Wall Street: Thumbs down on bailout
Stocks slump as a new version of the bank rescue is short on details.
NEW YORK (CNNMoney.com) -- Stocks slumped Tuesday, with the Dow industrials ending at a 3-month low, as the government's bank rescue plan failed to reassure investors burned by the 14-month old recession.
Treasury prices rallied, lowering the corresponding yields, and the dollar slipped versus other major currencies.
The Dow Jones industrial average (INDU) lost 382 points, or 4.6%, closing at its lowest point since Nov. 20, the date considered by many experts to have been the low of the bear market. The Dow had lost as much as 422 points in the afternoon.
The TARP announcement "was a huge disappointment," said Stephen Stanley, chief economist at RBS Greenwich Capital. "There's been an incredible buildup for weeks and then they release a plan that has little in the way of details."
Stocks slipped leading into Geithner's late-morning speech and accelerated after he finished outlining the plan. He's providing more details this afternoon in a congressional hearing.
"It just doesn't seem that groundbreaking and that may have disappointed people," said Brian Battle, vice president at Performance Trust Capital Partners.
After much debate, the Senate passed its $838 billion economic stimulus bill Tuesday afternoon by 61 to 37. Now leaders will need to negotiate a final bill with the House, which already approved an $819 billion version of the plan two weeks ago. (For details, click here.)
Enthusiasm about the economic stimulus has waned in the weeks since it was first proposed.
Investors also considered Federal Reserve Chairman Ben Bernanke's prepared testimony before a House committee. Bernanke said the central bank's efforts to increase liquidity are "no panacea" to the credit crunch. Yet he also said that the Fed's actions are easing the strain.
Overall, in terms of the psyche of the markets, investors are not back to the despair of last fall, but do remain fragile, Stanley said.
"I think there was some hope, maybe unreasonably so, that the administration was going to come out with a plan that wouldn't solve all our problems, but would at least help," he said. "That may very well still happen, but we didn't see it today."
Bank bailout: Geithner discussed some of the causes of the current financial meltdown and outlined some of the basics of the new plan, which revamps the Treasury's Troubled Asset Relief Program (TARP).
However, he did not put a price tag on the new plan, which is expected to exceed the remaining half of the original $700 billion TARP. He also said the Treasury will not ask Congress for more money right now. (Full story)
The Treasury will "stress test" the big banks to get a sense of whether they can handle a further economic slowdown, and will provide additional funds as needed.
Banks receiving money will have to provide details about their intended uses for the money. The plan will also make more credit available to consumers and businesses by expanding an existing Federal Reserve program.
The plan also addresses the housing crisis by making money available to reduce mortgage payments and create loan-modification guidelines. The Treasury also said it will create a combined public and private investment fund that would take the bad assets off bank balance sheets.
The public-private partnership may have particularly unsettled markets, Battle said, as such plans have not worked well in the past. Additionally, the plan does not resolve the issue of how to value the so-called "toxic" assets so that the price is both advantageous to banks and a good price for buyers.
On the upside, Battle said, "You have to give them credit for assigning the blame to everyone." In the speech, Geithner said banks, regulators, borrowers and various countries were all responsible for the current mess.
Company news: General Motors (GM, Fortune 500) said Tuesday it's cutting 10,000 workers, or 14% of its salaried jobs, around the world. One-third of those jobs will be in the U.S. The automaker also said it will cut the pay for its remaining salaried workers. Shares fell 4.6%.
UBS (UBS) reported a $7 billion quarterly loss in the last three months of 2008, worse than expected, and also said it was cutting 2,000 jobs. Shares gained 1.5%.
Wells Fargo (WFC, Fortune 500) lost 14% and Morgan Stanley (MS, Fortune 500) lost 12%. Small banks were hit too: Regions Financial (RF, Fortune 500) fell 30%. Fifth Third (FITB, Fortune 500) fell 24%.
Large technology firms also fell. Intel (INTC, Fortune 500) lost 5.6%, Cisco Systems (CSCO, Fortune 500) lost 4.8%, Applied Materials (AMAT, Fortune 500) lost 4.4% and Dell (DELL, Fortune 500) lost 5%.
However, declines were broad based, with retail, housing, commodity and transportation stocks all sliding.
Market breadth was negative. On the New York Stock Exchange, losers beat winners by over five to one on volume of 1.76 billion shares. On the Nasdaq, decliners topped advancers by over four to one on volume of 2.49 billion shares.
Bonds: Treasury prices surged, lowering the yield on the benchmark 10-year note to 2.81% from 2.99% Monday. Treasury prices and yields move in opposite directions.
Lending rates were modestly lower. The 3-month Libor rate slipped slightly to 1.22% from 1.23% Monday, according to Bloomberg.com. The overnight Libor rate slipped to 0.30% from 0.31% Monday. Libor is a bank lending rate.
Other markets: In global trading, Asian markets ended mixed and European markets were mixed in the afternoon.
The dollar fell against the euro and yen.
U.S. light crude oil for March delivery dropped $2.01 to settle at $37.55 a barrel on the New York Mercantile Exchange.
COMEX gold for April delivery rose $21.40 to settle at $914.20 an ounce.