Obama to Propose Sweeping Financial Overhauls
Sep 14, 2009
Posted by Jody Eisenman | Filed under Uncategorized
On the one year anniversary of the collapse of Lehman Brothers, President Obama is set to speak at Federal Hall this morning. He is expected to speak about increased regulatory reform for the banking system. I have mixed feelings about this. On the one hand, I believe that we cannot tolerate a scenario where the entire banking system could collapse. I think two of the biggest steps the administration could take would be to decrease the leverage factors of balance sheets (currently 40/1 in some cases) and to hire regulators who actually are sophisticated enough to understand the complex financial transactions that banks engage in. Currently, a banker being paid millions per year can talk circles around a $50,000/year bank auditor.
On the other hand, tighter regulation could definitely be a potential rally killer for this market. How Obama walks the tightrope here will be very interesting. The DJIA closed at 9605 on Friday. A year ago (on Sept. 15, 2008, the date of Lehman’s bankruptcy filing), the DJIA closed at 10,917. In fact, the index actually rallied to 11,388 4 days later. At that point, the market really started to slide until the March 9, 2009 close of 6547. We have now rallied over 3000 Dow points, or almost 50% of the lows. There is no question that volatility has increased dramatically. In addition, and in almost complete contradistinction to last year, every sell off is met by a wave of fresh buying. Although I believe we are probably overdue for a pullback, I would not want to predict where the market will top out. This far, every “expert” who has called for a decline in the past two months has been proven dead wrong.
