David Kirkpatrick

October 2, 2008

Bailout news, jobless rate, short selling and rate cuts — oh, my

I’ve done a lot of blogging on the bailout and derided this ongoing process — including banning shorting some stocks (see more below on this) — as “corporate socialism.” I still don’t like the bailout, but now that the Senate passed its revised version I’m guessing the House will go along tomorrow unless the GOP stalwarts feel particularly feisty.

From the second link:

House members are getting another chance to vote on a financial bailout bill that has infuriated millions of voters after the Senate added tax cuts and other sweeteners and passed it handily.

Senators advanced the much-criticized measure in a 74-25 vote late Wednesday, sending it to the other side of the Capitol for a showdown vote expected Friday. The move was calculated to win over enough dissenting House members to get the bill through and reverse Monday’s stunning defeat in the House, party leaders there planned to press rank-and-file members Thursday for the dozen converts they believe they need.

But bailout news isn’t the only story with this ongoing financial crisis. Go below the fold for more on the jobless rate, the latest on shorting and possible additional rate cuts.

First up, the jobless rate. Not good news:

The level of new claims was the highest since shortly after the 9/11 attacks, when it reached 517,000.

David Resler, chief economist at Nomura Securities, said Thursday’s figure is the second-highest since July 1992. Claims have topped 500,000 only a handful of times in the past twenty years, he said, and were consistently above that level during the 1991 recession.

Even excluding the effects of the hurricanes, jobless claims remain at elevated levels. Weekly claims have now topped 400,000 for ten straight weeks, a level economists consider a sign of recession. A year ago, claims stood at 309,000.

If that doesn’t add to economic heartburn, how about more anti-capitalism from the SEC. Blaming short-selling for any of this mess makes no sense and only further confuses a market full — make that chock-full — of uncertainty

From the link:

Federal regulators on Wednesday extended an unprecedented ban against all short-selling in the shares of more than 800 financial companies, keeping it in place at least until after Congress enacts a massive financial bailout plan.

The Securities and Exchange Commission announced the extension of the ban, which was put in on Sept. 18 in a bid to shore up investor confidence in the face of the spiraling market crisis.

The ban, which was to expire Thursday, now will last until the third business day after enactment of the $700 billion financial bailout plan now before Congress. It will end no later than Oct. 17.

Late Wednesday, the Senate passed the bailout plan, which appeared to be gaining ground in the House, where Republicans’ opposition softened.

The idea is that the extension will give enough time for financial markets to calm, with bailout program’s plan to buy up Wall Street’s toxic mortgage debt possibly starting to have a positive effect. By law, the SEC’s emergency ban could not be extended beyond Oct. 17.

After absorbing all info, here’s the Fed to the rescue! Well, I doubt the Fed could tie its shoe right now but it is probably going to cut interest rates yet again:

Federal Reserve officials are weighing further interest rate cuts, even if Congress approves a $700 billion financial industry bailout, because of a worsening economic outlook, the Wall Street Journal said on Thursday. A rate cut is still far from certain, partly because of inflation worries, the WSJ said in an unsourced report on its website.

“The Fed’s willingness to consider additional rate cuts marks a turnaround from the past few months, when soaring food and energy prices turned its attention to inflation risks,” the Wall Street Journal said.

How about that for a Thursday morning pick-me-up. Hope everyone has been doing a lot of stretching. Flexibility is going to be at a premium for the foreseeable future.

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