A debate has raged about whether unscrupulous traders are manipulating the stock and commodity markets -- specifically, to drive down the prices of financial stocks and push up the prices of commodities.
However, some experts suggested that any anti-speculation moves by lawmakers could backfire by allowing them to be portrayed as so desperate to reverse the sliding fortunes of major banks and brokerages that they are encroaching on the private markets.
"The markets are scared and there is an air of panic underneath it all," said Diane Swonk, chief economist at Mesirow Financial, a Chicago brokerage firm. "It looks like they've reined in a portion of that . . . but they still don't have a deal."
The government has taken a series of unprecedented steps throughout the housing crisis, including the Federal Reserve-engineered sale of Bear Stearns Cos. in March and the plan announced Sunday for the Treasury Department to potentially buy stock in Fannie Mae and Freddie Mac.
"Here we are -- the freest market in the world -- and we're talking about curbing speculation and [undertaking] government intervention," said Kevin Kruszenski, director of trading at KeyBanc Capital Markets in Cleveland. "I'm not sure that's the answer."
Meanwhile, key members of Congress signaled that they were unlikely to put a hasty rubber stamp on the Treasury Department's proposal to rescue Fannie and Freddie by temporarily extending an unlimited line of credit and permitting the government to purchase stock in the quasi-public companies.
"I think we all certainly appreciate the spirit in which the Fed, the SEC and Treasury Department have acted," said Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee. "But we do them and the American people a disservice if we do not examine very carefully the proposals that are being put forward."
"The best we can say [is] this is Paulson going out there and doing what he thinks is right in the short term," said Rep. Scott Garrett (R-N.J.). "But we have to do what we think is right in the long term."
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maura.reynolds@latimes.com
walter.hamilton@latimes.com
Reynolds reported from Washington and Hamilton from New York. Times staff writer Richard Simon in Washington contributed to this report.
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Bernanke's evolution
Federal Reserve Chairman Ben S. Bernanke's view on the economy has shifted over the last year:
July 19, 2007: "Rising delinquencies and foreclosures are creating personal, economic and social distress for many homeowners and communities, problems that will likely get worse before they get better."
Nov. 8, 2007: "So far, at least, the spillovers of housing to the broader economy [have] been limited. Our forecast is for moderate but positive growth going forward."
Feb. 27, 2008: "The economic situation has become distinctly less favorable since the time of our July report."
April 2, 2008: "Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in [place] that should support a return to growth in the second half of this year and next year."
July 10, 2008: "The financial turmoil that began last summer has impeded the ability of the financial system to perform its normal functions and adversely affected the broader economy."
Source: Times research
