I got this this morning:
----- Original Message -----
from Ken Landon, J.P.Morgan Strategy, NY (Feb 10)
This did not come across Reuters or Bloomberg, but Fed Chairman Bernanke just stated during Congressional questioning that any firm that participates in TALF will be held to all the restrictions imposed on TARP recipients, including compensation limits. He said that firms will be audited to make sure that they comply with heightened restrictions.
This will be another confidence killer.
Kenneth Landon, Feb 10, 2009
This is a bit of an illustration how financial mkt ppl think about these things a little differently from many other ppl I know. Most ppl would probably say "yes, if you participate in TALF (a gov't lending facility that is supposed to shore up the asset backed securities market) you should take restrictions" whereas this guy seems to think that "dude, if you put on all kinds of restrictions for companies and we can't see ex-ante what they are... people aren't going to value a stock like that. B/c for example the gov't could just at some point come and restrict your dividend that you're supposed to get as a shareholder." (which is what they did... and there may be other things like that that they come in to do later.) I, for one, however, am not really concerned with equity markets but rather with recovery of the underlying economy. Equity markets will follow or anticipate this... they will reflect it in some way sooner or later. So in that way I really don't think Bernanke dropped a bombshell.
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