Search the Web
Custom Search
|
Dow Leaps 497 Points as U.S. Lays Out Bank Rescue Plan
March 23, 2009On Monday, Wall Street gave the government what amounted to a do-over for the administration and Treasury Secretary Timothy F. Geithner.
When the Obama administration outlined its plans to stabilize the banking system last month, leery investors panned the proposal as being short on substance and sent stock markets into a tailspin. But investors went on a tear Monday as the administration announced details of its banking rescue plan, hoisting the markets more than 6 percent in one of the biggest buying binges of the year.
Financial companies soared as the Treasury Department spelled out how it would set up a public-private partnership to buy $500 billion to $1 trillion of troubled assets from major banks. Shares of distressed banks like Bank of America and Citigroup, which could participate in the plan, surged by double digits.
“This is the free-money rally,” said Barry Ritholtz, chief executive of Fusion IQ, an investment and research firm. “Traders like the fact that there’s a boatload of cash headed their way.”
Since sinking to their lowest levels in 12 years in early March, the market has galloped higher for the last two weeks as investors seized on glints of less-than-terrible economic and corporate news. And as Monday’s rally extended those gains, some analysts were even daring to utter the B-word.
“This is the bottom,” said James W. Paulsen, chief investment strategist at Wells Capital Management.
The government hopes its plan will loosen credit markets and restore normal lending conditions by allowing banks to deleverage billions of dollars in mortgage-related debt sitting on their balance sheets. The plan would be financed using capital from private investors like hedge funds, plus about $75 billion to $100 billion from the $700 billion financial bailout.
The Federal Deposit Insurance Corporation — which guarantees the bank accounts of individuals — would provide most of the financing.
“This approach is superior to the alternatives of either hoping for banks to gradually work these assets off their books or of the government purchasing the assets directly,” the Treasury Department said in a statement detailing the plan.
At the close, the Dow Jones industrial average was 497.48 points or 6.8 percent higher at 7,775.86 while the broader Standard & Poor’s 500-stock index rose 7 percent or 54.38 points to 822.92. The Nasdaq was 6.7 percent or 98.50 points higher at 1,555.77.
All sectors of the market were up, and a 5 percent increase in existing-home sales contributed to a fragile hope that, although the economy was still deteriorating, its worst declines could be over.
Markets in Europe and Asia closed higher, with exchanges in Frankfurt, London and Paris up more than 2.6 percent as the details of the so-called “legacy asset” plan fueled optimism across the Atlantic.
The Financial Services Roundtable, a leading financial services lobby, threw its weight behind Treasury’s plans on Monday morning, saying that the purchase program would keep the troubled assets from bogging down big banks and preventing a recovery in banking and the broader financial system. Many experts say the financial system must recover before the country can claw its way out of the broad and painful recession.
“The partnership between public and private institutions is a great way to help restore liquidity in the market,” Steve Bartlett, president of the Financial Services Roundtable, said in a statement. “It is encouraging to see Treasury creating unique ways of stimulating the economy while protecting the taxpayer.”
But it remains to be seen how many banks and private investors will participate, and whether Wall Street will stay warm to the plan.
“People are excited that there’s a plan, that there’s a definitive plan,” said Anthony Conroy, head equity trader at BNY ConvergEx Group. “Whenever there’s indecision, that breeds volatility.”
Stock markets tumbled in mid-February after Mr. Geithner first sketched out the public-private partnership. At the time, investors said the plan lacked details and had raised more questions than it answered. The day’s declines in stocks accelerated a broader slide that dragged financial markets to their lowest point in 12 years.
Crude oil futures for May fell slightly to $52 a barrel in New York.
Return to San Diego Local News Roundup
