Word: volckerism
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...Sears move into financial services concerns some people. Federal Reserve Chairman Paul Volcker has said bluntly, "We don't want Sears, Roebuck in the banking business." He believes that nonbanks like Sears would have an advantage over a federally controlled bank or savings and loan. Bankers are worried about the power of a rival that has won such deep consumer loyalty. Outgoing Citicorp Chairman Walter Wriston has long complained that while Sears is free to enter his business, Citicorp is restricted by a mass of state and federal regulations...
...Volcker's comments answered a question that has plagued investors and professional money managers for months: Just what will happen to interest rates? Since January the prime rate has moved from 11% to 13%, pushing up the cost of borrowed money. Market watchers have feared that the Government's need for funds to finance the deficit and the loan demand of corporations trying to keep up with the quickly growing economy would force the Federal Reserve to tighten the money supply. The result: higher borrowing costs, which would cause depressed corporate profits...
...relief felt in the financial community from Volcker's comments was strong. Bond prices have been tumbling for months as interest rates climbed, but they immediately picked up after he spoke. The strong bond market helped set the stage for the stock rally. With some top-grade corporate bonds paying 13%, there has been little incentive to invest in the shares of corporations, where the dividends are lower and the risk of potential capital loss much higher. But when evidence began to pour in that bond yields had at least leveled off and might fall, stocks suddenly became more...
...bailout as "bad public policy," because it puts a federal agency out on a limb to protect private investors. In a 4½-page memorandum to the heads of the three federal agencies that regulate the banks-Isaac, Comptroller of the Currency C.T. Conover and Federal Reserve Chairman Paul Volcker-Regan argued that the action was "implicitly extending a U.S. Government guarantee to all bank holding-company creditors...
...Federal Reserve Board, fearful that the rapidly expanding economy would set off new inflation, slowed the growth of the money supply slightly and helped push the prime rate that banks charge corporate customers from 11% to 13%. In testimony before Congress last week, though, Federal Reserve Chairman Paul Volcker said that in view of recent inflation reports, he saw no need for further tightening at the moment...