You really have to give out-going Treasury secretary Hank Paulson credit for one thing--the man worked right up until the end. Paulson and F.D.I.C. head Sheila Bair gave further momentum to the idea of a new government-backed bank to remove toxic assets from lenders' balance sheets.
A lot of work has been done on an aggregator bank when it comes to dealing with illiquid assets, Paulson told reporters today in Washington. FDIC Chairman Sheila Bair praised the idea in an interview on CNBC, saying it might have some merit.
Today's remarks come days before President-elect Barack Obama takes office, and signal a readiness among regulators to undertake what's likely to be the most radical effort yet to unfreeze lending. Fed Chairman Bernanke earlier this week urged a comprehensive plan to address illiquid assets, floating the idea of a bad bank as one of three ideas for dealing with troubled assets during a speech last Monday at the London School of Economics.
The government's focus in dealing with the financial crisis has apparently changed again, said Matthew Carniol, chief currency strategist at TheLFB-forex.com. Bernanke set the tone when he said that an economic stimulus would not be enough to unfreeze stuck credit markets and that one way or another, the issue over bad loans and the securities written on them will have to be dealt with by the government.
After a volatile session on Friday due in part to expiring options, at the close of floor trading on the NYSE, the DOW was on 8281.22 after gaining 68.73 points (0.83%) while the S&P finished on 850.12, up 6.38 points (0.76%). The NASDAQ was the big gainer for the day, closing on 1529.33 with a gain of 17.49 points (1.16%). Bonds were sold on speculation the government would further support the financial system by either taking troubled assets off the banks hands or guaranteeing them. The yield on the 2-year note rose 3.1 basis points to 0.729% while yield on the benchmark 10-year note rose 11.9 basis points to 2.318%. The dollar ended up looking as if it was trading in risk-acceptance mode, falling 1.46% on the euro, 0.72% to the pound and 1.58% against Australia's currency as it rose 0.92% to the yen.
Crude oil for February delivery was recently trading up 50 cents (1.69%) to $36.00 per barrel.
Gold for February delivery was recently trading up $33.40 (4.14%) to $840.10 per ounce.