Tuesday, February 10, 2009

Dow drops 382 points

I guess Wall Street didn't like the bailout plan. From MSNBC News:

NEW YORK - Investors are frustrated with the government’s latest bank bailout plan — and showing it by unloading stocks.

The major stock indexes fell more than 4 percent Tuesday, including the Dow Jones industrial average, which tumbled 382 points. Financial stocks led the market lower, a sign of how concerned Wall Street is about the government’s ability to restore the health of the banking industry.

Traders and investors said the lack of specifics from Treasury Secretary Timothy Geithner on how the government will direct more than $1 trillion in public and private support was troubling.

The plan is aimed at restoring proper functioning to credit markets, which seized up over worries about bad debt after the September bankruptcy of Lehman Brothers Holdings Inc. The latest plan calls for a government-private sector partnership to help remove banks’ soured assets from their books. It would also boost an effort to unclog the credit markets that govern loans to consumers and businesses.

“The good news is they are going to spend a trillion dollars, the bad news is they don’t know how,” said James Cox, managing partner at Harris Financial Group.

“They built this up as being a panacea,” he said. “There was so much hope pinned on them to do a good job. The expectations have been so high. It’s hard to live up to.”

Investors also questioned whether this plan, which followed previous efforts in the final months of 2008, would work. Some selling was to be expected, however, as stocks rose sharply last week ahead of the announcement.

Geithner’s speech “basically puts a spotlight on the fact that the government has no idea how to fix the problem,” said Jeff Buetow, senior portfolio manager at Portfolio Management Consultants. “People bought on rumor and hope, and now they’re selling on reality.”

Wall Street was probably expecting a blank check on this latest bailout plan, where the government would give them taxpayer money to do whatever they pleased. Any plan, forcing Wall Street to accept strings attached to the bailout money, would have sent the market downwards. I'll admit that the Obama administration's bank bailout plan is a little short on details, but the administration has only been in office for two weeks. We will probably see more details come out in the next couple of months. Of course, we also have the Senate passing the economic stimulus plan today, however the MSNBC story claims that traders showed no interest in the passing of the bill--they may have been expecting the bill to pass since the deal was made on the stimulus bill, Saturday.

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