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Bailout OK'd, but markets remain sickly

Questions swirl about plan's implementation

Dow Jones News Wires

Published October 3, 2008 at 10:05 p.m.

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Like a patient who has just swallowed some bitter medicine, markets will have to wait awhile longer before their ills go away.

That was the main theme of Friday's session on Wall Street, as an early stock rally evaporated, leaving major stock indexes down for the day despite the House of Representatives' highly anticipated passage of a landmark $700 billion bailout of financial firms saddled with bad credit bets. Investors bid up stocks early in the session in anticipation of a "yes" vote but then quickly sold after approval was in hand.

The Dow Jones industrial average was up 313 points at its intraday high shortly before the House vote, but then slumped to finish down 157.47 points, off 1.5 percent, at 10,325.38.

For the week, one of the most tumultuous in Wall Street's history, the Dow was off 7.3 percent, its biggest weekly decline in more than six years.

The Standard & Poor's 500 index fell 15.05, or 1.35 percent, to 1,099.23, and the Nasdaq composite index fell 29.33, or 1.48 percent, to 1,947.39.

A hot-and-cold pattern is common in the market heading into a highly anticipated news event. Traders typically jockey for position beforehand and take profits afterward, figuring they've maximized whatever short- term opportunity might have existed.

Participants on the New York Stock Exchange's floor said Friday's session was an outsized example of that phenomenon. But they also said the disintegration of the day's early rally underscored pitfalls that are particular to the market's current landscape.

Questions continued to swirl about how and when the bailout plan will be implemented and how much the broader economy will continue to suffer even in a best- case outcome.

A series of data releases this week, including a glum jobs report out Friday, underscored how deep the broader economy's weakness has run lately. To many Wall Street veterans, a long recession unlike anything the U.S. has suffered in decades seems increasingly likely.

When the rescue proposal failed to gain House approval in its initial congressional go-round on Monday, the Dow suffered its worst one- day point drop in history.

But that pullback, along with the gyrations in stocks, bonds and other assets that ensued throughout the week, seemed to convince many House members and their constituents that the global economy was in real danger and that passage of a bailout was not simply a matter of favoring a handful of fat-cat chief executives.

The Senate already had passed the legislation, and President Bush signed it into law. The central feature of the package is the granting of resources and power to the U.S. Treasury to buy up soured credit bets that have hampered financial firms' ability to carry out their usual lending activities that act as an engine of growth for the broader economy.

The legislation, however, does not spell out key details of how the Treasury will execute its purchases, including a timetable and procedures for making offers and accepting bids whenever it wants to resell the troubled securities.

They said it: Colorado business leaders on the bailout

"We needed to act. And we needed to act expeditiously. I'm not as concerned that it took a week. I was glad it was debated and obtained bipartisan support."

Luis Colon, CEO, Denver-based Colon-Collawn Construction

"Thanks goodness! It's far from perfect. But as our politicians finally realized, the situation was so serious that they finally realized action had to be taken and leadership had to be shown."

Tucker Hart Adams, president, the Adams Group, a Colorado Springs-based economic consulting firm

"It's a big step in the right direction. I'm not going to say it's a perfect piece of legislation or that it will solve all the nation's or the world's problems. It will stimulate the credit markets to where there is more credit available. . . . Had this package not passed, we would have seen some Colorado auto dealers either curtailing operations or going out of business."

Tim Jackson, president, Colorado Automobile Dealers

"From my vantage point as a community banker, it helps us restore confidence in the system. Many of us as community banks will not directly benefit from this package nor were we directly affected by the results of Wall Street investment bankers. The perception out there was that all banks were on shaky grounds. That's not the case."

Mike Cafasso, Colorado president, American Bank of Commerce

"The fact is that this has been a very difficult pill - the rescue package - for small businesses to swallow. The crisis on Wall Street was not the fault of small businesses."

Tony Gagliardi, Colorado state director, National Federation of Independent Business

Comments

  • October 4, 2008

    10:11 a.m.

    Suggest removal

    HolierThanThou writes:

    Rewarding failure begets more failure. Mark my words. This is not the last bailout that the super-rich will come knocking for.

    It's time for the American people to reconfigure the economy to serve the people, not just the wealthy. Government needs to manage big corporate executives with an iron fist. We must regulate their pay to ensure that they are only rewarded according to whether they serve the American public and their companies.

    When any executive of a large publicly-traded corporation does harm to his employees, stock holders, or the American public, he must be held accountable and needs to go to the penitentiary.

    We don't tolerate burglars who walk off with the TV. Why do we tolerate those who steal the entire house and the careers we build to obtain them?