Wall Street Rattled By Bailout Angst

Dow Plunges 370 Points As Government Hashes Out Rescue Plan For Banks' Mortgage Debt

(CBS/ AP)  Volatility swept the financial markets again Monday as investors grew nervous about an amorphous government plan to buy $700 billion in banks' mortgage debt. Stocks fell sharply, taking the Dow Jones industrials down more than 370 points, while investors sought safety in hard assets such as gold and oil, which at one point shot up more than $25 a barrel.

The credit markets were still uneasy but not showing the frantic trading they saw last week. And the dollar skidded lower, contributing to oil's surge.

While investors last week were pleased that federal authorities were constructing a plan to relieve the nation's banks of their toxic assets, many weren't waiting for the details to emerge Monday before seeking safety; selling was heavy across the market, although the financial sector again took some of the biggest hits. Investors are not sure how successful the plan might be in unfreezing credit markets, which many businesses depend on to fund day-to-day operations.

"The reason why they're tumbling down so much is because nothing has happened," Ladenburg Thalman analyst Dick Bove told CBS News correspondent Anthony Mason. "We don't know exactly when the government's gonna step in. We don't know exactly what the government's gonna buy."

Bush administration officials and congressional leaders have been meeting on the rescue plan, the thrust of which congressional leaders have endorsed. Many market observers are hoping for details of the plan to emerge by midweek and delays could weigh further on investor sentiment.

"This government opening of the checkbook - it's a stopgap measure that will calm people and help us buy a little bit more time but ultimately what we need to see is more confidence," said Rob Lutts, chief investment officer at Cabot Money Management Inc. in Salem, Mass.

While investors try to gauge the effect of the government's lifeline they also were absorbing more rapid changes in the banking sector. Morgan Stanley said it is working to sell up to a 20 percent stake to Mitsubishi UFJ Financial Group Inc., Japan's largest bank.

The announcement comes after the Federal Reserve late Sunday granted Morgan Stanley and Goldman Sachs, Wall Street's last two major investment banks, approval to change their status to bank holding companies. The move will allow the companies to set up commercial banks that will be able to take deposits, significantly bolstering the resources of both. However, they also will be subject to more regulation.

That shift came a week after negotiations failed to save Lehman Brothers Holdings Inc. from bankruptcy. That and a quickly assembled government bailout for insurer American International Group Inc. helped lead to a seizing up of the credit markets that spurred federal officials to formulate a plan to rescue companies from their bad debt.

The Dow fell 372.75, or 3.27 percent, to 11,015.69. The retreat follows the Dow's best two-day point gain since March 2000 so some retrenchment, especially amid the anxiety on the Street, wasn't unexpected. But the decline erased a gain of nearly 370 points from Friday.

Broader stock indicators also tumbled. The Standard & Poor's 500 index fell 47.99, or 3.82 percent, to 1,207.09, and the Nasdaq composite index fell 94.92, or 4.17 percent, to 2,178.98.

Bank stocks continued to slide on Monday, reports Mason. Washington Mutual, the country's largest savings and loan, dropped another 22 percent; it's fallen 90 percent over the past year because of its exposure to bad mortgage loans.

Oil's rise of $16.37 to a closing price $120.92 a barrel came as investors snapped up supplies to cover the October contract, which expired at the end of Monday's session. Although the contract's pending expiration helped inflate crude's advance - it was up $25.45 at one point - trading still showed the intensity of emotion in the market, and still-active contracts also rose sharply.

Gold, also in demand as a safe haven, jumped more than $40.30 to settle at $909 an ounce.

The yield on the Treasury's 3-month Treasury bill was at 0.88 percent Monday, down from 0.94 percent late Friday, indicating that investors were still willing to take low returns on a safe asset. However, the yield was well above yields around zero at the height of last week's frenetic buying; yields move in the opposite direction from price. Short-term Treasurys are seen as the safest place to put cash.

The Treasury's 2-year note's yield was at 2.16 percent, up from 2.13 percent Friday. The yield on the 10-year benchmark Treasury was unchanged at 3.85 percent up from 3.82 percent late Friday.

Investors could grow nervous about the trajectory of the government's bailout plan if it appears that enough progress isn't being made, observers said. Senate Banking Committee Chairman Chris Dodd, D-Conn., said Monday he wants the government to receive a stake in the companies helped by the rescue.

Senate Democrats are also calling for the plan to include aid for homeowners struggling with mortgage payments and caps on executive compensation.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke are scheduled to appear before Congress on Wednesday for a briefing on the economy.

"There is going to have to be some sort of a homeowner relief package. I think that's part of where the give-and-take process is going to unfold this week," said Michael Strauss, chief economist at Commonfund. "I think the moderates on both sides know something has to get done."

The market did get some good news from Microsoft Corp., which said it plans to repurchase as much as $40 billion of its shares. The software maker said it completed a previous $40 billion buyback plan. The company also raised its quarterly dividend to 13 cents from 11 cents. Microsoft rose 24 cents to $25.40.

Morgan Stanley said it signed a letter of intent to sell its stake to Mitsubishi UFJ Financial for an as yet undetermined price. Morgan Stanley fell 12 cents to $27.09.

Meanwhile, Goldman Sachs fell $9.02, or 7 percent, to $120.78 following announcement of its move to become a commercial bank.

Other financial stocks fell sharply amid the continued uncertainty about the sector. JPMorgan Chase & Co. fell $6.25, or 13 percent, to $40.80, while American Express Co. fell $3.11, or 7.7 percent, to $37.29. They were the biggest decliners among the 30 stocks that make up the Dow industrials.

Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to 1.27 billion shares.

The Russell 2000 index of smaller companies fell 33.30, or 4.4 percent, to 720.44.

Overseas, Japan's Nikkei 225 index climbed 1.42 percent, and Hong Kong's Hang Seng Index rose 1.58 percent. Britain's FTSE fell 1.41 percent, Germany's DAX declined 1.32 percent and France's CAC 40 fell 2.34 percent.

[noloyalisti]

So we are going to give even MORE of our tax money to the right wing conservative fascists. So they can do even MORE ruin while their executives are laughing their way to the bank.

Time to push back against the corporations. Make the banks public regulated entities. Take the oil company profits and use it to help small business and pay for the mortgages for the poor and middle class.

[riddelup]

I understand wall street being rattled. After all did not their lobbyist prove effective before, did not playing the democrats against the republicans and the republicans against the democrats work before. If greasing congress or conflict politics works this time there will be consequences also known as voter revulsion.

[inventagod2]

THEIR Section 8:
Every time there is a ''crisis'' these guys suggest unconstitional action - why?

''Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and MAY NOT BE REVIEWED by any court of law or any administrative agency.''

[txgrouch2006]

YES WE CAN!
Posted by recession1 at 10:11 AM : Sep 23, 2008

Well said.

But at this point, I think Obama need to change his slogan. It''s no longer "Yes we can." It''s "Yes, we MUST!!!"

We no longer have any other choice.

[pastdue1]

Don''t the politicians realize what the American public wants:
1. they want heads to roll for the wall st meltdown that will cost billions.
2. they want heads to roll for the housing snafu that has cost billions
3. they want heads to roll for the manipulating of oil prices that is costing the taxpayer billions.

Then, after that,
1. they want regulations restored and improved
2. they want no CEO involved in any of these bailouts or recipients of any gov''t money to get any "bonus" or "severence pay"
3. they do NOT want a hastily devised plan that only takes big business in consideration.
4. they want a plan that must be constantly monitered and amended to insure that the taxpayer does not have to , for a third time, give to corporate welfare.

[recession1]

I WAS WELL WILL BE VOTING FOR OBABMA/BIDEN TICKET! AT THIS POINT ANYONE W/ ANY COMMON SENSE KNOW THAT IF YOU USE THE SAME RECIPE YOU GET THE SAME RESULTS!! I''M NOT FILTHY RICH AND CAN NO LONGER AFFORD TO LIVE IN A RICH MAN''S DREAM FOR THE NEXT 4-8 YEARS!! OBAMA/BIDEN 08!! YES WE CAN!

[nodevils2]

OBAMA IS FOR THE FREE MARKETS OF CAPITALISM, constrained by the conscience of sensible government regulation! Obama understands that the government is just as essential to capitalism as is the consumer; and, he understands the government%u2019s role to enhance and create new industries and markets when the private sector is failing to do so. For example, Obama sees that the markets are not "laissez faire capitalism" when it comes to our energy industries. This is evident by the abnormally high gas prices that are hurting the consumer. He understands far better than Bush/McCain that our way to independence is through alternative energies, such as FUEL CELL TECHNOLOGY, BIO-MASS, BIO-DIESEL, WIND, SOLAR, BIO-THERMAL TECHNOLOGIES. Obama knows how to unleash NASA again, unfettered by the sinister repression of free scientific thought, the BUSH/McCain sought to SILENCE and edit the scientists. Obama respects the opinions of ECONOMISTS, unlike Bush/McCain/Palin, who tried to pander with gas holiday gimmicks. OBAMA 08, YES WE CAN!!

[txgrouch2006]

OBAMA stands alone as the candidate taking us in that direction.
Posted by nodevils2 at 09:10 AM : Sep 23, 2008

I sure hope you''re right. I''M VOTING FOR HIM.

[nodevils2]

Who is Grover Norquist?

In 1999 Grover Norquist was instrumental in securing early support for then Texas Governor George W. Bush, continuing a decades-long association with Karl Rove. ("The Wall Street Journal''''s John Fund dubbed him "the Grand Central Station" of conservatism and told The Nation: "It''''s not disputable" that Norquist was the key to the Bush campaign''''s surprising level of support from movement conservatives in 2000"). After Bush''''s election to the White House in 2000, Norquist was the prime architect behind the many Bush tax-cuts.

The "Wednesday Meeting" of Norquist''''s Leave Us Alone Coalition has become an important hub of conservative political organizing. George W. Bush began sending a representative to the Wednesday Meeting even before he formally announced his candidacy for president in 1999. "Now a White House aide attends each week," reported USA Today in June 2001. "Vice President Cheney sends his own representative. So do GOP congressional leaders, right-leaning think tanks, conservative advocacy groups and some like-minded K Street lobbyists. The meeting has been valuable to the White House because it is the political equivalent of one-stop shopping. By making a single pitch, the administration can generate pressure on members of Congress, calls to radio talk shows, and political buzz from dozens of grassroots organizations.

[nodevils2]

Grover%u2019s Vision:

An America in which the rich will be taxed at the same rates as the poor, where the minimum wage is repealed, unions are made irrelevant, and law-abiding citizens can pack handguns in every state and town. "My ideal citizen is the self-employed, homeschooling, IRA-owning guy with a concealed-carry permit," says Norquist. "Because that person doesn''''t need the godd@mn government for anything."

Norquist is famous for saying, "I don''''t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub." His plan is for the federal government to amass massive debt without increasing taxes on the rich, if the federal government is mired in huge debt it can no longer fund social programs of any kind, including Social Security, Medicaid, Veterans benefits...

Now how could you amass such massive debt in a short 8 years??

[nodevils2]

OBAMA IS LEADING! In the polls, in history, in new voter registration, in fundraising, in campaign management, by every metric possible! Conventional wisdom has always said that you can determine how a president will lead by observing how he leads his campaign and the decision he made in picking his vice presidential nominee! Obama/Biden 08, real leadership for a new generation! What a STELLAR campaign being run by an incredible young, American leader! Go OBAMA/BIDEN

[nodevils2]

The most significant change that Obama/Biden will bring to the White House is leadership that actually leads, by changing our government%u2019s strategies and culture so that they have a better fit to the global economy. Obama has an excellent ability to shape a strategic vision of a realistic and attractive future that binds us together as Americans and focuses our energy toward super ordinate goals as a nation. Obama stands alone as the candidate who can frame messages around a grand purpose with emotional appeal that captivates the best in us. Transformational leaders not only talk about a vision; they enact it. They walk the talk by stepping outside the executive suite and doing things that symbolize the vision, the way that Obama performed during the primaries and the way he has run a STELLAR overall campaign. Obama stands alone as the candidate best equipped to demonstrate a Can Do attitude with an image of honesty, trust, and integrity. OBAMA IS THE BEST CANDIDATE FOR PRESIDENT OF THE UNITED STATES OF AMERICA! OBAMA 08; Yes We Can

[nodevils2]

Basically, America has lost its farming base and its manufacturing base. Driving our economic growth for the last eight years has been the FINANCE BUBBLE, credit and mortgages, coupled with exotic derivatives and other risky financial instruments. We need a leader who can inspire America with a vision that results in Americans actually MANUFACTURING something of value for the world other than EXOTIC FINANCIAL INSTRUMENTS. OBAMA stands alone as the candidate taking us in that direction.

[txgrouch2006]

When the gov''t buys all the mortgages, they will generat INCOME.

The gov''t will receive monies from:
- Borrowers who are still making their payments
- Loans that get paid off when borrowers move and sell their homes
- Loans that get foreclosed and the homes are sold at auction

THESE MONIES MUST NOT BE CONSIDERED "REVENUE" FOR THE FEDERAL GOV''T TO SPEND!!!!!!!!

All monies received from these mortgages MUST go to PAY OFF THE FEDERAL DEBT, including the $700 billion loan for THIS BAILOUT.

[txgrouch2006]

Have you ever REALLY looked deeply into what you see when you see those clowns on the Floor at the NYSE. I mean they are all a bunch of GREEDY, me first, I need Money people. What a Joke.
Posted by tpraskac at 08:17 AM : Sep 23, 2008

Oh, wait. I thought you were talking about CONGRESS.

Yup, they look JUST THE SAME to me.

[txgrouch2006]

This bailout is a HUUUUUGE

CONFLICT OF INTEREST!!!

for the members of Congress.

Any member of Congress who is personally involved in subprime lending should BE DISQUALIFIED fom voting on this measure.

It will be interesting to see how many AREN''T disqualified. Would it be a quorum???

[nodevils2]

Let''s think about this for a moment! These BAD mortgages are ones taken out by homeowners at the top of the housing bubble. Let''s say an $800,000 mortgage at a time when the house had a market value of $800,000. But, since the housing bubble burst, the $800,000 mortgage, as an example, is now backed by a $350,000 house. Coupled with the bad economy (unemployment is up several percentage points), the homeowner lost their job and defaulted. Now, the government buys the bad mortgage, BUT, at what price? Does the government pay $800,000 or $350,000? It sounds like Wall Street wants the government to pay $800,000 for debt backed by a deflated $350,000 house. The only way the government could ever recoup its money and resell the stuff would be for another housing bubble to develop, which is not going to happen no more than another internet dot com bubble is going to happen. As silly as it sounds, it would actually be better for the government to just pay off the homeowners mortgages, basically, giving them free houses, rather than skipping the homeowner and giving the money to the financers. No matter how you look at it, its socialism and welfare for the fatcats of wall street and the taxpayer gets stuck with "un sale able" fecal matter!

[nextgenman]

Wall Street thinks its just all about them. Look at that "pay attention to me!" moron in the picture on the main page....

Boo Hoo Hoo!

Let them die.

[leftyintexas]

Don''t you all just LOOOVE what DUMBYA and his gang of toe tapping goons have done to this country in only eight years??? Like Reagan once said... Are you any better off now than you were eight years ago? We all know the answer to that one. OBAMA IN 08!!!

[nextgenman]

Rattled by Angst!? What are they? A bunch of teenage Emo Kids?