U.S. Chamber of Commerce preps for G-20

In preparation for leaders convening for the G-20 this weekend, the U.S. Chamber of Commerce (USCC) Center for Capital Markets Competitiveness (CCMC) has revealed seven key principles to help strengthen the U.S. financial markets.

According to the CCMC’s press release, the principles were developed in consultation with a wide range of business leaders, academics, and investors. David Hirschmann, president and CEO of the U.S. Chamber CCMC said the principles are: (1) promotion of economic stability, efficiency and growth; (2) management of systemic risk; (3) internationalization (“there’s no such thing as a domestic market”); (4) comprehensive regulation and oversight; (5) increased transparency; (6) investor opportunity, capital formation, and consumer protection; and (7) sustaining and enhancing financial reporting.

There were comments in regard to the congressional proposal to assist General Motors Corp., Ford Motor Co. and Chrysler LLC with $25 billion in loans from the Troubled Assets Relief Program (TARP). David Chavern, Executive Vice President and Chief Operating Officer of the USCC said, “allowing them to fail during what will end up being just a relatively short period of economic dislocation would be a big mistake…We have been very public in supporting the finalization of $25 billion in financing for new technologies.” Chavern continued “we don’t know how long this recession’s going to last, but however long it’s going to last it’s going to be a lot shorter of a time that the auto industry has existed in this country.”

Chavern also said the USCC strongly supports a second stimulus package especially for extending unemployment benefits and investing in infrastructure.

According to the official G-20 website, the G-20 is an important forum to promote dialogue between advanced and emerging countries on key issues regarding economic growth and stability of the financial system.

Hoyer: We are in the eye of the storm

House Majority Leader Steny Hoyer (D-Md.) likened the U.S. financial crisis to a hurricane saying that if any bailout bill passes the House it will be "the eye of the storm." He recalled the scenes of devastation left by the recent powerful storms Ike and Katrina, saying that if emergency bailout legislation does not pass there will be broad damage nationwide.

Hoyer began his regular sit down with reporters by summing up the changes made to the bailout bill since it failed to pass in the House on Monday. Hoyer said that the new bill had more transparency and oversight including a congressionally-appointed oversight board. There have also been taxpayer protections added to the legislation. One of these provisions will give equity in any potential payback to the residents of all states equally. There is also an outline for assessment of how the government-owned assets are doing in the market. After five years out, if these mortgages and mortgage-backed securities have not yielded significant returns a fee will be paid by the financial industry at large to cover the government's costs. Hoyer also reassured the press that the portions of struggling companies that the federal government plans to buy will not involve them in any voting on company boards, "We are not going to get into the business of the government running private companies," Hoyer said.

Hoyer said that while calls to his congressional office continue to have three to one of constituent callers against the bailout, the number has gone down from six to one early in the week. Hoyer said people saw the effect of the bill's failure on the state of the market. The significant loss caused people to recognize the downside of not passing some kind of financial intervention. "People saw on Monday the direct impact on them," he said. "Then the wind started to whip up on this hurricane."

The Democratic leader said he didn't expect a vote on this legislation until Friday, as he said there are still discussions of add-ons including increased unemployment insurance, which Republicans oppose. He said that the House continues to listen to constituents. "Most people say we need to act," Hoyer said. " But they are not sure what we need to do. Which would put them in the same position as the Congress."

Bernanke distinguishes the facts from the fear

The Senate Banking, Housing and Urban Affairs Committee held a full committee hearing on the Federal Reserve’s semiannual monetary policy report to Congress. Sen. Chris Dodd (D-Conn.) presided over the hearing and said that in considering the state of the U.S. economy, it is important to distinguish between fear and facts. Dodd explained that in the country’s markets today, in particular during the turmoil of recent days, far too many actions are being driven by fear, and are ignoring crucial facts. This neglect of the facts, Dodd said, has caused Americans to experience unprecedented hardship and uncertainties, and now more than ever, they need to know when things will start to turn around and when the country will get back on track.

Chairman of the Federal Reserve, Ben Bernanke, explained many of the significant challenges the U.S. economy and financial system have experienced thus far in 2008. Bernanke said that economic activity has advanced at a sluggish pace during the first half of the year, while inflation has remained elevated. Though the Federal Reserve and the Federal Open Market Committee (FOMC) have eased policies to counter weakness in economic growth and expanded some of the special liquidity programs and implemented additional facilities to support the functioning of financial markets and foster financial stability, the economy continues to face numerous difficulties, including ongoing strains in financial markets, declining house prices, a softening labor market, and rising prices of oil, food, and other commodities.

Bernanke explained that investors have recently become particularly concerned about the financial condition of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. Because of this, the Treasury announced a legislative proposal to bolster their capital, access to liquidity, and regulatory oversight. Healthy economic growth depends on well-functioning markets, thus, Bernanke said, helping the financial markets to return to more normal functioning will continue to be a top priority of the Federal Reserve.

Looking at the economy overall, Bernanke said that it has continued to expand, but at a subdued pace. The unemployment rate has risen to 5-1/2 percent, activity continues to weaken in the housing sector, and the labor market has “softened.” Bernanke explained that inflation has remained high and seems likely to move temporarily higher in the near term, while the price of oil currently stands at about five times its level toward the beginning of this decade. This surge in oil prices has been driven mostly by strong growth in underlying demand and tight supply conditions in global oil markets; the world economy has expanded at its fastest pace in decades, leading to substantial increases in the demand for oil. Bernanke also said that the decline in the foreign exchange value of the dollar, along with financial speculation, have added to the increase in oil prices.

Bernanke finished by saying that the possibility of higher energy prices, tighter credit conditions, and a still-deeper contraction in housing markets all represent significant downside risks to the outlook for growth. On the other hand, upside risks to the inflation outlook have intensified lately, as the rising prices of energy and some other commodities have led to a sharp pickup in inflation and some measures of inflation expectations have moved higher. Bernanke said that given this high degree of uncertainty, monetary policy makers will need to carefully assess incoming information bearing on the outlook for both inflation and growth.