Wall Street likes bailout plan

Posted September 19, 2008

Wall Street extended a huge rally Friday as investors stormed back into the market, relieved that the government plans to rescue banks from billions of dollars in bad debt.

The Dow Jones industrials rose more than 375 points, giving them a massive gain of more than 785 points over two days, and Treasurys fell as money flowed into equities.

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. Paulson said he plans to work through the weekend with congressional leaders to reach agreement on a plan that would address the root problems of the financial crisis.

A plan to help the banking industry could help alleviate the uncertainty that has been sending the markets into tumult over the past week. Lending had grinded to a virtual standstill in the wake of this week's bankruptcy of Lehman Brothers Holdings Inc. and the bailout of teetering insurer American International Group Inc.

Michael Walden, an economist at North Carolina State University, said he likes the plan Paulson outlined.

"The Paulson plan will be very helpful," he told WRAL News. "In essence, the government will be buying low-value, risky assets with the hope of eventually selling them later when markets are calmer and stronger. This plan worked rather well 20 years ago with savings and loan institutions."

Chris Dodd, chairman of the Senate Banking Committee said the government's financial rescue plan will be costly.

Dodd told reporters, "We're anxious to hear the specifics. None of us have any idea what the details are. We understand the gravity of the moment."

Republicans and Democrats on Dodd's panel met at the Capitol and emerged vowing to put politics aside and develop a solution to the financial crisis. Dodd is a Democrat from Connecticut.

President Bush also spoke Friday, saying, "This is no time for partisanship. We need to move urgently needed legislation as quickly as possible without adding controversial provisions that could delay action."

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.

"If people get worried that those aren't safe," Walden said, "that could create this decline in confidence in the banking system."

Walden cautioned that the core of the crisis still lies with the housing market. "The thing we have to really see better is the housing market," he said. " We need to see sales go up. We need to see buying go up and we need to see prices stabilize."

The Fed will also buy short-term debt obligations issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

The Dow Jones industrials were more than 400 points by noon Friday.

To help limit the freefall in financial stocks, the Securities and Exchange Commission 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.

"This needs to be big enough to make a real difference and get to the heart of the problem," Paulson said of the plan.

Paulson said that the new troubled-asset relief program that he wants Congress to enact must be large enough to have the necessary effect while protecting taxpayers as much as possible.

"I am convinced that this bold approach will cost American families far less than the alternative – a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion," Paulson said.

"The financial security of all Americans ... depends on our ability to restore our financial institutions to a sound footing," Paulson said.


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  • Lit Sep 19, 2008

    "Right on but don't forget that the Congress has to appropriate the money for this and you know who controls the Congress." -hlwn7

    I also know that Congress was in lockstep with a certain individual's policies for 6-years...and you know who that person is...

  • hlwn7 Sep 19, 2008


    Right on but don't forget that the Congress has to appropriate the money for this and you know who controls the Congress. It will be interesting to see how the vote goes down. Schumer is pushing to add billions for a program that will bail individuals out when they can't pay their mortgage and Obama wants to spend billions more for another stimulus handout. No problem! We just crank up the printing presses.

  • Lit Sep 19, 2008

    I think the federal government (as always) is making a huge mistake. The hundreds of billions of dollars being spent by the Bush Administration on these bailouts will eventually have to be paid back with interest (this is in addition to the hundreds of billions of dollars borrowed to make up for deficit spending). In the end this all is a recipe for higher taxes, further devaluation of the U.S. dollar, and long-term strain on government finances.

  • iwanttobeillegalalien Sep 19, 2008

    I wonder if the federal goverment would bail me out if I got in a financial jam? I probably need to call the whitehouse and see...

  • iwanttobeillegalalien Sep 19, 2008

    I wonder if the federal goverment would bail me out if I got in a financial jam?

  • Hatchcover Sep 19, 2008

    My new business is selling pitchforks and torches! The business forecast looks pretty favorable for me!

  • hlwn7 Sep 19, 2008


    Democrats' fault??
    Look at the numbers I sent you. Your original post about Gramm- Leach made it sound like it was all Republican legislation signed sealed and delivered with no Democrat involvement. You just happened to conveniently leave out the facts about the Democrats and Bill Clinton.

    I think you know what veto-proof means. A Republican controlled Congress didn't have it by themselves. But you probably think the bad Republicans made the Democrats and Clinton go along with it.

  • csmac99 Sep 19, 2008

    Any bank/business/corporation that benefits from this bailout should have their wage structure restricted to a govt pay schedule. Sure, incentivize them, but set the bar high enough that the loans/guarantees/whatever-you-want-to-call-them are paid back first.

  • two_cents_plus Sep 19, 2008

    The ongoing bailouts and overspending by Democrats and Republicans add to the evidence that the two-party system is failing to serve the best interests the American people. When the government rewards irresponsible behavior by businesses and individuals, it encourages more of the same. When voters reward irresponsible behavior by politicians, it encourages more of the same. A new party is becoming the new home of political conservatism in America. America's Independent Party, whose Presidential candidate is Alan Keyes (on the ballot in a number of states but not North Carolina in November), is already the nation's third largest party in number of registered voters. It's time for fiscal responsibility and smaller government.

  • cary2006 Sep 19, 2008

    hey cary2006,

    I believe you left out a few facts about the Gramm-Leach legislation.

    It was finally sent to BILL CLINTON after passing in the senate 90-8-1 and House 362-57-15. This veto proof legislation was signed into law by President BILL CLINTON on November 12, 1999. But maybe he and Monica were having fun on that day and he didn't realize what he was signing.

    It's not nice to leave out facts like that!

    >> I guess its all democrats fault now because Clinton didn't veto the bill passed by REPUBLICAN CONTROLLED Senate/Congress and sponsored by 3 republicans (Gramm-Leach-Bliley) atleast one of who took a job with a financial company pushing for the bill. I assumed the fact the bill is a law now means the president would not have vetoed it.

    BTW - what does veto proof mean? I assumes it means 290 congressmen and 67 senator can over-ride the veto of a President, right?