"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey
Yesterday, word broke that Congress passed legislation that would allow the federal government to insure up to 500,000 mortgages that are at risk of default. Representative Barney Frank of Massachusetts, spearheaded the legislation.
The House voted 266 to 154, with only 39 Republicans supporting the bill. The Republicans supporting the bill were seven from Florida, five from Michigan, four from Pennsylvania, three from North Carolina and two from Ohio and Illinois.
Oddly, President Bush threatened to veto the bill because the cost to tax payers would be around $2.7 billion dollars. Personally I feel this is a small price to pay given the magnitude of what is going on. Heck, we spend at least $200 million a day chasing pink elephants and protecting oil interests in Iraq.
The bottom line here is as conditions continued to deteriorate, I knew the potential for something positive to happen would increase. The problem however is no one really knows when potential solutions will come.
It's obvious (at least to me) that the housing and finance systems are in desperate need of government intervention in the form of a mortgage purchase program. The legislation passed yesterday is a step towards a possible solution.
Despite opposition from the White House, I am fairly confident a solution will be worked out.
The Markets
Yesterday, AIG (AIG), the world's largest insurer, posted a first-quarter loss of $7.81 billion and revealed plans to raise $12.5 billion in the coming months.
Crude oil prices rose above $126 a barrel for the first time ever. Crude is trading higher this morning despite the possibility of an emergency OPEC meeting.
The Commerce Department said the trade deficit showed a bigger-than-expected decline. The 2.9 percent drop in demand for imports was the steepest monthly decline since December 2001.
Meanwhile risk aversion was the manta of the day in credit markets as the yield on the benchmark 10-year Treasury note fell to 3.74 percent from 3.78 percent on Thursday.
