Stocks Surge On Interest Rate Cut

Dow Closes Up About 400 Points After Aggresive Move To Contain Credit Crisis

(CBS/AP)  Wall Street stormed higher Tuesday as investors, optimistic following stronger-than-expected earnings from two big investment banks, were also galvanized by the Federal Reserve's decision to cut interest rates by three-quarters of a percentage point.

After the Fed's decision was announced, the Dow Jones industrial average first gave back half of its 300-point gain, then shot higher, ending the day up about 420 points at the 12,392 level, according to preliminary calculations.

Many investors were expecting the Fed to cut rates a full point, but appeared to overcome their early disappointment, especially since a 0.75 point cut is substantial. The target rate is now at 2.25 percent - its lowest level since December 2004, and less than half what it was last summer. The Fed began lowering rates exactly six months ago, after the credit markets seized up due to soaring defaults in subprime mortgages.

In its statement accompanying the rate decision, the Fed said "recent information indicates that the outlook for economic activity has weakened further," but also that "uncertainty about the inflation outlook has increased."

Quarterly results from Lehman Brothers Inc. and Goldman Sachs Group Inc. early Tuesday gave solace to a market fearful about investment banks weakening further - and hurting the rest of the economy - after losing bets on mortgage-backed securities. After Sunday's news that the stricken Bear Stearns Cos. was being bought by JPMorgan Chase & Co. at a bargain price of $2 a share, both Lehman and Goldman posted quarterly profits early Tuesday that were significantly lower than they were a year ago, but higher than analysts predicted.

"The overwhelming news this morning was the Lehman and Goldman Sachs earnings," said Jim Herrick, director of equity trading at Baird & Co. "The earnings this morning allayed investors' fears that there's going to be a hard collapse."

Wall Street's advance was heartening, but investors were also well aware that over the past six months, stocks have had many bursts higher, only to give them back at the first sign of credit market or economic trouble. It will take some time before anyone knows whether the market is back on a true upward track, or is just staging a bear market rally.

After its last scheduled meeting Jan. 30, the Fed reduced rates by a half-point, pointing to not only stressed financial markets, but also tightening credit for businesses and households; a deepening in the housing contraction; and softening in the labor markets. The central bank repeated these concerns in its statement Tuesday.

As an example of the borrowing crisis spreading beyond the housing market, CBS News correspondent Anthony Mason reports Michigan and New Hampshire have cut back on some student loans because they can't find lenders.

Thomas Graf, who heads the nonprofit Massachusetts Education Financing Authority, isn't sure he'll be able to raise the $600 million needed for the next school year.

"I think what happening here is bigger than just student loans. It's the whole capital markets. Investors have moved away from anything that's risky or perceived as risky," Graf said.

Even auto sales now appear headed for their worst year since 1994, in part because auto loans are harder to come by.

The Fed signaled that it stood ready to cut rates further if necessary, saying that "downside risks to growth remain." Chairman Ben Bernanke Bernanke and other Fed officials have said in recent comments that they view the threat of economic weakness as a bigger risk at the moment than inflation given the risks to financial markets.

In Jacksonville, Fla., Tuesday, President Bush said the government will take further action - if necessary - to help the sagging economy.

Treasury Secretary Henry Paulson made the rounds of the morning TV shows Tuesday to underscore the administration's commitment to keeping turmoil in the financial markets from worsening a struggling economy.

"The priority we have is a stable, orderly financial" market, he told CBS News' The Early Show.

The spectacular fall of Bear Stearns, which had been the nation's fifth largest investment bank, has raised concerns about what other banks might fail as a result of multibillon-dollar losses that began last year with rising defaults on subprime mortgages, loans made to borrowers with weak credit histories.

In other moves, the Fed last week announced that it would lend up to $200 billion of Treasury securities that it owns to investment banks starting March 27 for a period of up to 28 days in return for a like amount of the investment banks' shunned mortgage-backed securities. The Fed also announced recently that it was boosting the size of special loans it has been making since December to commercial banks.

[gce65]

So if everything is so great, why did S&P lower its credit rating for Goldman and Lehman???

WaPost Story Friday:
S& P Lowers Its Credit Outlooks for Goldman, Lehman

[forthepeopl1]

ITS TIME FOR AMERICANS TO TAKE UP ARMS AGAIN, AND TAKE OUR COUNTRY BACK.

ITS OUR RIGHT UNDER THE CONSTITUTION..IT STATES THAT IF OUR GOVERNEMNT IS NOT FOLLOWING WHAT THE MAJORITY OF AMERICANS WANT, THAN ITS UP TO AMERICANS TO CHANGE THAT, AND START OVER WITH A NEW GOVERNEMNT FOR THE PEOLPE BY THE PEOLPE..

SO ARE WE READY YET TO TAKE OUR COUNTRY BACK..THEY CANT KILL US ALL IF WE THE PEOPLE OF WHAT 27500000 MILLION STAND UP AND MARCH DOWN TO WASHINTON THE OTHER 2500000 ARE THE ONES THAT ARE MAKEING BILLIONS ON US POOR..THATS THE ONE PERCENT THAT IS RUNNING AMERICANS AND AMERICA BROKE..

READY YET..LETS GO

I WATCH A MOVIE LAST NIGHT THAT SAYS IT ALL

HANG EM HIGH!!!!!!!!!!!!!!!!!!!!!

[sistatee-2009]

How long before people with good credit are paid by the big banks to borrow money?

[sebastian27-2009]

You''re right, tryhonesty, Japan did just that on interest rates, but it didn''t help. Now they have a problem with inflation.
These attempts by politicians to obliterate the business cycles can be counter-productive.

[drinuk]

Cont. It is also no coincidence that the historically un-precedented rise in oil prices began at almost the same time as the scammers began their campaign. This alone is unforgivable and a serious drain upon the Nation as a whole. Gore You Lied To Us !

[drinuk]

One important factor missing from all reports concerning the current financial disaster is that of Global Warming. This absolute nonsense is costing billions, originally contrived to reign back China and India it has seriously backfired to the extent that it has now restrained those it intended to protect. Al Gore should be charged with fraud albeit that he his simply the mouth piece for Corporate America. Hopefully, now that we have a worldwide depression more attention will be placed upon the balance sheet and not on such scams to protect the chosen few. The financial debacle will get worse and money being scammed by corrupt dishonest scientists will dry up, leaving mankind with a positive outcome.

As for the media, they failed totally to report last week on the conference in NY on Climate Change, only one of the National networks covered the event which be-bunked Global Warming. Founder of the weather channel John Coleman wants Gore in the Dock to present his so-called facts which can then be honestly judged upon. Both Gore and his supporters should be forced against expert witnesses to back up his inconvenient truth.

Funding for this scam and the Eco Loonies must stop NOW.

[jowand]

I wouldn''''t put it past Bush to have issued a secret presidential directive giving Lehman Bros and Goldman Sachs executive permission to misstate their earnings. Call me conspiratorial, but would you really put it past Bush at this point? "It''''s a matter of national security. We''''re in the middle of a war."

Posted by gce65 at 04:21 AM : Mar 19, 2008

OK you''re conspiritorial, now what.

[gce65]

I wouldn''t put it past Bush to have issued a secret presidential directive giving Lehman Bros and Goldman Sachs executive permission to misstate their earnings. Call me conspiratorial, but would you really put it past Bush at this point? "It''s a matter of national security. We''re in the middle of a war."

[gce65]

Look at that stupid shiit eating grin on Bush''s face, as if suddenly the economy''s okay. Notice Bernanke isn''t smiling?

I''m suspicious about Lehman Bros and Goldman Sachs reporting such great profits. What do you want to bet they lied, used a little of Bush''s creative accounting? Then later they''ll say, "Oops, that decimal point shouldn''t have been there" and issue a ''correction.''

[Latrocinor]

Well Bummer, guess the US isn''t going to go bankrupt.

How sad for so many posters. Sorry folks.