and promote the orderly functioning of markets."
--"The Committee continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets."
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