Dow Surges 368 Points Amid 2-Day Rally

Fueled By Government Rescue Plan, Wall St. Closes Out Tumultuous Week With Strong Gains

(CBS/ AP)  Wall Street extended a huge rally Friday as investors stormed back into the market, relieved that the government plans to restore calm to the financial system by rescuing banks from billions of dollars in bad debt. The Dow Jones industrials rose about 370 points, giving them a massive gain of about 780 over two days, and Treasurys fell as money flowed into equities.

The plan to rescue banks from billions of dollars in bad debt has reassured investors who worried that a continuum of bad bets on mortgages would hobble more financial companies and cause even more damage to the banking system and the overall economy.

"If a solid plan is put in place, it's definitely going to be a positive in easing the pain," said Stephen Carl, principal and head of equity trading at The Williams Capital Group. He added, though, that "it depends on how it's structured."

Though no hard and fast figure for the bailout has been mentioned, CBS News correspondent Anthony Mason notes that some are saying half a trillion dollars may be required, and that may not be enough.

Wall Street historian Richard Sylla told Mason that only the Great Depression was bigger.

"This may turn out to be the second biggest financial crisis in world history," Sylla said.

A new government ban on short selling, or placing bets that a stock will fall, likely added to the market's gains as traders adjusted their positions. "A big chunk of this is scaring all the shorts to cover their bets," said Joe Battipaglia, market strategist at Stifel, Nicolaus & Co.

Treasury Secretary Henry Paulson, speaking about the rescue plan, said a bold approach is needed to remove troubled assets from the books of financial firms. He offered few details, but said he would work on the plan through the weekend with congressional leaders.

The government's plan could resolve a year-long credit crisis that intensified this week, pummeling the stock market and forcing lending to grind to a virtual standstill. Wall Street suffered massive losses Monday and Wednesday, and credit markets seized up following this week's bankruptcy of Lehman Brothers Holdings Inc. and the bailout of teetering insurer American International Group Inc.

The government took other steps Friday to restore stability to the financial system. The Federal Reserve said it will expand its emergency lending and let commercial banks finance purchases of asset-backed paper from money market funds. The Fed injected another $20 billion in temporary reserves into the U.S. financial system. The central bank also will buy short-term debt obligations issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

And to help calm investors' anxieties, the Treasury Department has decided to use a Depression-era fund to provide guarantees for U.S. money market mutual funds. Money market mutual funds are typically considered safe, but many investors have been fleeing them, fearing that the funds' holdings included souring corporate debt.

To help limit the freefall in financial stocks, the Securities and Exchange Commission on Friday enacted a temporary ban on the short-selling of nearly 800 financial stocks. Short-selling is the common practice of betting against a stock by borrowing shares and then selling them in the open market. A short-seller's hope is the stock will fall; if it does, the stock can be bought back at the lower price. Those cheaper shares can be returned to the lender, allowing the investor to pocket the profits. Traders can lose, however, if the stock rises.

Wall Street observers have disagreed over the extent to which pressure from all those bets that a stock will fall shaped investor sentiment and strangled some financial stocks, like those of Lehman Brothers last week. Some say the fundamental problems with the financial stocks warranted the pessimism while others say the short selling was a death knell for some financial names.

"The federal government has been petitioned by Wall Street to take evasive action in the money markets, the stock and bond markets, to avoid a complete meltdown of the credit system," said Battipaglia. "Once the credit system melts down, the economy falls. We can hand-wring about if this is the proper thing for the government to do, or if Wall Street pulled the panic button too soon, but that's something for the historians to sort out."

It's difficult to quantify how much of the market's gains reflect short sellers who are forced to step in and cover their bets by buying now rising stocks that had predicted would fall. While that played some role in the advances Thursday and Friday, the Nasdaq composite index - dominated by big technology stocks, not financials - showed big gains along with the Dow and the Standard & Poor's 500 index.

According to preliminary calculations, the Dow rose 368.75, or 3.35 percent, to 11,388.44 after having been up as much as 463.36.

Friday was a quarterly "quadruple witching" day, which marks the simultaneous expiration of options contracts, an event that often adds to volatility and heavy volume, leading to swings in the major indexes.

Even with Friday's big gains, stocks didn't end the week with much change after the whipsaw sessions.

Broader stock indicators also surged Friday. The S&P 500 index rose 48.57, or 4.03 percent, to 1,255.08, and the Nasdaq composite index rose 74.80, or 3.40 percent, to 2,273.90.

Treasury prices dropped as investors poured money back into stocks. The yield on the 3-month Treasury bill - a safe investment to which investors have rushed this week - rose to 0.99 percent from 0.07 percent late Thursday. Yields move opposite from price. The yield on the benchmark 10-year Treasury note shot up to 3.80 percent from 3.53 percent late Thursday.

[txgrouch2006]

Didn''''t congress have to go out of their way to remove these regulations, that have protected Americans from corporate greed since the last Great Depression, and then just stand by for almost a decade while predatory lending was blatantly apparent?
Posted by lochlan at 02:04 AM : Sep 20, 2008

Yes. And WHO was the President 10 years ago, who did NOTHING to stop it?

Bush is a thief. Clinton left the doors unlocked for him. Nuff said?

[lochlan-2009]

Our government representatives continues to rob the American people blind. Didn''t congress have to go out of their way to remove these regulations, that have protected Americans from corporate greed since the last Great Depression, and then just stand by for almost a decade while predatory lending was blatantly apparent? Lowering the Fed to 1% allowed them to chase people into banks for these home loans and ALL!!!! the banks pulled exactly the same scam. This was intentional and our Congress played a huge roll.

[gaprddesc]

Enact a temporary ban on the excessive fees, high interest rates Corporation burden the American people with. Investigate FICO score / credit scoring questionable practices, making it transparent! Stop the penalties on early withdrawal from 401k plans to stay afloat.

[gaprddesc]

Do not use our hard earn money to wipe someone else%u2019s slate clean. Enough is enough! It is our time now. We bailed out MCI, Enron, S&L, AIG, Bear Stern, Wall Street, Freddie, Fannie and so many others! It is now time to understand it is the American people that keep our economy afloat and when you steal blindly from them through creative fees and high gas prices it eventually will affect the whole financial stability of our American economy. Do not mortgage our children%u2019s future. Stop spending now and erase every earmark on the book now! Extraordinary times call for extraordinary strategies! Do not print more money to bail out these criminals who took a risk and now don%u2019t want to accept the consequences. The manipulation of the market was called war games in 2005 and 2006. The manipulators or gamers knew how to disrupt the American economy.

[whitemale08]

Now you know that when Wall Street "rallies" Main Street gets "screwed"!

[gaprddesc]

The Alaskan Governor gave back to her citizens $1,200 to $1,500 dollars that was ear marked for the bridge to nowhere to make sure Alaskans can endure the high oil prices while the rest of America went without hot water and food to pay for gas. Now the federal government is rescuing those who over burdened the American people with creative fees, high interest rates and excessive fees. Overhaul the tax code and credit scoring process right now! Forgive all past tax bills of the American people. Wipe the slate clean for the American people so we can begin to contribute to the economy again. For 25 to 40 years a segment of the population was alienated and has been living off of cash only. It''s time to wipe the slate clean and bring them back into the economy as they are the ones who pay their bills when illegal fees are not constantly oppressing them. Reset the credit history so that we are all playing on the same playing field.

[gaprddesc]

Working families are paying way too much taxes. The deregulation of all these institutions allowed the predatory lending, high fees, excessive fees and they targeted the so called risky customer who had the mark of the beast or the credit score that met their criteria. The working families have college to pay for their children which is sky rocketing yet the federal government is bailing out those who applied heavy pressure on the working families and showed no mercy. When we go to our 401k to bail ourselves out we then pay penalties and extra taxes for trying to stay afloat. Let the market meltdown! It''s time all of America feel what many have endure for years. There is a segment of the population whose has the credit score that met the criteria for predatory lending who has been living in an economic depression for the last 25 years. The federal government looked the other way because surely this segment of the population should pull themselves up by their boot straps. We can if all the businesses, corporations and tax code was not doing everything possible to utterly destroy the working family.

[gaprddesc]

6. Ban Utility companies such as the Gas companies from closing the American people''s accounts then reopening them with $600.00 deposit requirement and their regulators justifying this by allowing the Utility companies to take the highest two gas bills and caculate an average.

7. Ban Banks from charging fees for overdraft to the segment of the population with the mark of the beast or low credit score.

8. Ban the practice at settlement of a home of where lenders demand more money down on the day you sign the dotted line and restructure the loan papers so they can be read in bigger print and that the language is the English language not old king James language. Ensure each line item is readable and clear with no hidden meaning. Enact transparency in what interest rate is charged to the American people and transparency on the refinancing policies.

[txgrouch2006]

joining those pitiful beings who had held the light of freedom in one hand, and put it out with the other."
SearingTruth
Posted by Humanavance at 09:41 PM : Sep 19, 2008

That is REALLY a good description of what''s happening now.

Historians will look back on this time and say "What a bunch of idiots."

Or, maybe they''ll say "Thank goodness for those losers, for they allowed OUR NEW GOVERNMENT to take over in their place."

[txgrouch2006]

Now the government wants to bail out all who would tell you to pull yourself up by your bootstraps. Posted by gaprddesc at 08:38 PM : Sep 19, 2008

The government SHOULD NOT have bailed out the savings & loans in the 1980''s. Back then, EVERYBODY knew you were taking a risk if you put your money there. EVERYBODY KNEW there was a REASON why they couldn''t call themselves "banks." EVERYBODY KNEW that if you wanted your money to be safe, you put it in a BANK, not a S&L, not a "Banc," or anything else.

The ONLY reason to put your money in an S&L was the slightly higher interest rate. HIGHER RETURN MEANT HIGHER RISK. Everybody knew that.

BAILING OUT THIS HIGHER RISK INSTITUTION SET A TERRIBLE PRECEDENT. It set the precedent that people could cash in on the higher return WITHOUT really suffering the risk.

We see the result today.