Tuesday, March 06, 2007

Bernanke on the GSEs

Today, Ben Bernanke gave a speech calling for greater scrutiny and tighter regulation of the government-sponsored enterprises Fannie Mae and Freddie Mac. (Here was my attempt to address the issue when I was in public service several years ago.) The news wires reported Ben's speech at 2 pm.
The above chart shows the market reaction. Notice that volume spikes and the price falls at precisely 2 pm. (The blue line above is the stock price for Fannie Mae; the red line is the S&P index. Fannie Mae volume is the lower bar chart.) Within 30 minutes, however, the stock price has fully recovered. By the end of the day, Fannie has outperformed the overall market. Investors, it seems, are not terribly concerned that Congress will take Ben's warnings any more seriously than it took earlier warnings along the same lines. Too bad.