The bailout that many hope will be the salve to soothe volatile markets and hurting exchange traded funds (ETFs) cleared a hurdle this weekend.
Lawmakers agreed to the deal, and now the vote is being put to Congress. President Bush urged for a quick approval, report Carl Hulse and David M. Herszenhorn for the New York Times. The House is expected to vote today, and the Senate will vote later this week.
Meanwhile, the fever of the financial crisis doesn’t appear to have broken yet. Citigroup (C) stepped forward today to acquire the banking operations of Wachovia (WB). Citigroup will absorb $42 billion of losses from Wachovia’s $312 billion loan portfolio, the Associated Press reports. The deal will cement Citigroup’s place among the Big Three, along with Bank of America (BAC) and J.P. Morgan Chase & Co. (JPM).
Fannie Mae (FNM) and Freddie Mac (FMC) are being subpoenaed for documents as part of grand jury investigations into their accounting, Reuters reports. The FBI said it is expanding its investigation of possible corporate fraud to Fannie, Freddie, Lehman Brothers and American International Group.
The bailout and eventual resolution to this crisis is a long way away. As things get worse, it only underscores how much recovery we have ahead of us, and how much work the next president will have cut out for himself.
One expert says that the recovery from this crisis will dominate the agenda of the next president for two years.
The primary features of the bailout include buying troubled mortgage securities, restraints on executive pay, shareholder stake in firms that sell large amounts of bad debt to the government, and a mandate that the government act aggressively to prevent more foreclosures, reports Steve Lohr for the New York Times.
The markets are down sharply this morning, and financial ETFs are taking a hit:
- Financial Select Sector SPDR (XLF): down 24.8% year-to-date
- Vanguard Financials (VFH): down 20% year-to-date
- iShares Dow Jones U.S. Financial Services (IYG): down 21.6% year-to-date; Wachovia is 7.1%
- Regional Bank HOLDRs (RKH): down 11.2% year-to-date; Wachovia is 10.1%