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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerThe market rallied yesterday when the White House said it supported the private banking system. According to Reuters, an official said "This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring they are regulated sufficiently by this government."
The statement caused a small rally in big bank stocks, which had been off over 20% much of the day. But, they did not rally back to where the traded at the middle of the week.
Why? Smart investors know that the statement did not mean much. If one of the large banks, probably Citigroup (NYSE: C) or Bank of America (NYSE: BAC) gets into real trouble, the government will still have to step in. If confidence in one of the banks erodes fast enough and other banks refuse to do business with it or customers begin to pull enough money out, the government will have to step in. If Citi's stock price drops below $1 and is still falling, the government will have to step in.
The message from the White House was a message about what the administration believes in principle, not what it would do in fact. Put another way, it means nothing.
Douglas A. McIntyre is an editor at 24/7 Wall St.
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