The three most powerful men governing US financial markets lined up on Capitol Hill in Washington yesterday for an unprecedented display of unity aimed at calming the febrile atmosphere surrounding the country's banking system.
Ben Bernanke, the chairman of the Federal Reserve, the US central bank, admitted thatthe economy faced "numerous difficulties" but - flanked by the Treasury Secretary, Henry Paulson, and Christopher Cox, the chairman of Wall St's regulator, the Securities and Exchange Commission - he promised that restoring financial stability was now the Fed's top priority.
The trio's testimony came amid further wild gyrations on the world's financial markets and scenes of Americans queuing to withdraw what remains of their savings from the collapsed regional bank, Indymac, which was taken over by the Government last week.
The three men walked a tightrope between acknowledging the severity of the current crisis in confidence and reassuring savers and investors who might be panicked into provoking just the kind of "run on the bank" that could take down another big institution.
Cox promised action against traders who were deliberately spreading false rumours to profit from the wild swings in individual bank share prices, and a longer-term review of the rules surrounding short selling, which enables traders to profit from a sliding share price.
The SEC also announced an emergency order banning certain speculative dealing in shares of Fannie Mae and Freddie Mac, the mortgage finance giants, and investment banks including the beleaguered Lehman Brothers.
Meanwhile, Bernanke said that the failure of Indymac had been "inevitable" because of the California bank's own particular cocktail of sub-prime mortgage assets and bad loans.
Paulson was roasted by lawmakers angry that the Administration has in effect asked for a "blank cheque" from Congress to help prop up Fannie Mae and Freddie Mac, the companies which stand at the heart of the US mortgage market.
Congress is responsible for setting the federal budget and some lawmakers are worried about an open-ended bail-out of Fannie and Freddie that could end up costing taxpayers billions.
Earlier, two government reports underlined the dilemma facing the Fed. Sales at retail stores barely edged up in June but producer prices, which reflect wholesale inflation, were up 9.2 per cent over June 2007, the largest annual increase since 1981.
