Wall St.'s Tumultuous Day Ends With Gain

Stocks Partly Recover After Worst Sell-Off In Years; Fed To Keep Interest Rates Steady

(CBS/AP)  Wall Street ended another tumultuous session with a sizable gain Tuesday, partly recovering from its worst sell-off in years after the Federal Reserve said it was keeping interest rates steady. The central bank soothed fears of a worsening financial crisis even as the market waited to learn the fate of troubled insurer American International Group Inc.

Late Tuesday, the government announced an $85 billion bailout of AIG, after worries about the insurer's well-being intensified following several ratings agencies downgrading the company. Government officials, as well as investors, feared that a failure by the world's largest insurer would have touched off a wave of financial turmoil.

Sean Egan, president of rating company Egan Jones, said that AIG has been threatened by bad loans and a crisis of confidence and would have gone bankrupt if it didn't raise at least $40 billion quickly, reports CBS News business correspondent Anthony Mason.

"Trust is so important with these securities that are being handled by the major financial institutions," he told CBS News. "And that's gone right now."

Michel Lewitt, a money manager at Harsh Capital Management, said the insurance giant could not have been allowed to go under, calling such an event "as serious a situation as this country has faced since the Great Depression."

But speculation that the company might be working out a loan from the government corralled some of the market's worries about the company and the stock finished well off its lows. The stock fell $1.01, or 21 percent, to $3.75 after trading as low as $1.25.

In a statement accompanying its decision on interest rates, the Fed noted the growing strains in the financial markets a day after the Dow Jones industrials plunged 504 points in reaction to continuing turmoil in the financial sector. The Fed also noted the ongoing weakening of the labor market. But it also sought to give some reassurance by saying it expected its policy moves to foster moderate economic growth over time.

The Fed has cut its target federal funds rate by 3.25 percentage points to its current level of 2 percent over the past year. Many on Wall Street expected the Fed to keep rates steady but there was some hope that the central bank would try to calm uneasy financial markets with a rate cut.

Still, the fact that the Fed didn't lower rates was a sign that it doesn't believe the economy needs that type of stimulus. It reiterated that it believed its moves to inject more liquidity into the banking system to help struggling financial institutions would help them, and in turn the economy overall.

"This was the right thing to do," said Tom Higgins, chief economist at Payden & Rygel Investment Management in Los Angeles. "I just don't think the Fed should be responding to the financial market crisis at this stage."

He contends other moves, like broadening the type of collateral the Fed accepts from banks and adding money to the banking system are more effective at addressing credit troubles.

The Dow rose 141.51, or 1.30 percent, to 11,059.02, after falling about 100 points immediately after the Fed announcement. The Dow at turns rose and fell as much as 175 points in fractious trading; on Monday, it suffered its largest drop since the September 2001 terror attacks.

Broader stock indicators advanced. The Standard & Poor's 500 index rose 20.90, or 1.75 percent, to 1,213.60, and the Nasdaq composite index rose 27.99, or 1.28 percent, to 2,207.90.

On Monday, the Dow fell 4.4 percent, the S&P gave up 4.7 percent and the Nasdaq fell 3.6 percent.

Bond prices fell sharply Tuesday as investors turned away from the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.52 percent from 3.41 percent late Monday. The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude for October delivery fell $4.56 to settle at $91.15 a barrel on the New York Mercantile Exchange, bringing its two-day decline to $10, as investors placed bets that a slowing economy will crimp demand. Gas prices continued to following the disruption to supplies brought by Hurricane Ike, though they were expected to moderate in the coming weeks.

Markets around the world have been reeling this week from the bankruptcy filing of Lehman Brothers Holdings Inc. and the quickly assembled weekend sale of Merrill Lynch & Co. to Bank of America Corp. Investors worry that tectonic shifts in the power structure of Wall Street signal that the financial sector's trouble with imperiled credit are far from over.

Barclays PLC confirmed Tuesday that it is interested in acquiring some assets of Lehman Brothers.

Veteran trader Art Cashin told CBS News that he believes there could be more casualties.

"This is the fifth time we've seen this movie. And you sit on the edge of your seat and yell at whichever character it is: 'Don't go into that woodshed!' But they keep going in," Cashin said.

Meanwhile, Republican presidential candidate John McCain on Tuesday called for a high-level commission to study the current economic crisis and claimed that a corrupt and excessive Wall Street had betrayed American workers.

His Democratic opponent, Barack Obama, continued to criticize McCain's remark Monday that "the fundamentals of our economy are strong." In a television ad released Tuesday, Obama's campaign asks: "How can John McCain fix our economy if he doesn't understand it's broken?"

But the partial recovery in shares of AIG as well and some of the other financial stocks that led the market lower Monday were a welcome boost to investor sentiment. JPMorgan Chase & Co. rose $3.74, or 10 percent, to $40.74, while Wells Fargo & Co. rose $3.93, or 13 percent, to $34.93.

Steven Goldman, chief market strategist at Weeden & Co., said investors are starting to examine even troubled sectors like banks to pluck out those that have managed to sidestep the worst of the credit troubles.

"There are some silver linings in a dire picture," he said, referring to some of the gainers.

Names that investors often rely on as safe bets in a weak economy also rose. Wal-Mart Stores Inc. advanced 51 cents to $62.14, while McDonald's Corp. rose 57 cents to $64.29.

The market showed little reaction to the first drop in the Labor Department's Consumer Price Index in nearly two years. The CPI fell 0.1 percent last month, while the index excluding food and energy costs edged up a mild 0.2 percent. Both figures were in line with analyst expectations.

In corporate news, Goldman Sachs Group Inc., the largest of the two big independent investment banks on Wall Street, posted its sharpest decline in earnings since becoming a public company in 1999. The company said quarterly earnings fell 70 percent from a year earlier and that it saw a marked decrease in client activity. The profit results were better than Wall Street had been expecting, though revenue fell short. The stock fell $2.49 to $133.01.

Morgan Stanley, Goldman's smaller rival, fell $3.49, or 11 percent, to $28.70 and reported better-than-expected results after the closing bell.

Dell Inc. warned that it sees a further softening in global demand in the current quarter. The computer manufacturer fell $2.01, or 11 percent, to $15.98.

Hewlett-Packard Co. announced plans Monday to cut 24,600 jobs, or about 8 percent of its work force, over the next three years as it works through its acquisition of technology-services company Electronic Data Systems Corp. HP shares were little changed early Tuesday. HP rose $3.08, or 6.8 percent, to $48.41.

The Russell 2000 index of smaller companies rose 20.89, or 3.03 percent, to 710.65.

[cattlekate]

Actually, the inflation rate for August was 5.37%. That is significantly higher than your figure of 3.9%.

http://tinyurl.com/5owsox Posted by gramto8 at 07:54 PM : Sep 16, 2008

Thanks. But my inflation rate is $400/month, thanks to the COLA increases in EVERYTHING! Thanks to Bush&CO''s borrowing against the non-gold standard USD Nixon got rid of, thanks to the invasion & occupation called VietNam.

Can you imagine what my inflation tax will be when the invasion and occupation of Iraq (at the beheast of Big Oil-Cheney-bad-Dressler-decision et al corporations) is over with?

Are there too many young people who forget twhat happened in the 1970''s, and now blame it on Carter?

[nearl4511]

You want to read something funny?

TOday in the mail I got an offer from my mortgage company to refinance my fixed rate loan on the house to a lower variable rate loan because interest rates are the best they''ve been in years.

Can you imagine what kind of a dope would fall for variable rate interest rates after the fiasco of variable rates and sub-prime rates recently AND instability in the market.

Perfectly giddy with my fixed rate 15 yr loan thanks.

[republic1776]

I like Ms. Nancy Polisi to suck my Dickski.

[gramto8]

Current inflation rate approximately 3.9%

Try again LIB.

Posted by pmsnbc1 at 11:00 AM : Sep 16, 2008

Actually, the inflation rate for August was 5.37%. That is significantly higher than your figure of 3.9%.

http://tinyurl.com/5owsox

[jayfl11]

In 2003 President Bush proposed to Congress that Fannie Mae and Freddie Mac be placed under the regulatory control of new government bureau to oversee their operations and stem out of control policies that posed a danger to the mortgage programs. Congressman Barney Franks and Senator Chris Dodd vehemously opposed it and worried how would people who couldn''t afford to get a mortgage on the open market ever buy a house. So people who couldn''t afford a house were able to buy one and help get the country in this mess.

What we need is true open market operations with no government bailout or guarantees so the greedy *** who took advantage of the "well meaning" legislation will have to try their luck competing with ethical and smarter people.

[staplesla]

I''m so sick of every company being bailed out!!!

This is capitalism. The leaders of these companies made bad decisions so let them fail.

We will never hit a bottom in the market if we keep propping these failing company''s up.

It''s a temporary fix but doesn''t fix the underlying problems.

I''ve been laid off from my job and the government doesn''t care about bailing me out.

This country is a mess!

[gwjackie]

How in the world is this Clinton,s fault most republicans just wont face the facts that George Bush is the worst presedent that this country has ever seen and i hope to never see another one even close.

[be_real]

Wall St.''s Tumultuous Day Ends With Gain


Jesus wanted these gain''s to happen, ask Sara Palin..

[generey]

Wall St.''s Tumultuous Day Ends With Gain.

That sucks.

[antoniof123]

GO TO FOX FOR THE TRUTH...GOOD OR BAD.

Posted by tiddsanbeer at 04:38 PM : Sep 16, 2008

Then go and quite posting on this board you are a troll. This is not a rebound it is a pause to determine if the market needs to adjust.

Please if you don''t understand the market don''t shoot your mouth off some people would beleive you. So go to Fox and listen to them tell you how good everything is. By the way if you get laid off don''t complain.

[easeup-2009]

I hope none of the investors are Democrats!. The Republicons deserve what they get, they have been supporting an ownership society. As Obama wisely said: Lose your savings, you''''re on your own. Lose your house, your job, your health care, you''''re on your own.

Time to keep the Con Men away from our government. Vote Democratic.

Posted by noloyalisti at 03:19 PM : Sep 16, 2008

LOL!!! I love naive, fawn-eyed liberals!! They think only rich evil Republicans own stock when in fact over half the country is tied into the stock market some way or another.

Clearly the Sarbucks he works at does not offer a 401k. LOL!!!

[newsjunky5]

Here is how the stock market works. A man goes to a village and says I want to buy your chickens for a dollar a piece. He buys all of the chickens. He goes back the next week and says I want to buy more chickens, I will pay you five dollars a piece, but none of the villagers have any chickens because they sold them all for a dollar a piece. the next day a man comes to the village with chickens that he is willing to sell for three dollars a piece. The villagers buy all of the chickens so that they can sell them for five dollars. But the man that wanted to buy them for five dollars never comes back. And that is how the stock market works
--------------------------------------
Said very well.
And a lot of things taste like chicken.

[noloyalisti]

I hope none of the investors are Democrats!. The Republicons deserve what they get, they have been supporting an ownership society. As Obama wisely said: Lose your savings, you''re on your own. Lose your house, your job, your health care, you''re on your own.

Time to keep the Con Men away from our government. Vote Democratic.

[newsjunky5]

I stand to lose 20% of my retirement savings if AIG goes under. My money has been with them for over 25 years. It may be in the best interest of the country to protect small investors like me.
------------------------------------
Too bad, but stock investments are risky (means you can loose your money if the business isn''t successful). People have started believing it''s a guaranteed retirement plan - it''s not.
To bail out a company might avert disaster, but to do it because you picked a losing company to invest in is no reason at all. That''s throwing good money after bad.
Compulsary investment in these companies should never be forced on Americans - such as Bush''s/McCain''s plan to dump the Social Security eggs into the same market basket.

[pollroller1]

Here is how the stock market works. A man goes to a village and says I want to buy your chickens for a dollar a piece. He buys all of the chickens. He goes back the next week and says I want to buy more chickens, I will pay you five dollars a piece, but none of the villagers have any chickens because they sold them all for a dollar a piece. the next day a man comes to the village with chickens that he is willing to sell for three dollars a piece. The villagers buy all of the chickens so that they can sell them for five dollars. But the man that wanted to buy them for five dollars never comes back. And that is how the stock market works

[gop_will_win]

I stand to lose 20% of my retirement savings if AIG goes under. My money has been with them for over 25 years. It may be in the best interest of the country to protect small investors like me. I''''m sure there are thousands of others. However, in order to maintain are standard of living throughout the country many changes need to occur. We need to protect the American farmer and other businesses to bring back jobs that will pay benefits. A health insurance plan that includes current insurance companies needs to be developed. We can not continue to provide jobs based on the Wal Mart philosophy any more.


--------------------------------------------------------------------------------

Posted by awinslow2
=====================================
I shorted AIG last week. Maybe even your shares. I covered this morning at $1.92.

[gop_will_win]

This is all Clinton and the liberal democrats fault.

[vancouverboo]

awinslow2, Why should you be protected? You risked your money for a fat return. In exchange you have to expect the possibility of losing your capital. That''s what Capitalism is all about, risking your capital in exchange for the change of big profits. Welcome to the big world of high finance, big guy. Stop whinning and take your losses. I don''t feel inclined to bail you out.

[vancouverboo]

Socialism for The Rich. Socialism for The Poor. Taxation for The Middle Class. Why? Because they are Too Rich To Fail.

[luvcomments]

mcnally2

Thank you for your 10:01 a.m. post. Too many people are either unaware of this or choose to pretend it isn''t real. Many of us have been aware of this international bunch of manipulators for decades. All the rest - the failures, the government puppets and pretenses, are nothing more than mere scenery.