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.

[mom_o_truth]

SEC Puts Halt On Short Selling Stocks
Temporary Ban Of Betting Against Stocks Implemented To Stem Widening U.S. Financial Crisis
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"The commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets," SEC chairman Christopher Cox said in a statement. "The emergency order temporarily banning short selling of financial stocks will restore equilibrium to markets."
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This is the only reason why the markets bounced back, jaxass.
Else, the bad news is still out there and worse than the S&L crises of the late 80s Republican Administration MISmanagement. 5% keeps CONTROL of 95% by "financial Cannibalism".
Literally sucking your money at the gas pump and your home equity in your own home to the last drop. -------------WAKE UP PEOPLE

[brianbwb-2009]

"America''''s wealth is about to disappear...." Posted by Hacker11001

America''s wealth disappeared during the Vietnam war, the war profiteers stole $13 trillion over the course of the entire South east Asia debacle. It forced Nixon to put the treasury''s gold on the open market, as there wasn''t enough to cover the currency printed by the Fed, just to keep currency in circulation.

Ever since then, the US dollar was based solely on a consumable commodity, as it was the medium of payment for oil.

Now we are seeing the logical conclusion of neocon "trickle down'' economics, as Reagan called it.

It is like a country shot in the heart, we bled for 35 years, but no amount of bandaging will prevent inevitable death. What we need is major surgery, and a heart transplant, is we are to survive, and between the two candidates, McSame is for more band-aids, while Mr. Obama is at least willing to start discussing surgery.

[missingamerica]

By the way - a "bad debt entity"?

Sounds like a potential tourist attraction for Washington, D.C.

You can take your kids up to its edge, point down into the depths and say:

"Look, kids! There is where the Republicans threw your future!"

[missingamerica]

Wish somebody made it easy to find out who exactly makes the big block buys and sells on the various exchanges in real time.

I bet you could just about figure out what the Administration is about to do with that information and a little news analysis.

[jdsalinger12]

Don%u2019t believe this is the end of it. More bad news is to follow. If you haven%u2019t started diversifying your funds, now is the time. I personally use offshore bank accounts and they have helped me with asset protection and diversification. If you would like to find out how they can help you, feel free to visit my site.

Best,
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[nearl4511]

Wall street is happy because the Fed discovered a vehicle in which to couch or hide or spin off or "absorb" the bad debt.

Sounds alot like an ENRON ploy to me. So now they''re playing games with equity, profit, and debt too?

Fat chance of regulating others if you areusing the same set if tricks.

[lovegetpeace]

Can a Kind NeoCon please explain to us all what the hell is this Energy Expert Sarah Palin said to CNN today at http://thinkprogress.org/ Scroll down about 20% to view the clip.b

[missingamerica]

Somebody should do the math on the total value of the SIVs and the other magic paper that has been declared to be "bad"...we''ll call it "Reported Bad".

Then they should add all of the foreclosed loans together, and then subtract out what was recovered from subsequent resale of the property or the current market value of property if it is still being held by the banks. We''ll call that "Provably Bad".

Then they should check to ensure that "Reported Bad" is not greater than "Provably Bad".

Be interesting to know if we are involved in a zero sum game here.

Or whether - out of frustration at not being able to get at Social Security (yet) - the Big Boyz went and figured out a new way to drain wealth from the Average American.

[lovegetpeace]

Can a Kind NeoCons please review Sarah Palin interview with CNN today at http://thinkprogress.org/ and explain to all of us what the hell is the Energy Expert trying to say. Scroll down about 20% to view the clip.

[lovegetpeace]

Posted by speakinup21 at 08:29 PM : Sep 18, 2008

Gracias for making my point "Capitalism needs cheap labor to succeed." Thank you Sir/Madam!