It will be interesting to see if this dose of cold water from former Fed governor William Poole will take any sizzle out of the forceful equity rally (the Nikkei is up 425 points as of this writing, and US stock futures say the US markets will also show an impressive move up). From Bloomberg:
“Some of this is a stopgap to try to prevent the mortgage market from falling apart,” former Federal Reserve Bank of St. Louis President William Poole said on Bloomberg Radio. The federally chartered, shareholder-owned structure, with risks covered by taxpayers, is “an unacceptable situation,” he said, projecting the Treasury may need to cover as much as $300 billion of losses..
Bloomberg is running the Poole comment in its headline, so it will catch the eye of traders. The rest of the piece featured mainly positive reactions from the usual suspects. For instance:
“This action should lead to an increased availability of mortgage financing, which will help achieve stability in housing,” Bank of America Corp. Chief Executive Officer Kenneth Lewis, said in e-mailed remarks…
“Paulson has threaded the needle just right by taking necessary action to stabilize U.S. financial markets while minimizing the liability for taxpayers,” Schumer of New York, who heads the congressional Joint Economic Committee, said in a statement. “This plan will be met with broad acceptance in Congress because it doesn’t prejudge the ultimate fate of Fannie Mae and Freddie Mac.”