Sunday, February 22, 2009

Dodd Speaks, Markets Instantly Tank

It's bad enough Christopher Dodd played a role in the housing market crash and largely avoids any blame, but now whenever he opens his mouth the markets instantly react negatively. It would be nice if he just dummied up and laid low. It would be even nicer if his constituents sent him into political retirement next year.
Last week, the scary word was "nationalization," a government takeover of a business or industry. It's pretty much the worst fear of every capitalist.

A number of the nation's biggest banks -- Citigroup and Bank of America, chiefly -- are sick, their balance sheets poisoned with toxic assets they can't unload, such as mortgage-backed securities.

They are so sick that Sen. Christopher Dodd (D-Conn.), the powerful head of the Senate Banking committee, nearly sent them into cardiac arrest on Friday with a comment he made.

A little after 1 p.m. on Friday, while speaking on Bloomberg television, Dodd said that nationalization of some of the nation's unhealthiest banks may be necessary "for a short time."

"I don't welcome that at all, but I could see how it's possible it may happen," Dodd said.

It's usually a mistake to link market fluctuations to moment-by-moment news.

Not this time.

The Dow Jones industrial average and the Standard & Poor's 500 instantly dove nearly 3 percent following Dodd's comments.

That's not the worst of it: Shares of Bank of America, Citigroup and Wells Fargo responded to Dodd's comments by each dropping a staggering 25 percent within minutes.

Dodd's comment was so potent, the White House felt compelled to chime in quickly, saying "a privately held banking system is the correct way to go."

Naturally, in response, the markets ricocheted back up, as did bank stocks, more than recovering their losses, at least for a time.
Linked at Instapundit. Thanks!

No comments: