A Different Kind of Blog

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Stocks Slide as New Bailout Disappoints

Posted by tothewire on February 11, 2009


For investors, the government’s sweeping new banking plan was simply not enough.

Stock prices fell sharply on Tuesday after Treasury Secretary Timothy F. Geithner unveiled the government’s latest efforts address the troubled banking system, a plan whose price tag could reach $2 trillion in money from the Treasury, Federal Reserve and private sector. Primary among the government’s efforts was an expanded effort to ease consumer and commercial credit and a new program to buy up hard-to-sell assets that have bogged down banks.

The Dow Jones industrial average dropped 381.99 points points, or 4.6 percent, to close at 7,888.88. The Dow had fallen as much as 420 points in the last half hour of trading.

The broader Standard & Poor’s 500-stock index fell 4.9 percent or 42.73 points, to 827.16, its worst performance since a broad sell-off on Inauguration Day.

Despite the size and scope of the Obama administration’s plans, investors said Mr. Geithner’s proposal raised more questions than it answered. The way out of the financial crisis, analysts said, looked as murky as ever.

“We’re not impressed, and I don’t think the market’s impressed either,” said Ryan Larson, head equity trader at Voyageur Asset Management. “It’s clear the administration is still trying to work on something concrete. I think the market sensed that, too.”

A key measure of market volatility rose, as did prices of safe-haven government debt. The yield on the benchmark 10-year Treasury note, which rose above 3 percent on Monday, fell back to 2.83 percent.

Every sector of the market was trading lower, with the Standard & Poor’s financials index falling by more than 8 percent, reflecting uncertainty about the banking system and how the government’s latest plans would affect major financial companies. Shares of Bank of America slid 19 percent percent, and Goldman Sachs and Morgan Stanley also fell.

Shares of General Motors fell after the automaker announced it would slash 10,000 salaried jobs worldwide and make white-collar pay cuts of up to 10 percent. Stocks got little traction after the Senate approved an $838 billion package of tax cuts and spending on Tuesday afternoon. The House and Senate will now have to reconcile their versions of the stimulus, which has been endorsed by President Obama but opposed by most Republicans.

Stock markets had surged last week as investors waited for Mr. Geithner to lay out how the administration would spend the second half of the $700 billion bailout. But by mid-afternoon on Tuesday, that buying spree had reversed starkly.

“It’s this kind of buy-the-hope, sell-the-news mentality that the market’s taken over the last few months,” said Dean Curnutt, president of Macro Risk Advisors. “The administration’s very focused; they’re clearly working around the clock to create a plan. That being said, these are just enormous financial problems.”

Mr. Geithner said the Treasury was creating a public-private investment fund, jointly run with the Federal Reserve with financing from private investors, to buy up hard-to-sell assets that have bogged down banks and financial institutions for the past year. He said the new fund, often described as a “bad bank” for holding toxic assets, would start with $500 billion, with a goal of eventually buying up to $1 trillion in assets.

In addition, the Federal Reserve announced that it was prepared to expand a program intended to ease commercial credit to $1 trillion, from $200 billion. The Fed said that it was also considering expanding the scope of the program, the Term Asset-Backed Securities Loan Facility, to include securities backed by residential and commercial mortgages.

The stock market, which had been trading down all morning, fell sharply as Mr. Geithner began speaking around 11 a.m.

In Europe, shares fell as $6.9 billion loss by the Swiss banking giant UBS and uncertainty about the latest American bank bailout plan kept investors on the sidelines.

“What we are seeing is that the market has settled into a volatile trading range at low levels,” said Christoph Riniker, an equity analyst at Julius Baer in Zurich. “There’s not enough optimism on the outlook for it to push significantly higher in the short term.”

The Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, lost 1.5 percent. The FTSE 100 index in London shed 1 percent and the DAX in Frankfurt dropped 1.6 percent. Futures on the Standard & Poor’s 500 Index futures dropped 1.3 percent.

“The earnings we have seen so far suggest 2009 will be a weak year in most sectors,” Mr. Riniker added. “There’s still a lot of uncertainty.”

Shares in UBS, the European bank with the highest subprime-related losses, were volatile. They advanced by 2 percent in Europe, to 13.15 Swiss francs, but were earlier down as much as 7 percent. Other banks fell. Crédit Agricole was down 2.9 percent, Barclays fell 3.8 percent, Royal Bank of Scotland slipped 4.4 percent and HSBC was down 3.7 percent.

Matthew Saltmarsh contributed reporting.


8 Responses to “Stocks Slide as New Bailout Disappoints”

  1. dorian9 said

    i need a miltown special after seeing this chart. talking to english relatives this morning and the banks there are in deep doodoo and foreclosures are cropping up everywhere, replicating america. let’s give it some time and cross our fingers maybe we’ll get a nice surprise.


  2. tothewire said

    I have my toes crossed too! We need some more happy news from your corner Dorian! Lawman is wanting to buy a couple of foreclosed homes with hopes of resale when market gets better. I feel so bad for the people who have lost their homes, that it just doesn’t seem right. Knowing Joe he will buy the houses anyway…


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