Republican Heat on Bernanke

123jump.com Staff
25 Jun, 2009
New York City

Fed Chairman was on a hot seat and had to defend his conduct at the time of Merrill Lynch takeover by the Bank of America. Bernanke denied that he interfered with the merger or forced the outcome. Republican lawmakers appeared not convinced by stock market surged ahead.

[R]4:00 PM New York, 9:00 PM London, 6:00 AM Sydney – Fed Chairman was on a hot seat and had to defend his conduct at the time of Merrill Lynch takeover by the Bank of America. Bernanke denied that he interfered with the merger or forced the outcome. Republican lawmakers appeared not convinced by stock market surged ahead.[/R]

Rarely one sees chairman of the Federal Reserve on a hot seat but today law makers were searching for blood and Chairman Bernanke was questioned with tough words.

Bernanke was forced to explain and defend his conduct at the time of Merrill Lynch takeover by Bank of America.

He stressed that the Fed did not force the companies to merge and acted with “highest integrity” at the time of Merrill takeover. The Bernanke testimony comes at a time when President Obama is seeking expanded powers for the Fed and to vest more authority in the ‘independent’ central bank.

The Fed’s reputation as an independent bank has been clouded in last one year and its actions along with former Treasury Secretary Paulson had dropped all appearance of independence.

Republican lawmakers who played a key role in Bernanke’s appointment at the bank led a charge and questioned the appropriateness of the increased power and authority of the central bank. The Republicans are deeply concerned with the growing tentacles of the government in various segments of the economy and worries that the Fed may have overstepped its authority in dealing with banks in the name of systemic risks.

Bernanke also said that he did not limit Bank of America from disclosing large losses at Merrill and said that authority vests with the management and board of directors at the bank. He stressed that neither he nor any one at the central bank instructed Bank of America to not disclose information regarding Merrill Lynch.

Lawmakers appeared not convinced. Lawmakers also sought to curb the Fed powers and asked how he will view the audit of the Fed from the Government Accountability Office. Bernanke resisted the moves and said that will damage the independence of the central bank, dollar in the international markets and “highly destructive” to the stability of the financial system.

Bernanke responded with two options when asked should the large banks be broken up. Either Congress can limit the size of the banks or take steps to protect the economy in case of collapse of a bank that brings down the economy with it.

However, stock market was convinced and scaled higher on the speculation that Bernanke will be reappointed at the Fed. Treasuries also closed higher after the latest auctions of bonds drew higher than anticipated interest.

Lennar Corp led gainers in the S&P 500 index. Bed Bath & Beyond earned $87.2 million in fiscal first quarter. ConAgra Foods fourth quarter profit drops 13%, Nike fourth quarter net income falls and Red Hat tops earnings views.

UK regulator proposes to ban all commissions paid by pension, insurance and fund managers to financial advisors. Standard & Chartered reported better than expected performance in the first five months in the year. Insurance companies fell on a downgrade of Prudential.

British Airways said that nearly 7,000 employees have shown interest in voluntary work with no pay program. The negotiations with administrative staff and cabin crew are still not final. Pilots have agreed to a small pay cut in exchange of longer work hours and a stake in the company.

Stocks in Tokyo trading jumped after the U.S. durable goods orders increased. The OECD forecasted deeper Japanese recession and slower recovery than earlier predicted. Exporters, machinery makers and trading companies led the gainers.

Investors in India turned cautious on the worries of adequate monsoon rainfall and growing fiscal deficit. Makers of motorcycles, automobiles and consumer products fell. Tata Motors and Tata Steel fell ahead of earnings.

Stocks in Australia rebounded after the IMF revised its economic outlook. The Australian dollar gained on the forecast. Energy related stocks closed higher. BHP Billiton may sell its nickel mining operations in Western Australia.

North American Markets

Dow Jones Industrial Average increased 172.54 or 2.1% to a close of 8,472.40, S&P 500 Index increased 19.33 or 2.2% to 920.27, and Nasdaq Composite Index edged higher 37.20 or 2.1% to close at 1,829.54. Toronto TSX Composite Index closed up 260.45 or 2.6% to 10,361.38.

Of the stocks in S&P 500 index, 473 increased, 23 declined and 4 were unchanged.

Paychex, Inc led the decliners in the S&P 500 index with a loss of 6.3% followed by losses in ConAgra Foods, Inc of 4.3%, Supervalu Inc of 3.8%, in Nike Inc of 3.3%, in ADP of 2.3% and Jabil Circuits of 1.5%.

Lennar Corporation led gainers in the S&P 500 index with a rise of 17.5% followed by gains in SLM Corp 10.4%, in Bed Bath & Beyond of 9.5% and Cameron International of 8.6%.

South American Markets Indexes

Mexico Bolsa Index increased 534.47 or 2.3% to 24,245.71. Brazil Bovespa Stock Index increased 1,690.37 or 3.4% to 51,362.49.

Argentina Merval Index increased 2.3%, Chile Stock Market Select index edged higher 1.6%, Peru Lima General Index added 24% and Colombia IGBC General Index increased 1.1%.

Europe Markets Review

In London FTSE 100 Index closed lower 27.41 or 0.64% to 4,252.57, in Paris CAC 40 Index decreased 21.66 or 0.68% to close at 3,163.10 and in Frankfurt DAX index lower 35.45 or 0.73% to close at 4,800.56. In Zurich trading SMI decreased 82.12 or 1.51% to close at 5,361.30.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 205.76 or 2.15% to 9,796.08, Hang Seng index in Hong Kong increased 382.88 or 2.14% to 18,275.03, CSI 300 index in China lower 2.81 or 0.09% to 3,117.92. ASX 200 index in Australia increased 49.00 or 1.29% to 3,856.00. The KL Composite index in Malaysia closed higher 16.26 or 1.54% to 1,074.11.

The Kospi Index in South Korea increased 28.94 or 2.12% to close at 1,392.73.SET index in Thailand closed higher 9.17 or 1.58% to 590.60 and JSE Index in Indonesia increased 48.50 or 2.43% to 2,044.17. The Sensex index in India decreased 77.11 or 0.53 % to 14,345.62.

Commodities, Metals, and Currencies

Crude oil increased $1.57 to close at $70.24 a barrel for a front month contract, natural gas decreased 12 cents to $3.88 per mBtu and gasoline increased 5.75 cents to 190.00 cents.

Wheat futures closed down 6.75 cents in Chicago trading to $5.33 a bushel. Sugar increased 0.57 cent in trading at 17.70 cents a pound. Soybean future closed down 6 cents to $10.02 a bushel.

Gold increased $4.80 in New York trading to close at $939.20 per ounce, silver closed up $0.06 to $14.01 per ounce and copper for the front month delivery increased 3.90 cents to $2.32 per pound.

Dollar edged lower against euro to $1.3992 and closed up against the Japanese yen to 95.88.

Yields on 10-year U.S. bonds decreased to 3.53% and with 30-year maturities closed down at 4.33%.