By Ian Swanson and Michael O'Brien - 05/06/10 10:40 PM EDT
Wall Street was oblivious on Thursday to the Senate’s debate over reforming financial rules.
Markets took investors on a rollercoaster ride as the Dow Jones Industrial plunged nearly 1,000 points before rebounding to end the day 347 points down.
Markets also fell on Tuesday and Wednesday, as investors
feared a package of aid from European countries and the International Monetary
Fund would be insufficient in containing the Greek crisis.
But the drop on Thursday was much more dramatic, and it may have been triggered by a technical glitch.
Late Thursday, the Securities and Exchange Commission and Commodity Futures Trading Commission said they would be reviewing the "unusual trading activity." In a release, the two agencies said the would be working with the exchanges to take appropriate steps to protect investors pursuant to market rules.
Rep. Paul Kanjorski (D-Pa.), the chairman of the House Financial Services subcommittee on capital markets, announced he'd hold a hearing on Tuesday to examine the causes.
The dramatic drop was an echo of the volatile fall of 2008, when markets fell and the financial system appeared on the brink of collapse.
"We cannot allow a technological error to spook the markets and cause panic," Kanjorski said. "We should be able to make sure that our financial markets are effectively monitored and investors are protected."
Kanjorski said the country was lucky that markets appeared to have caught Thursday's error and rebounded.
Democratic Sen. Mark Warner (Va.) blamed a lack of oversight on the stock market drop and said it highlighted the need to move Wall Street reform legislation. He also noted reports that technology problems contributed to the massive plunge, including a trader who mistakenly entered "b" for "m" in "million" while trading shares in Procter & Gamble.
"Part of this
precipitous drop seems that there was a technology glitch on an order
that was put in that had no safeguard or backstop to prevent it,"
Warner said in a Senate floor speech.
"This was not the result of a market, it was the result of, I believe, the lack of oversight," Warner said.
The Virginia senator urged including an examination of high-frequency trades in the financial reform legislation currently before the Senate.
Earlier in the afternoon, many lawmakers were unaware of the
wild gyrations in the market.
Rep. Barney Frank (D-Mass.) indicated at about 3 p.m. that he
hadn’t yet heard about the suddenly severe drop in the markets when asked by a
reporter on Thursday afternoon. He was far from alone at the time.
Initially, the drop seemed mostly related to worries about the crisis in Greece. For weeks, economists and policy makers have feared those problems could spread to other countries in Europe, such as Spain and Portugal.
Republicans highlighted the problems in Greece to raise concerns about the U.S. budget deficit and growing debt.
Sen. Jim DeMint (R-S.C.), in an interview on Fox, said the U.S. should not just bail out Greece given its own budget problems.
“We’ve got debt we can’t deal with yet we keep spending money on new programs,” he said.
The U.S. is not providing any direct support for the aid program to Greece, though Vice President Joe Biden in a speech to the European Parliament said the administration welcomed the $140 billion support package Europe was considering in conjunction with the IMF.
Biden said the Obama administration is closely following the economic crisis.
White House press secretary Robert Gibbs said the Treasury Department was monitoring the situation closely during his daily press briefing, but deferred on several other questions.
Thursday evening, the White House released a statement from Gibbs that said Obama and Treasury Secretary Timothy Geithner had been in contact with European leaders on the situation throughout the past weeks.
It said the administration strongly supported the European and IMF effort to help restore stability to Greece and confidence to the global financial system.
Another Republican lawmaker, Rep. Scott Garrett (N.J.), said the crisis highlighted the need to get U.S. debt under control.
“As the situation worsens in Greece, Americans must reflect on what the worldwide concerns about the massive debt mean for us,” Garrett said in a statement. “Deficits as large as ours are clearly unsustainable.”
Before Thursday, the Greek crisis has received minimal attention in Congress. Kanjorski's subcommittee held a hearing on April. 29, but it was focused on how the crisis showed the need to reform Wall Street.
Several House Republicans this week urged Geithner to not help with the IMF bailout. They noted that the U.S. is the largest contributor to the IMF, and that funds from the IMF to Greece would be supported to an extent by U.S. taxpayers.
The letter also warned that the Greek bailout could be followed by other bailouts of larger countries such as Spain or Italy if the crisis spread.
An aide to Rep. Cathy McMorris Rodgers (R-Wash.), who spearheaded the letter, said the congresswoman was closely monitoring Wall Street’s plunge.
“We believe the market collapse proves the argument of bailout opponents that investors don’t have confidence tha the Greek bailout deal with work, while merely setting the stage for larger future bailouts of Spain, Portugal, Italy, etc.,” the aide wrote in an e-mail.
House Republicans voted against a supplemental spending bill for the Afghanistan and Iraq wars last year because of the inclusion of $100 billion in increased funds for the IMF.
This story was updated at 7:04 p.m. and 10:49 p.m.