Dow Jumps 485 Points After Record Drop

POSTED: 12:38 am PDT September 30, 2008

UPDATED: 1:20 pm PDT September 30, 2008

The Dow bounced back on Tuesday, a day after a historic 777-point decline linked to the failure of the financial rescue package.

Guide: Wall Street Turmoil

The Dow closed 485 points up, as carnage on Wall Street often attracts bargain hunters.

However, the seized-up credit markets where businesses turn to raise money showed no sign of relief. A key rate that banks charge to lend to one another shot higher, a tightening of the availability of credit that could cascade through the economy.

And questions remain about how Wall Street will move ahead without a bailout plan, though caution will likely best describe the pace.

It's likely that investors will continue to cast one eye toward Capitol Hill, hoping lawmakers resurrect the government's bailout effort and absorb soured mortgages weighing down the balance sheets of banks.

Concerns over those bad debts are making credit tighter and more expensive for businesses and consumers.

Congressional leaders are trying to come up with enough changes in the administration's $700 billion financial rescue plan to persuade members who voted against it Monday to change their minds and sign on.

They need to attract about a dozen votes to avoid another defeat. Senate Republican Leader Mitch McConnell said it's time lawmakers "act like grownups" and "get this done for all of the people."

Both Sens. John McCain and Barack Obama are suggesting adding an increase in the federal deposit insurance limit to $250,000 as a way of boosting confidence in the banking system. Republican House aides said that might appeal to some conservatives who want to help small business owners and avoid runs on banks.

Another possible change would modify accounting rules that require banks and other financial institutions to adjust the value of their assets to reflect current market prices even if they plan to hold onto them for years.

Some House Republicans said the rules have forced banks to report huge paper losses on mortgage-backed securities which might have been avoided.

Earlier Tuesday, President George W. Bush said the economic damage to the nation will be "painful and lasting" if Congress fails to pass a $700 billion bailout bill.

He spoke a day after the House voted narrowly to defeat the massive relief measure that his administration and leading members of Congress had agreed was necessary.

Bush described Monday's biggest-ever point decline in the Dow as an ominous and real sign of what is to come if the deal isn't salvaged. He said the administration will be talking with congressional leaders Tuesday about how to keep the plan alive.

Bush said that "Congress must act" and that the economy is depending on "decisive action on the part of our government."

Saying he is disappointed by the failure of the bill, Bush set out to assure Americans that the effort is not over.

"I want to assure our citizens and citizens around the world that this is not the end of the legislative process," he said.

He added: "I'm confident we will deliver."

Meanwhile, the White House said both Obama and McCain called Bush Tuesday morning to discuss what to do next to save the financial system.

A Bush spokesman said both candidates offered ideas on what to do, and reaffirmed that the crisis needs to be addressed.

Spokesman Tony Fratto described the calls as "very constructive."

At-Risk Lawmakers Vote 'No'

Two-thirds of Congress' most vulnerable members from both parties voted against the massive economic rescue package.

They opted to protect their seats on Election Day rather than follow their party leaders off a political cliff.

Republican Rep. Paul Ryan of Wisconsin, who voted for it, said, "We're all worried about losing our jobs."

He said, "Most of us say, 'I want this thing to pass, but I want you to vote for it, not me.'"

Of the 19 most vulnerable House lawmakers tracked by The Associated Press, 13 of them voted against the bill despite pleas from their party leaders.

Among the "no" voters was Rep. Nick Lampson of Texas, widely considered the most vulnerable incumbent Democrat from a heavily Republican Houston-area district. He said calls to his office ran at least 15-1 against the package.

Explore More:

Find out more about U.S. Congressional News, U.S. Government,Economic Policy and Political Parties, or try these articles:

• September 30, 2008: Stocks Shoot Up Day After Steep Downturn
• September 29, 2008: Plan Wins Praise; Few Fully Satisfied
• September 28, 2008: Pelosi: Breakthrough Reached On Financial Bailout
• September 27, 2008: Top Democrat Expects Bailout Deal By Sunday
• September 26, 2008: Senate Republicans Block Stimulus Plan

Distributed by Internet Broadcasting Systems, Inc. The Associated Press contributed to this report. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

House nixes $700B bailout bill in stunning defeat

(09-29) 15:09 PDT WASHINGTON (AP) --

In a vote that shook the government, Wall Street and markets around the world, the House on Monday defeated a $700 billion emergency rescue for the nation's financial system, leaving both parties and the Bush administration struggling to pick up the pieces. The Dow Jones industrials plunged nearly 800 points, the most ever for a single day.

"We need to put something back together that works," a grim-faced Treasury Secretary Henry Paulson said after he and Federal Reserve Chairman Ben Bernanke joined in an emergency strategy session at the White House. On Capitol Hill, Democratic leaders said the House would reconvene Thursday in hopes of a quick vote on a reworked version.

All sides agreed the bill could not be abandoned.

On Monday, not enough lawmakers were willing to take the political risk — just five weeks before the elections — of backing a deeply unpopular measure that many voters see as an undeserved bailout for Wall Street.

The bill went down, 228-205, even though Paulson and congressional leaders proclaimed a day earlier that they had worked out an acceptable compromise in marathon weekend talks.

Lawmakers were caught in the middle. On one side were the dire predictions from Bush, his economic team, and their own party leaders of an all-out financial meltdown if they failed to approve the rescue. On the other side: a flood of protest calls and e-mails from voters threatening to punish them at the ballot box.

The House Web site was overwhelmed as millions of people sought information about the measure.

The legislation the administration promoted would have allowed the government to buy bad mortgages and other sour assets held by troubled banks and other financial institutions. Getting those debts off their books should bolster those companies' balance sheets, making them more inclined to lend and easing one of the biggest choke points in a national credit crisis. If the plan worked, the thinking went, it would help lift a major weight off the national economy, which is already sputtering.

Stocks started plummeting on Wall Street even before Monday's vote was over, as traders watched the rescue measure going down on television. Meanwhile, lawmakers were watching them back.

As a digital screen in the House chamber recorded a cascade of "no" votes against the bailout, Democratic Rep. Joe Crowley of New York shouted news of the falling Dow Jones industrials. "Six hundred points!" he yelled, jabbing his thumb downward.

The final stock carnage was 777 points, far surpassing the 684-point drop on the first trading day after the Sept. 11, 2001, terror attacks.

In the House, "no" votes came from both the Democratic and Republican sides of the aisle. More than two-thirds of Republicans and 40 percent of Democrats opposed the bill. Several Democrats in close election fights waited until the last moment, then went against the bill as it became clear the vast majority of Republicans were opposing it. Most vulnerable Republicans refused to back the bill.

In all, 65 Republicans joined 140 Democrats in voting "yes," while 133 Republicans and 95 Democrats voted "no."

The overriding question was what to do next.

"The legislation may have failed; the crisis is still with us," said House Speaker Nancy Pelosi, D-Calif., in a news conference after the defeat. "What happened today cannot stand."

Republican leader John Boehner, R-Ohio, said he and other Republicans were pained to vote for such measure, but he agreed that in light of the potential consequences for the economy and all Americans, "I think that we need to renew our efforts to find a solution that Congress can support."

Those positive comments aside, a brutal round of partisan finger-pointing followed the vote.

Republicans blamed Pelosi's scathing speech near the close of the debate — which assailed Bush's economic policies and a "right-wing ideology of anything goes, no supervision, no discipline, no regulation" of financial markets — for the defeat.

"We could have gotten there today had it not been for the partisan speech that the speaker gave on the floor of the House," Boehner said.

Rep. Roy Blunt, R-Mo., the whip, estimated that Pelosi's speech changed the minds of a dozen Republicans who might otherwise have supported the plan.

That amounted to an appalling accusation by Republicans against Republicans, said Rep. Barney Frank, D-Mass., chairman of the Financial Services Committee: "Because somebody hurt their feelings, they decide to punish the country."

More than a repudiation of Democrats, Frank said, Republicans' refusal to vote for the bailout was a rejection of their own president.

The two men campaigning to replace Bush watched the situation closely — from afar — and demanded action.

In Iowa, Republican John McCain declared, "Now is not the time to fix the blame; it's time to fix the problem."

In Colorado, Democrat Barack Obama said, "Democrats, Republicans, step up to the plate, get it done."

"We're all worried about losing our jobs," Rep. Paul Ryan, R-Wis., declared in an impassioned speech in support of the bill before the vote. "Most of us say, 'I want this thing to pass, but I want you to vote for it — not me.'"

With their dire warnings of impending economic doom and their sweeping request for unprecedented sums of money and authority to bail out cash-starved financial firms, Bush and his economic chiefs had focused the attention of world markets on Congress, Ryan added.

"We're in this moment, and if we fail to do the right thing, Heaven help us," he said.

http://sfgate.com/cgi-bin/article.cgi?f=/n/a/2008/09/28/national/w151533D30.DTL

Stocks tumble as bailout plan fails in House

Wall Street's worst fears came to pass Monday, when the government's financial bailout plan failed in Congress and stocks plunged precipitously — hurtling the Dow Jones industrials down nearly 780 points in their largest one-day point drop ever. Credit markets, whose turmoil helped feed the stock market's angst, froze up further amid the growing belief that the country is headed into a spreading credit and economic crisis.

Stunned traders on the floor of the New York Stock Exchange, their faces tense and mouths agape, watched on TV screens as the House voted down the plan in mid-afternoon, and as they saw stock prices tumbling on their monitors. Activity on the floor became frenetic as the "sell" orders blew in.

The Dow told the story of the market's despair. The blue chip index, dropped by hundreds of points in a matter of moments, and by the end of the day had passed by far its previous record for a one-day drop, 684.81, set in the first trading day after the Sept. 11, 2001, terror attacks.

The selling was so intense that just 162 stocks rose on the NYSE — and 3,073 dropped.

It takes an incredible amount of fear to set off such an intense reaction on Wall Street, and the worry now is that with the $700 billion plan fate uncertain, no one knows how the financial sector hobbled by hundreds of billions of dollars in bad mortgage bets will recover. While investors didn't believe that the plan was a panacea, and understood that it would take months for its effects to be felt, most market watchers believed it was a start toward setting the economy right after a credit crisis that began more than a year ago and that has spread overseas.

"Clearly something needs to be done, and the market dropping 400 points in 10 minutes is telling you that," said Chris Johnson president of Johnson Research Group. "This isn't a market for the timid."

The plan's defeat came amid more reminders of how troubled the nation's financial system is — before trading began came word that Wachovia Corp., one of the biggest banks to struggle due to rising mortgage losses, was being rescued in a buyout by Citigroup Inc. It followed the recent forced sale of Merrill Lynch & Co. and the failure of three other huge banking companies — Bear Stearns Cos., Washington Mutual Inc. and Lehman Brothers Holdings Inc.; all of them were felled by bad mortgage investments.

And it raised the question: Which banks are next, and how many? The Federal Deposit Insurance Corp. has a list of over 110 banks that were in trouble in the second quarter, and that number surely has grown in the third.

Traders on the floor were aghast at the House vote.

"How could this have happened? Is there such a disconnect on Capitol Hill? This becomes a problem because Wall Street is very uncomfortable with uncertainty," said Gordon Charlop, managing director with Rosenblatt Securities. " The bailout not going through sends a signal that Congress isn't willing to do their part."

Wall Street is contending with all these issues against the backdrop of a credit market — where bonds and loans are bought and sold — that is barely functioning because of fears that anyone lending money will never be paid back. The evidence of the credit markets' ills could again be found Monday in the Treasury's 3-month bill; investors were stashing money there, willing to take the tiniest of returns simply to be sure that their principal would survive in what's considered the safest investment. The yield on the 3-month bill was 0.15, down from 0.87, and approaching zero, a level reached last week when fear was also running high.

Analysts said the government needs to find a way to help restore confidence in the markets.

"It's probably fair to say that we are not going to see any significant stability in the credit markets or the stock market until we see some sort of rescue package passed," said Fred Dickson, director of retail research for D.A. Davidson & Co.

On Wall Street, according to preliminary calculations, the Dow fell 777.68, or 6.98 percent, to 10,365.45. The decline also surpasses the 721.56-point intraday decline record also set during the first trading day after the terror attacks. Still, in percentage terms, the decline remained well below the more than 20 percent drops seen on Black Monday of October 1987 and the Depression.

Broader stock indicators also tumbled. The Standard & Poor's 500 index declined 106.85, or 8.81 percent, to 1,106.42.

The Nasdaq composite index fell 199.61, or 9.14 percent, to 1,983.73.

The Russell 2000 index of smaller companies fell 47.07, or 6.68 percent, to 657.72.

A huge drop in oil prices was another sign of the economic chaos that investors fear. Light, sweet crude fell $10.52 to settle at $96.36 on the New York Mercantile Exchange as investors feared that energy demand would continue to slide amid further economic weakness.

And gold, where investors flock when they need a relatively secure investment, rose $23.20 to $911.70 on the Nymex.

Marc Pado, U.S. market strategist at Cantor Fitzgerald, said investors are worried about the spread of troubles beyond banks in the U.S. to Europe and other markets.

"Things are dying and breaking apart," he said.

Lawmakers voted down a plan that was different than what the Bush administration had originally proposed. There were restrictions allowing Congress to limit how much of the money goes out the door at once. It also included caps on pay packages of top executives as well as assurances that the government also would ultimately be reimbursed by the companies for any losses. The Treasury would have been permitted to spend $250 billion to buy banks' risky assets, giving them a much-needed necessary cash infusion. There also would be another $100 billion for use at president's discretion and a final $350 billion if Congress signs off on it.

But Wall Street found further reason for worry overseas, as the fallout from U.S. economic problems kep spreading. Three European governments agreed to inject Fortis NV with a $16.4 billion bailout. Fortis, with has headquarters in Brussels, Belgium and Utrecht, Netherlands, is Belgium's largest retail bank.

The British government, meanwhile, said it is nationalizing mortgage lender Bradford & Bingley, which has a $91 billion mortgage and loan portfolio. It was the latest sign that the credit crisis has spread beyond the U.S.

The economic news in the U.S. only made matters worse. The Commerce Department said consumer spending fell in August to its lowest level in six months, while analysts expected it to edge up slightly. With consumers already uneasy and the uncertainty from the financial markets likely to spill over to the rest of the country, the outlook for spending remains bleak — and consumers are the biggest driver of economic growth.

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