Wall Street Reacts to Fed Stimulus Plan
LEMON: The Fed acted and Wall Street reacted to it. The U.S. economy will get a big jolt of money from the Federal Reserve. The Fed announced today it will buy $40 billion worth of mortgage-backed securities each month, $40 billion worth of mortgage- backed securities each month. Ali Velshi joins us now from New York. Ali, what's the reaction to that?</s>ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Look at this Dow. You got a picture of the Dow available?</s>LEMON: Put up the Dow for him.</s>VELSHI: There is a nice big bump there. The stock market investors really, really like it. It's a bit of a sugar high. Right? The Fed is making more money available to the banks and it's taking their bonds that are worth something, they're worth a lot of money, but you can't buy something with the bond. The Fed is saying we will take the bonds off your hand, we will give you cash, $40 billion a month. What do banks do with money? They in theory hopefully lend it out to people for money and that puts more money in the economy. That's how it should work. Right now, stock markets are liking it. The Dow is made up as you know of 30 stocks and one of the biggest gainers today is Bank of America, and Citibank's a big gainer. That's where you're seeing that. But that's one piece of the economy, as you know. Those -- for your investments and IRA and 401(k), that is working very well. There are mixed reviews of whether or not the Fed should have done what it did by putting -- buying all these bonds back over the course of the next year.</s>LEMON: So when this happened, immediately, I got people writing to me. Don, you guys talking about money, I hope, because I don't have any. And he sent us a picture of you and I on air. And then someone else said -- and I think this is a pretty good assessment -- this will only help people who have money. So is that true? In layman's terms, tell us what this means.</s>VELSHI: No. The stock market part of it helps you if you have got money in the stock market, obviously. If you have no investments, then who cares if the Dow is up 200 points. Here's what should happen. If there's $40 billion going to banks every month, in exchange for the bonds that those banks held in theory a bank only makes money if it lends that money out. Lending standards or lending tightness should ease up a little bit. We found that interests are very low and people know that, but people still report to us they have trouble getting mortgages, businesses report to us they have trouble getting loans so this in theory should make it a little bit easier for the loans to occur. What business, however, Don, will take a loan if they don't see people coming in and wanting to buy their product or their service? So you have to have both sides of it. You have to have demand and the economy growing, but this could help people who are trying to get loans. So it's not just people with money who will benefit from this. The major criticism here is that it sort of mucks up the economy a little bit. When there's fake money comes out of nowhere and gets printed by the Federal Reserve, it has the effect of devaluing the U.S. currency and that makes things expensive. Things like gold and oil is soaring today and generally speaking that causes inflation in the long term. It also is an excuse for the government not to do what it's supposed to be. And there's some people, particularly Republicans and conservatives, who accuse the Federal Reserve of sort of playing into politics right now.</s>LEMON: Stop right there, Ali, because that was the next question. He was asked about that. And here's what he said. He said, and this is a quote, "We have tried very, very hard, and I think we have been successful at the Federal Reserve to be nonpartisan and apolitical. We make our decisions based entirely on the state of the economy and the needs of the economy for policy accommodation, so, we just don't take those factors into account." Is he basically saying, this is not partisan.</s>VELSHI: He's a card-carrying, lifelong Republican, Ben Bernanke, by the way. So was Alan Greenspan before him. Alan Greenspan increased rates before an election and people accused him of trying to throw the election for the Republicans. There are conspiracy theorists who think that the Fed is in the back pocket of the administration. They're technically a separate agency, independent of politics. Ben Bernanke, you might like him, you might not like him, you might like his judgments, you might not like them. I don't think he's a partisan. And if he is a partisan I don't particularly think he's a Democrat in his role as the chairman of the Federal Reserve.</s>LEMON: Ali, Alison Kosik, you know her well, I know her well. She spoke with a trader on the floor. Listen.</s>STEPHEN GUILFOYLE, WALL STREET TRADER: I think there's a chance it improves the economy somewhat. We have only seen not even moderate growth off the first two Q.E.s. And this one, it is a big bazooka. It is. It's $85 billion when you combine Operation Twist and this plan, which will run concurrently.</s>LEMON: OK, Ali. How does the day end in 40 minutes?</s>VELSHI: Well, it's 40 minutes to go and the Dow is up 200. The momentum is in its direction. I would say that unless there's some unusual surprise -- and markets around the rest of the world are closed -- you will see a close somewhere in this range. Strong day. Traders wanted this. Investors wanted this. They got it. But I think that trader said exactly what a lot of people are feeling. Could work. There's some chance it could work. Probably didn't do a lot of harm to the economy, but unclear whether it gets us out of the pickle we're in now and that is we need to create more jobs.</s>LEMON: Ali Velshi on the Straight Talk Express. Remember the Straight Talk Express?</s>VELSHI: I do remember that.</s>LEMON: Bernanke is a card-carrying Republican, that's straight talk. Get right to it. Love you, Ali Velshi. Thank you, sir.</s>VELSHI: Good to see you, Don.</s>LEMON: Good to see you.</s>LEMON: Taking aim at voter I.D. laws. The Supreme Court in one swing state is considering the issue. Will those laws shape the presidential election come November?