Wall Street's unexplained plunge last week and Greece's debt problems posed systemic risks

Wall Street’s unexplained plunge last week and Greece’s debt problems posed systemic risks and underscored the need for financial regulatory overhaul, a top U.S. lawmaker said on Sunday.GreeceSenate Banking Committee Chairman Chris Dodd told CBS’s “Face of the Nation” program that authorities had not yet figured out the events of last Thursday, which saw the Dow Jones industrial average tumble nearly 1,000 points.

“We need some answers pretty soon. This is an issue that raises systemic risk. The problems in Europe raise system risk,” Dodd said. “We need to get in place a bill, have the president sign it so that we have tools to protect our economy from these kinds of events.”Market participants have speculated high-frequency and algorithmic trading magnified the wild swing. The debt problems in Greece have raised fears of contagion to other nations in the euro area with budget problems.These fears overshadowed a string of robust U.S. economic data, including a 290,000 gain in nonfarm payrolls in April.

“What you’re getting is finance is getting detached from the real economy. You are getting some of this casino environment that is appearing in our markets. It does not reflect what is going on in the real economy,” Dodd said.”Clearly the Securities and Exchange Commission needs to act, they need to step up very quickly and let us know what happened here and what steps need to be taken. I don’t think you need legislation in this area. You need the regulators to step up.”(Reuters)

Federal regulators have got to address the "casino environment" on Wall Street where computerized high-frequency trading can trigger market-shaking turmoil

WASHINGTON Federal regulators have got to address the “casino environment” on Wall Street where computerized high-frequency trading can trigger market-shaking turmoil, Senate Banking Committee Chairman Chris Dodd said Sunday.Dodd, D-Conn., pointed to the new phenomena of computers buying and selling stock in nanoseconds as a possible cause of last Thursday’s meltdown. The market fell nearly 1,000 points within minutes before rebounding.The top Republican on the committee, Sen. Richard Shelby of Alabama, joined Dodd on CBS’ “Face the Nation” to agree that something must be done about a situation in which technology has gotten ahead of the regulators. “You’ve got a high risk in the market place that something could go wrong and once it really goes wrong it could be catastrophic,” Shelby said.

Dodd said his committee will hold hearings on last Thursday’s events. But he said that for now the priority is for the Securities and Exchange Commission and the Commodities Futures Trading Commission to come up quickly with answers for dealing with high-frequency trading marked by a lack of marketwide circuit breakers to prevent the market from spiraling out of control.

Dodd said he did not see a need for new legislation. The financial overhaul bill now being debated in the Senate does have early warning systems to detect problems such as having circuit breakers at only one exchange, he said.”You shouldn’t have a crisis like this happen before noticing that,” he said.

Dodd noted that the freefall on Wall Street occurred when there was good economic news: a sharp growth in jobs, particularly in the manufacturing sector. “So you are getting sort of this casino environment that’s appearing in our markets,” he said. “It does not reflect what’s going on in the real economy.”

Shelby said he had no information on speculation that the meltdown may have been the result of a cyber attack. White House counterterrorism adviser John Brennan said on “Fox News Sunday” that there was no evidence that a cyber attack was behind the market shake-up.(AP)

President Barack Obama said that Congress needs to enact comprehensive financial reforms to protect consumers

WASHINGTON President Barack Obama said Saturday that Congress needs to enact comprehensive financial reforms to protect consumers, keep banks strong and ensure the U.S. economy doesn’t sink into another Great Depression.In his weekly radio and Internet address, Obama said “we need commonsense rules that will our allow markets to function fairly and freely while reining in the worst practices of the financial industry.”

That, he said, is the central lesson of the current financial crisis that has cost millions of Americans their jobs and nearly caused the collapse of the entire financial system.”And we fail to heed that lesson at our peril,” Obama said.

The Senate Banking Committee is set to begin debate on a more than 1,300-page bill authored by its chairman, Christopher Dodd, D-Conn., that would give the government unprecedented powers to split up firms that threaten the economy, force the industry to pay for its most spectacular failures and create an independent consumer watchdog.

Already, Obama said, industry lobbyists are gearing up to spend millions of dollars in an attempt to defeat the legislation.”In fact, the Republican leader in the House reportedly met with a top executive of one of America’s largest banks and made thwarting reform a key part of his party’s pitch for campaign contributions,” Obama said.The president said he remains a “vigorous defender” of free markets.

“But what we have seen over the past two years is that without reasonable and clear rules to check abuse and protect families, markets don’t function freely,” he said. (AP)