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Bernanke: "...This Is A Matter For Psychology." (UPDATE)
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"You ask me my opinion as an economist, but this is a matter for psychology."
That's what Mr. Bernanke said to Senator Schumer, who has been pressing both Mr. Bernanke and Treasury Secretary Paulson for some agreement that would provide a lesser amount (say $150 billion) initially, and then have the next administration vote on providing more funds.
Mr. Bernanke is wisely resisting this gambit. He noted that "dribs and drabs" was not a good way to deal with what is essentially a confidence issue. The Street will interpret passage of this kind of deal as a sign of lack of commitment, and bears will say it is possible a future administration would be hostile to the idea and not approve more money regardless of whether it was needed.
Elsewhere, it's been a quiet open, even number of declining to advancing stocks, volume very much on the light side. No dramatic volatility in sectors, but note the weakness in select financial-related stocks: our parent company, General Electric[GE
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], down 3.4 percent, Citigroup[C
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] down 3.7 percent, American Express[AXP
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] down 1.9 percent. Good thing you can't short them anymore.
Update: "Putting capital into healthy or reasonably functional banks might frighten off private money that could come in."
That's Chairman Bernanke, responding to questions about why he is resisting proposals to allow the government to take an ownership stake in companies in exchange for buying bad debt.
He says that "concern might arise that the government is going to wipe out other shareholders" as a further reason not to entertain this idea.
Mr. Bernanke is trying to distinguish between a bank who is failing and needs an injection of capital, where taking warrants might be appropriate, and the current case, where institutions are not failing. The Fed here is trying to return liquidity to the markets.
Finally, requiring ownership, Mr. Bernanke warns, could dramatically lower the participation rate in the program.
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