Wall Street and Washington: Who's Reacting to Who?

When Mr. Smith went to Washington he had little idea Wall Street would pay so much attention to his comments – or his tweets. They are now hanging on every syllable. The question is how quickly they will act on what is being said.

Wall Street executives met Friday with Treasury and Federal Reserve officials and encouraged Congress to take swift action to raise the debt ceiling. What some don’t seem to comprehend is why Wall Street doesn’t seem to be as concerned about Washington as some in Washington are.

The majority of liberal or left-leaning pundits and politicians are telling the American public that missing the Aug. 2 deadline set by the White House would be catastrophic. Even some Republicans are espousing the same message on national news channels.

On the flip slip, Wall Street is handling the situation with a much calmer demeanor, expressing confidence that some type of short or long-term deal is coming soon. Bond markets, which usually express the most anxiety to political and world news, were steady and unmoved. The stock market was only down 4.3 percent from its year-to-date high.

That doesn’t mean Wall Street’s top brass aren’t encouraging lawmakers and the White House to act soon.

Fourteen CEOs, including those from Bank of America, Goldman Sach, and JP Morgan Chase, signed onto a letter that was sent to the president and members of Congress Thursday.

“A default on our nation’s obligations, or a downgrade of America’s credit rating, would be a tremendous blow to business and investor confidence – raising interest rates for everyone who borrows, undermining the value of the dollar and roiling stock and bond markets – and, therefore, dramatically worsening our nation’s already difficult economic circumstances,” the executives wrote.

Another portion of their letter called for a “credible and predictable” plan to be enacted and one that includes “tough decisions on the budget.” Some interpreted that to mean Congress needs to drastically cut expenses, including coveted entitlement programs like Social Security, Medicare and Medicaid.

Most financial analyst believe if some type of deal is reached soon the market will not react too swiftly to Washington’s chaos. However, if traders go through the weekend and see little movement at the Capitol or White House, they could exhibit pessimistic tendencies when the markets open next Monday.

Rex Nutting, writing for Marketwatch on Friday, made the following observation:

“A market tantrum would get the attention of everyone else in Washington, however, a big sell-off would likely prompt Barack Obama, John Boehner, Mitch McConnell, Nancy Pelosi, and Harry Reid to find a solution they can live with, even if it leaves the tea party out in the cold.”

A vote on House Speaker John Boehner’s revised plan passed Friday night.

Meanwhile, President Obama on Friday asked the public to tweet to their member of Congress to encourage them to raise the nation’s debt ceiling.

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