The major stock indexes fell more than 5 percent Tuesday, including the Dow Jones industrial average, which tumbled 382 points. Financial stocks led the market lower, reflecting Wall Street's growing concerns 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 would directwas 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.
The plan also would boost an effort to unclog the credit markets that govern loans to consumers and businesses. Funding for the effort would jump to $100 billion from $20 billion.
Treasury will also launch a new Web site, FinancialStability.gov, which will detail where these federal funds are going and whether they are succeeding in stabilizing the financial system and promoting new lending, including posting all contracts on the Internet, an administration official told CBS News.
"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."
Investors focused on the financial rescue showed little reaction to the Senate's approval of its $838 billion economic stimulus package. The bill must now be reconciled with an $819 billion version passed by the House. Congressional leaders hope to have the bill on President Barack Obama's desk before a recess next week.
"The economy is in deep trouble. The stimulus plan is not very stimulative. It's not addressing the real problem," Buetow said. "We have an insolvent financial system. The government is trying to find a comprehensive way to save it. They can't afford to just throw money at it. That's what they tried to do in the fall and that clearly did not work."
Stocks extended their slide after Federal Reserve Chairman Ben Bernanke didn't elaborate on the plan in testimony at a House Financial Services Committee hearing. Instead, Bernanke said the programs designed to revive the credit markets are showing promise and that any fix to the worst financial crisis since the 1930s would take time to work.
According to preliminary calculations, the Dow industrials fell 381.99, or 4.62 percent, to 7,888.88.
Broader stock indicators also tumbled. The Standard & Poor's 500 index fell 42.73, or 4.91 percent, to 827.16, and the Nasdaq fell 66.83, or 4.20 percent, to 1,524.73.
The Russell 2000 index of smaller companies fell 22.17, or 4.74 percent, to 445.77.
Declining issues outnumbered advancers by about 6 to 1 on the New York Stock Exchange, where volume came to 1.76 billion shares.
Bond prices jumped as investors sought the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.83 percent from 2.99 percent late Monday. The yield on the three-month T-bill, considered one of the safest investments, slipped to 0.31 percent from 0.32 percent late Monday.