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Monday’s Stock Market Rally Seen as Endorsement of Obama’s Economic Team

25 November 2008 - Markets - Editor

Markets in the United States and around the world rallied on Monday, which many see as an endorsement of Barack Obama’s choice for his administration’s economic team. The additional government bailout package for banking giant Citibank also contributed to the spirit of optimism reflected in Monday’s stock market activity. The Dow Jones industrial average rose 4.9 percent, the Standard & Poor’s 500 gained 6.4 percent and the Nasdaq composite index rose by more than 6 percent. For the Dow and S&P 500, the two-day percentage gain was the biggest experienced since October 1987, while the point gain over the two trading days was the biggest ever.

For Americans who are anxious with regard to the apparent lack of leadership during the transition phase from the Bush to the Obama administrations, the choosing of the economic team by Obama indicates a positive move in the right direction. On Monday the President-elect named key members of his economic team who all share his fundamental belief that the country “cannot have a thriving Wall Street without a thriving Main Street”. The current president of the New York Federal Reserve, Timothy Geithner, has been selected as Treasury Secretary, with Lawrence Summers, a former Harvard president, being selected as the director of the National Economic Council. The position of director of the Council of Economic Advisors will be filled by economist Christina Romer, while Melody Barnes will be director of the Domestic Policy Council. All have a wealth of knowledge and experience that will be put to good use in addressing the current economic woes. It is anticipated that Congress will have the final legislation regarding plans for recovery of the U.S. economy ready for Obama’s signature as soon as he is inaugurated as President of the United States in January.

The Federal Reserve has agreed to purchase Citigroup’s preferred stock to the tune of $20 billion. This is over and above the $25 billion already pumped into Citigroup in October as part of the Troubled Asset Recovery Program. Additionally, the Fed has agreed to guarantee troubled assets worth $306 billion. Of course in any situation requiring big decisions and taxpayers money, there are those for and those against the line of action taken, and some question why Citigroup received approval for a bailout, while the big three automakers were turned down. Economists believe that, while the collapse of one or more of the automakers would have substantial negative repercussions, the failure of Citigroup would be even worse. There is a limit as to how much money the government can dish out and the financial world cannot exist without the major banks. As an international company with long-standing business relations permeating the entire economy, its collapse would be devastating to the financial sector and the economy and therefore must be circumvented.

Certainly, there is never a dull moment at global stock exchanges these days and the current volatility and extreme reaction to each bit of news, whether good or bad, is likely to continue for some time.

 


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