‘Financial markets under extraordinary stress’
Wednesday, September 24, 2008 at 3:09 am
Federal Reserve Chairman Ben S Bernanke on Tuesday (September 23) said that global financial markets are under “extraordinary stress” and an action by the Congress was urgently required to stabilise the situation to avert any serious consequences to the economy.
“Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress,” Fed Chairman Bernanke said in a testimony to the US Senate committee on Banking, Housing and Urban Affairs.
Supporting The US Treasury’s proposal to buy illiquid assets of financial institutions, he said that such a move would create liquidity and also reduce investor uncertainty about the current value and prospects of financial institutions.
“Certainly, the shortcomings and weaknesses of our financial markets and regulatory system must be addressed if we are to avoid a repetition of what has transpired in our financial markets over the past year,” he pointed out.
On buying illiquid assets, Bernanke said removal of the same from the balance sheets of financial institutions would help to restore confidence in the financial markets. Further, the action would enable banks and other institutions to raise capital and to expand credit to support economic growth, he added.
According to him, the downturn in the housing market has been a key factor for the strained condition of financial markets and the economic slowdown. “In the financial sphere, falling home prices and rising mortgage delinquencies have led to major losses at many financial institutions, losses only partially replaced by the raising of new capital,” he noted.
The firms which have been battered by the financial crisis include, Fannie Mae and Freddie Mac, Lehman Brothers and American International Group (AIG). With investors losing confidence, these companies saw their access to liquidity and capital markets increasingly impaired and their stock prices dropped sharply. (PTI)
( This post is from an independent writer. The opinions and views expressed herein are those of the author and are not endorsed by APakistanNews.Com.)
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