Stocks Post Huge Late-Day Surge

Dow Closes Up More Than 400 Points After Government Says It May Create Repository For Banks' Bad Debt

(CBS/ AP)  Wall Street rallied in a stunning late-session turnaround Thursday, shooting higher and hurtling the Dow Jones industrials up more than 400 points following a report that the federal government might create an entity to absorb banks' bad debt. The report also cooled investors' fervor for safe investments like government debt that were in demand for much of the day.

The report that Treasury Secretary Henry Paulson is considering the formation of a vehicle like the Resolution Trust Corp. that was set up during the savings and loan crisis of the late 1980s and early 1990s left previously solemn investors ebullient.

But critics say that crisis was different, reports CBS News correspondent Anthony Mason.

"The paper, the financial paper sold then was not as damaged in its reputation as the subprime paper is today," said Michael Greenberger of the University of Maryland.

The resolution trust would also require Congressional legislation which could take months, adds Mason.

Wall Street hoped a huge federal intervention could help financial institutions jettison bad mortgage debt and stop the drain on capital that has already taken down companies including Bear Stearns Cos. and Lehman Brothers Holdings Inc.

Worries about financial landmines on companies' books have essentially crippled parts of the world's financial markets in recent days and led to the intense volatility in the markets this week.

"It's going to take a lot of the bad debt off the balance sheets of these companies," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York, commenting on the possibilities of an entity akin to the RTC. It could alleviate many of the pressures causing the credit crisis, he said, and reopen moribund credit markets. But Fullman noted, "the devil's in the details."

"Bear markets are very sensitive to news. And on a scale of 1 to 10, this one is a 13," he said of the report.

The report from CNBC gave direction to a market that had weaved in and out of positive territory for much of the session as investors shuttled between the safety of Treasury bills and gold and the bargains posed by stocks that have been pounded lower.

The Dow soared 410.03, or 3.86 percent, to 11,019.69, surging 560 points from its low of the day, 10,459.44. It was the Dow's biggest percentage point gain since October 2002 but still leaves the index down about 400 for the week after routs Monday and Wednesday.

Broader stock indicators also jumped. The Standard & Poor's 500 index rose 50.12, or 4.33 percent, to 1,206.51, and the Nasdaq composite index advanced 100.25, or 4.78 percent, to 2,199.10.

The report of a broader government bailout proved more reassuring to investors than moves before Wall Street's opening bell Thursday by the Federal Reserve and other major central banks to inject as much as $180 billion into global money markets. The moves were an attempt to keep the credit crisis from worsening; the Fed added another $55 billion in overnight loans Thursday.

But it was only the prospect of a more comprehensive vehicle to sweep up bad debt that emboldened investors. Congress established the RTC in 1989 to buy $394 billion worth of real estate, mortgages and other assets of hundreds of failed savings-and-loan institutions. The corporation operated for several years disposing of the associations' assets, and then went out of business.

A repository for soured mortgage debt could help alleviate the grinding of the gears in the world's credit markets that have driven up the cost of borrowing for businesses; banks have become hesitant to make loans even to each other in recent days for fear of what institutions might be hobbled by soured debt. Investors are also contending with worries that more big-name financial companies could falter.

The Dow moved in and out of positive territory more than a dozen times, although there was little in the way of significant news to prompt the course changes. Investors who began the day feeling optimistic because of the money the Fed and other central banks added to the markets lost their resolve by late morning and gave back their gains.

But the CNBC report was the kind of catalyst for a comeback that has become rare on Wall Street in the past few months. When the market heard that there might be a fix for banks' bad debt problems, the Dow began rocketing higher. Some investors were pleased by the news while others raced to cover bets that stocks would fall, traders said.

Fear in the markets had led to speculation about the future of such major players as thrift bank Washington Mutual Inc. and investment bank Morgan Stanley. Media reports have been saying that Wells Fargo & Co. and Citigroup Inc. are interested in a possible takeover of Washington Mutual; and a person familiar with the negotiations said Morgan Stanley and Wachovia Corp. are in talks about a possible combination. He spoke on condition of anonymity because the talks are ongoing.

"We're seeing a tremendous amount of nervousness. That nervousness is leading to volatility," said Anthony Conroy, head trader for BNY ConvergEx Group. He said the markets hadn't seen as much fractiousness since the 1920s.

Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where consolidated volume came to an enormous 10.3 billion shares compared with 9.23 billion traded Wednesday. While volumes have been heavy all week, traders on Thursday were positioning themselves ahead of Friday's expiration of options contracts that can exacerbate volatility.

Investors shying from the risks of stocks turned to government-backed debt. On Wednesday, the 3-month Treasury bill - considered one of the safest short-duration assets - saw demand surge so high that its yield briefly dipped into negative territory for the first time since 1940. Investors have been so focused on parking their money in safe assets that they have been willing to take very little return on such investments.

The prices for short-duration Treasurys fell from Wednesday's levels. The yield on the 3-month T-bill was extremely low at 0.07 percent - up slightly from 0.02 percent late Wednesday but well below its yield of 1.60 percent just a week ago.

Longer-term bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 3.53 percent from 3.42 percent late Wednesday.

Investors also continued a move into other safe havens, though demand eased somewhat as stocks soared. Gold rose again Thursday, up $46.50 to $897 an ounce on the New York Mercantile Exchange after posting its largest ever one-day price jump Wednesday. But it backtracked in after-market trading, responding to the CNBC report.

Oil shot up early in the day, moving back above $100 as investors sought it as another haven. But crude fell back with the market's realization that the financial turmoil will likely exacerbate the drop in demand that has taken oil down sharply from its July record of $147.27 a barrel.

Light, sweet crude on the Nymex rose 72 cents to settle at $97.88 a barrel.

Among financials, Morgan Stanley rose 80 cents, or 3.7 percent, to $22.55 as the investment bank sought a buyer or cash infusion to shore up its flagging share price. The stock has fallen sharply in the past week following Monday's bankruptcy filing at rival Lehman Brothers and a forced sale of Merrill Lynch & Co. to Bank of America Corp.

The Russell 2000 index of smaller companies rose 47.30, or 6.99 percent, to 723.68.

Overseas, Japan's Nikkei stock average dropped 2.22 percent to its lowest closing level in over three years. Hong Kong's Hang Seng index lost 0.03 percent. Britain's FTSE 100 fell 0.66 percent, Germany's DAX index rose 0.04 percent, and France's CAC-40 fell 1.06 percent.

[sociopath2]

Here we go again, another Republican financial fiasco caused by intentionally relaxed regulation, to be swept under the rug, with the public shouldering the cost while the ''Conservative'' schemers who thought up the plan get to walk away Scott-free, counting their ill-gotten gains.

[gop_will_win]

Its a magic box! Banks can take their bad loans and put them in the magic box and they will come out as good loans! You know it takes a conservative to come up with such a wonderful idea! Now if only I can perfect my turning straw into gold technique.

[usclimey]

Liked the last post gop_will_win!

Ya gotta be nervous over the "the Resolution Trust Corp. that was set up during the savings and loan crisis of the late 1980s and early 1990s" bit. Anything to do with that fiasco can''t be a good idea can it?

[stevenga777]

We need a federal government to creat a repository to assume all of MY debt...LOL LOL

[txlakeside]

GD repubs screw us again! Texas went through this in the late 80 so we just exported it via the shrub to the nation!

When are some CEO, CFO and trader heads going to roll?

Never, because the rich repubs help the rich repubs with COPORATE WELFARE and then *** about some single mom trying to feed 3 babies! Hypocritical ***!

Vote these SOB''s out in Nov.

[pugster]

Sounds like us taxpayers will bail out for the banks failures.

[lovegetpeace]

This is total and complete SOCIALISM! Capitalism lost worldwide period.

I accept this RTC Entity IF THE GOVERNMENT REGULATE THESE CORPORATIONS JUST AS THESE SAME CORPORATIONS OBLIGATE ME TO PAY MY DEBTS as a credit consumer.

[txlakeside]

demslie ... less gov oversite and free markets, the mantra of the repubs, brought us here. Anything that you may say is the real lie as the repubs have flushed this country down the drain!

Corporate welfare plain and simple! The rich helping the rich while the "lower class" support the country and the repub rape!

You shoud be ashamed to call yourself a repub!

[yongamerica]

Now we know who the Government is really for. When individuals make bad financial decisions and face bankruptcy they have no parachute or support lines. When big business or banks make poor financial decisions good old Uncle Sam opens his pocket book for them.

This is terribly unfair as sthe American public will have to bear the burden of supporting and paying off these debts. And meanwhile the little people that have been caught up in this scandal have no place to go but down the drain.

[lovegetpeace]

Posted by demslie2u at 04:55 PM : Sep 18, 2008

Sorry but Capitalism just got Discredited worldwide. Nobody can say anything good about Capitalism.

[txlakeside]

Repubs in texas did this in the late 80''s. They all just filed for protection backruptcy, reorganized their debt and kept there developements and land.

These CEO''s need to be hung!

[lovegetpeace]

This is total and complete SOCIALISM! Capitalism lost worldwide period.

I accept this RTC Entity IF THE GOVERNMENT REGULATE THESE CORPORATIONS JUST AS THESE SAME CORPORATIONS REGULATE ME TO PAY MY DEBTS as a credit consumer.

[yongamerica]

Didn''t something like happen in the Regan era during his second term?

This must be a Republican pyramid scheme.

[noloyalisti]

I want to know where the government is getting all the money to give these fascists welfare. At least Ray Gun, the 2nd worst pResident of all time had the sense to keep the bailout out of the budget so it couldn''t be tracked by Congress.

Borrow and spend Republicons, that''s what we need, ore of the McSame.

[lovegetpeace]

Viva Pure and Solid Socialism Clear Victory over Capitalism! Bravo!

[gladetryst]

The Republicans have increased gov''t size, spending and omniscient intervention, just like the Democrats also want to do. Don''t kid yourself, both parties are much the same. The free-market has been stifled since ~1913.

[random_radar]

The RTC liquidated the assets of FAILED savings and loans for the benefit of the government (who was left holding the bag when they failed).

If this entity operates the same way, then it will liquidate the assets of FAILED banks. Are investors giddy at the prospect of massive bank failures, or are they confused about the offer on the table?

It would be quite phenomenal if the government simply opened a graveyard for banks to bury their bad debt. Anything is possible, but some things would be harder to cook the books with.

But never underestimate the ingenuity of government officials to serve the needs of their puppet masters.

[lovegetpeace]

Almost all the Top Officials from the Top U.S. Corporations graduated from the Top U.S. IVY Universities.

Let close all the IVY Universities before the 4th Great Depression.

[slim1h2o]

Looks like the taxpayer''s gonna get hosed again

Hey, Bush,,ain''t done you done yet?

BTW,,,I''m still waiting for my money, er I mean bailout.

[lovegetpeace]

Posted by tuckerndfw at 05:05 PM : Sep 18, 2008

For the past 15 years, Americans listened and believed these "GREEDY OLD PIG (GOP)"

Americans are simply worst than Idiots.

[loncheneyjr]

BAD DEBT ENTITY? THIS RAT WONT DIE WILL IT? RESOLUTION TRUST CORPORATION!!!! ANYTHING LIKE THAT WILL DESTROY THE UNITED STATES!!!! IT WILL PROBABLY LEAD TO CIVIL WAR!!!! YOU WANT TO FORGIVE THEIR DEBTS, DO YOU INTEND TO DO THAT FOR US...HOW ABOUT SUSPEND ALL TAXES FOR THE MIDDLE CLASS FOR THE REST OF THE CENTURY!!!!! CAUSE THATS WHAT ITS GOING TO TAKE TO KEEP THIS NATION TOGETHER!!!! WHAT THEY ARE TALKING ABOUT IS THE DESTRUCTION OF OUR NATION!!!! YOU ARE TALKING ABOUT TWENTY DOLLAR A GALLON FOR GAS AND BREAD FOR TEN DOLLARS A LOAF SO THAT WE CAN BAIL OUT THESE RATS!!!! THEY MUST DIE!!!! THAT IS THE ONLY SOLUTION AND THATS WHAT IS GOING TO HAPPEN...IF OBAMA IS DIRTY THEN LET MCCAIN COME IN AND CLEAN THEM OUT!!! WHAT THEY ARE TALKING ABOUT IS IMMORAL IT IS PERVERSE AND IT WILL NEVER EVER HAPPEN UNLESS YOU WANT HELL IN YOUR OWN BACK YARD!!!!! THESE STUPID RATS!!!!!!!! I WANT TO HEAR THE DEMS TALK MORE ABOUT ERASING ALL TAXES FOR THE MIDDLE CLASS FOREVER AND ABOUT HOW THEY WILL DO WHATEVER IS IN THEIR POWER TO BOLSTER THE FDIC TO PROTECT SO MANY PEOPLE''S LIFE SAVINGS AND FORGET THIS ENDLESS MASTURBATION THAT THE NORTHEAST SENATORS HAVE COME UP WITH!!!!! THE MARKETS CAN GO TO HELL, ..IN THE END THEY ARE NOT THE AMERICAN PEOPLE, THEY NEVER WERE, THEY ARE ONLY THE FEW, THE ELITE THE SPOILED THE GREEDY THE RATS WHO DESTROYED THIS NATION.THE RTC WILL NEVER HAPPEN!! THERE''S ONLY SO MUCH ONE CAN TAKE. IT WOULD MEAN THE END OF OUR NATION.....TWENTY DOLLARS A GALLON FOR GAS...DO YOU WANT THAT?

[lovegetpeace]

Republican President Bush is definitely the best president for the Democratic Party. No Democrat ever could have done what Bush done to help the Democratic Party.

Barrack Obama will be in the White House on 20 January 2009. If not, the U.S. Congress will be a solid SUPER MAJORITY for the Democrats. Poor McCain either way.

[loncheneyjr]

LISTEN CAREFULLY....THIS IS NOT MERELY THE GOP...THERE ARE A FEW SELECT INDIVIDUALS ON BOTH SIDES OF THE AISLE THAT ARE IN ON IT..THAT IN FACT CONSPIRING AGAINST THE ORDINARY PEOPLE OF THIS NATION....IN FACT THIS PROPOSAL IS COMING FROM THE DEMOCRATS...JUST GOOGLE IT AND SEE WHAT I MEAN....THIS IS COMING FROM THREE NORTHEASTERN POLITICIANS WHO ARE WELL GROOMED UNDER THE AUSPICES OF WALL STREET!!!! THEY ARE ALL ON THE SAME PAGE WITH HENRY PAULSON WHO WILL DO WHATEVER THEY TELL HIM TO. WE ARE IN SERIOUS SERIOUS TROUBLE AND OBAMA''S CANDIDACY IS FAST FADING HE HAD BETTER INTERVENE NOW IF HE WANTS MY SUPPORT ANYWAY.. I PERSONALLY WOULD NEVER SUPPORT ANYONE WHO GIVES THOSE THREE ANY MORE POWER THAN THEY ALREADY HAVE, THEY DO NOT CONCERN THEMSELVES WITH THE ORDINARY PEOPLE OF THIS NATION.

[lovegetpeace]

Posted by loncheneyjr at 05:09 PM : Sep 18, 2008

The U.S. Government owns $10,000,000,000,000.00 (Trillions).

Are you saying America are in trouble financially?

[lovegetpeace]

Posted by loncheneyjr at 05:09 PM : Sep 18, 2008

The U.S. Government Debt is $10,000,000,000,000.00 (Trillions).

Are you saying America is in trouble financially?

[yongamerica]

Didn''t something like happen in the Regan era during his second term?

This must be a Republican pyramid scheme.

[yeswecan09]

This is a good thing that the Dow is up 400+ now we have a little breathing room!

Now if we only get back the other 500 from the other day, then I can stop worry about grey hair.

[lovegetpeace]

Republican President Bush is definitely the best president for the Democratic Party. No Democrat ever could have ever done what Bush done to help the Democratic Party.

Barrack Obama will be in the White House on 20 January 2009. If not, the U.S. Congress will be a solid SUPER MAJORITY for the Democrats. Either way, Poor Old McCain.

[rushlimpdrug]

Viva Pure and Solid Socialism Clear Victory over Capitalism! Bravo!
Posted by lovegetpeace at 05:04 PM


Great post.

We all hate socialism, don''t we?

Im'' sure conservatives will fight all this, right?

[lovegetpeace]

Posted by tuckerndfw at 05:16 PM : Sep 18, 2008

I agreed that it started with Ronald Reagan with his ''Trikled-Down'' economic policies. These policies failed with the Bailout of the Savings and Loans industry in 1988.

Like aways, Americans have a very short memory span.

Then, American voted in again favor of these same failed ''Trikled Down'' Economics policies during the Bush terms.

Americans deserved exactly what they are getting.

[lovegetpeace]

Posted by loncheneyjr at 05:09 PM : Sep 18, 2008

The U.S. Government debt is $10,000,000,000,000.00 (10 Trillions). This debt translates into about $88,000.00 for every Americans including babies.

Are you saying Americans are in trouble financially?

[lovegetpeace]

Posted by rushlimpdrug at 05:18 PM : Sep 18, 2008

I learned a long time ago that Conservatives'' brains see the exact opposite.

If a Conservative sees his house physically burning, he will bet you a million dollars that its not burning. I do not know how they do it.

[generey]

Dow Closes 400 Points Up After Government Says It May Create Repository For Banks'' Bad Debt.

Well this sucks! (Up, down, up, down. Its all just a game).

[rosemari2]

Oh, Goody, the GOP are going to put all the bad debt these thieves have built up into one big pile, like they did when the Bush''s tanked the S & L''s, egh? You bet''ja-------then we taxpayers get to pick up the Tab, AGAIN!!! I already did that once.

GOP=Grand Old Pervets.........but Rich Perverts, thanks to Reagan.

[mcv57]

Treat o trickers are early. You folks got to be real wooper of a fool this propaganda. I doubt very much that this U.S. Federal Reserve P.O. Box Depository for toxic debt will save the banking system.

I suspect the spike you see is Russian Investors pouring in their deluted Rubies. Mass media is trying to save the financial market attempts will make this the biggest FRAUD in history.

[omded]

So, is Uncle Sam going to pay CURRENT MARKET VALUE for the assets, or is he going to pay FULL FACE VALUE for the bad loans? If the banks forclose on the assets and then sell the assets to Uncle Sam for CURRENT FAIR MARKET VALUE, then it''s not too bad. But, if Uncle Sam is just going to buy the loans dollar for dollar from the banks, then the banks are making out very well! I should open a bank, lend out money recklessly, and just have good old Uncle Sam buy the bad loans from me! But, I have a feeling that priveledge is reserved for the banks. Which means all of us taxpayers take the loss for the banks. I don''t care what political party you associate with. If you just stand idly by while Uncle Sam obligates you to pay for the mistakes of the banks, you''re letting yourself be robbed blind!

[mcv57]

Treat or trickers are early. You folks got to be real wooper of a fool to believe this bs propaganda. I doubt very much that this U.S. Federal Reserve P.O. Box Depository for toxic debt scheme will save the banking system. Its not real accounting.

I suspect the spike you see is Russian Investors pouring in their deluted, valueless Rubies. Mass media is handing you the greatest deception the Bush Administration has come-up with in order to keep your money in the bank.

THE BIGGEST FRAUD IN HISTORY OF THE WORLD. THE FEDERAL RESERVE IS LITERATELY ASKING THE WORLD TO BEND-OVER.

[mcv57]

Posted by tuckerndfw

You sound well informed, I was just educating the blog viewers that the FEDs are has now found a way to screw a dead wh*or*e. :)

[stn_sage]

WHAT?! Wall St. rallies on news that Paulson suggests they expand big government by creating another entity, dump all the debt into it, and let IT hold and deal with it!?

The couple problems I see with this are: 1. it doesn''t change the basic problem---the debt---it''s still there! 2. how much is this going to cost the taxpayer? How much will it add to the overall national debt? 3. expanding the federal government is not the answer, it let''s private banking/investment be irresponsible for what they''ve done!

All this is, is ''smoke and mirrors'' combined with ''slight of hand'' to allow business to be irresponsible! Less wealthy private citizens don''t get these kind of breaks! Neither, should these alleged knowledgeable, professional businessmen! It''s time they start acting like it, instead of hiding behind false, positive stereotypes!

[mcv57]

... on another note, the Federal Reserve and the Treasury Department has been spending your taxpaper dollars to save the banking system in this country. They use the word "privately owned" just to justify no liability.

[hugochavez9]

I have no sympathy for the sudden poverty of investment bankers who''ve gamed and likely destroyed our financial system in the relentless pursuit of wealth.

[mcv57]

F.D.I.C. is just a hollywood illusion in which had keys to the printing press to the Federal Reserve. FDIC never really had any real value or assets ... the last crash bailout in the 1980s was funded by you - the taxpaper.

[strangeworld]

Another republican, another big-time financial sector bailout at the US taxpayer expense. Lets eliminate the middle man here, if the taxpayer has to pay for it anyway why don''t we just forgive all mortgage debt of $100,000/family and let the big financial companies fold. I can''t see why the hard working citizens of the US have to set up a tax trough for big business. What a sick situation.

[mcv57]

Posted by Strangeworld

The resolve would place the global financial infrasture into anarchy - no rules, no accounting, just fraud.

[brianbwb-2009]

So the taxpayer will be asked to pay for overpriced McMansions, whose prices were driven to artificially high, and economically unsustainable levels through collusion by the lenders?

If we take the houses, we should put the "working homeless" in the ones from affluent neighborhoods, and those who defaulted on their loans for them into the foreclosed units in poor neighborhoods.

That should help level out the real estate pricing disparity, and bring it back to affordable levels.

When the still rich cry unfair, because they don''t want to live near the poor, remind them that it is their fault for supporting "trickle down".

[mcv57]

Posted by stoplying08

Its a FRAUD scheme to deceive the world. The entity has charter or organization, it has to resources (except U.S. Federal Reserve paper money with no accounting), and it has no real value. It is a way of the Government to screw the world out of Trillions of dollars - no return on bad debt, sorry.

[mcv57]

... if the NATO allies allowed the Bushwacker to get away with murder and torture, well why can''t he rob the world blind too.

[brianbwb-2009]

Posted by stoplying08

To a certain point you are correct, but don''t forget that this money is owed for housing deliberately overpriced through the collusion of real estate firms, insurance firms, land speculators, and bribed politicians, in short the money "owed" is not really lost, only the expectation of reaping unrealistic profit is.

The land still has value, it is the unreasonable profit expectation that was the illusion, and that is all that is truly "lost".

[marshall_nee]

Hyperinflation here we come!!!!

[mcv57]

Posted by brianbwb

Bascially the Real Estate Industry created this illusion of appreciation, now the world who has financed this illusion are the losers.