Wednesday, March 26, 2008

Oracle Misses/Congress warns the Fed

Oracle missed earnings and the stock dropped 7% after hours. This is a bellwether stock and is a good indicator to see if companies are spending money. From Bloomberg:

"Customers are trimming their budgets on concern that the economy is slumping. Growth in U.S. information-technology spending this year will slow to 5 percent from 7 percent in 2007, according to a Goldman, Sachs & Co. survey of 100 executives"

The Bear Stearns fallout continues to have rippling effects. Lawsuits by shareholders trying to block the deal have started, and Paulson went on TV defending the deal saying that a Bear Stearns BK would have threatened the economy.

More importantly, Congress is starting to ask questions and seemed to send the Fed a warning about using taxpayer money to bail out Wall St.

"Senate Banking Committee Chairman Christopher Dodd today asked Bear Stearns Chief Executive Officer Alan Schwartz, JPMorgan CEO Jamie Dimon, Federal Reserve Chairman Ben S. Bernanke, Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox to testify at an April 3 hearing on the issue. "

Finance Committee Chairman Max Baucus, a Montana Democrat, and Iowa Senator Charles Grassley, the panel's top Republican, today sent letters to those involved in the deal.
The senators are trying to determine whether the arrangement sets a precedent ``for federal involvement when other firms overextend themselves'' and ``whether taxpayers will lose money here,'' Grassley said in a statement.
``Americans are being asked to back a brand new kind of transaction, to the tune of tens of billions of dollars,'' Baucus said in a statement. ``With jurisdiction over federal debt, it's the Finance Committee's responsibility to pin down just how the government decided to front $30 billion in taxpayer dollars'' for the deal, Baucus said.
Dodd said he scheduled the hearing to explore the ``policy rationale'' behind the Fed's action, the impact of the original and new sale agreements on investors and the markets, and the implications for U.S. taxpayers and regulation of U.S. financial markets. "

If this investigation gets legs then Wall St. could be forced to expose their losses. Its about time Washington got involved. I think if the economy and the dollar continue to deteriorate then the Fed will take further heat from Congress and may be forced to change its policies. Stay tuned on this one. I don't think the government liked watching CNBC today and watching protestors storm Bear Stearns headquarters asking why Wall St. is getting bailed out while Main St. suffers with houses they cannot afford. Civil unrest and lawsuits will always wake up Congress. Remember its all about getting re-elected.

Once the Fed realizes they can't continue to bail out their banking buds the shoes will start dropping as these financials will suffocate underneath all of their bad debt. See Mish today and take a look at a piece of WAMU's AAA rated paper. Over 3% of it is already owned by the bank, and the 60 day past due deliquency rates are 22%. This is AAA rated paper folks!!! This is a disaster and is not supposed to happen. This is what many loan portfolios probably look like at other banks.

When the banks finally open their books it will be time bomb time for Wall St. The Fed is running out of moves both politically and financially as they have thrown half of their reserves at this crisis already. Even CNBC debated today wether or not the Fed could go bankrupt fighting this crisis. Oracle should set a negative tone on the markets tomorrow.

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