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'This Sucker Could Go Down': Bailout Stalls, Market on Edge
Posted Sep 26, 2008 10:15am EDT by Aaron Task in Investing, Newsmakers, Recession, Banking"If money isn't loosened up, this sucker could go down," President Bush reportedly declared Thursday evening as talks over the $700 billion bailout package stalled.
Friday morning, Bush reassured frazzled financial markets by declaring "a substantial package" will be passed. "We will rise to the occasion," the President said.
In recent trading, the Dow was down 0.6%, the S&P by 1.3% and the Nasdaq by 1.3%, about half the level of declines prior to the President's brief address.
President Bush spoke five minutes into the U.S. trading day, which began with sharp -- but not outsized -- losses for stock indexes amid concerns the bailout may be delayed, if not derailed. International markets suffered big declines overnight on similar fears.
As painful as it's been for investors, the stock market has held up relatively well compared to the credit markets, which have seized up again. Credit spreads are approaching the extreme levels seen last week in the wake of Lehman Brothers' bankruptcy and the crisis in big institutional money market funds.
Policymakers are rightfully focused on the credit markets. If banks are unwilling to lend to each other -- as surging LIBOR rates suggest -- they sure aren't going to lend to consumers or businesses, which has profound implications for the economy (which grew slower in the second quarter than originally reported, by the way.)
- In the short term, companies like Goodyear Tire can't access their cash because of stress in the money market and overnight lending operations. Most businesses need this capital to fund day-to-day operations.
- In the longer- to intermediate-term, a slowing economy means more earnings disappointments such as delivered in recent days by GE and Research In Motion.
Thus far, the stock market has held up remarkably well given those threats. Barring some resolution on the bailout in Washington, stocks won't be able to ignore strains in the credit markets much longer.
"It is unclear at this time whether this intense stress in credit markets is the result of Washington not moving fast enough, or moving ahead with the wrong approach, or simply the result of a cascade of forced balance sheet liquidation," writes Michael Darda, chief economist of MKM Partners. "In any event, these stresses suggest equities could come under considerable pressure in the near term."
232 Comments
Dorothy - Friday September 26, 2008 10:24AM EDT
The bailout won't work, hold on tight. The worst is yet to come.
Tony - Friday September 26, 2008 10:25AM EDT
The bail out should be in doubt. Until there are clear answers about the cost, executive compensation (should be zero for those that have already made millions in the companies that need the bailing out), how taxpayers are protected from fraud and abuse in the selling of those assets, nothing should be passed. Unless there are very specific restrictions in place, what is going to prevent huge fraud in abuse in the selling of those 700B in assets to whom, when, and for what price.
Harold S - Friday September 26, 2008 10:27AM EDT
It's tiime to stand up to the plate and hit the ball. You don't have to hit it out of the park, just hit it.
JayL - Friday September 26, 2008 10:28AM EDT
Handing up to 700 billion dollars to investment companies with 10X leverage (which, btw, will no longer have any reason to deleverage themselves) is goint to dump up to 7 trillion dollars onto a 14 trillion dollar economy. Say hello to hyper-inflation. Did you think $147 oil was bad? Just wait till it hits $250. This bailout is going to carpet bomb nuke the whole country in a year.
Lloyd - Friday September 26, 2008 10:30AM EDT
confucius say, "before bailing out, first patch leak in boat"
The Gig - Friday September 26, 2008 10:31AM EDT
Bush should resign and accept exile, maybe in Paraquay. Cheney should feign illness and allow Pelosi to take the White House. If things get messy, we might see the whole citizenry march to Washington to take back the money this administration pissed away on a war of lies.
RobbR - Friday September 26, 2008 10:32AM EDT
This plan should not pass. There needs to be repercussions for bad investing. The beautiful thing about capitalistic markets is that they work themselves out. It was a bad idea under our "Social Engineering" programs to give people with bad credit histories money. Now we're paying for it... as we should.
Yahoo! Finance User - Friday September 26, 2008 10:32AM EDT
The market hold up well because SEC ban short selling. Without this force to balance the market, its ridiculously overvalue at this point. This is a disaster waiting to happen, even if the SEC be able to ban short selling forever, it's eventually gonna crash, and crash BIG TIME!!!
JayL - Friday September 26, 2008 10:35AM EDT
Handing $700 million dollars to investment companies who are leveraged up to 10X is going to dump up to 7 trillion dollars into a 14 trillion dollar market. Say hello to hyper inflation. Did you think things were bad with $147 oil? Just wait until it passes $250. The hyper inflation this bailout (handout) is going to cause will carpet bomb nuke this country in 2 year.
zxdfmlp - Friday September 26, 2008 10:36AM EDT
It's a crisis. People aren't lending me all the money that I want on terms that I want. I NEED a bailout or the ECONOMY COLLAPSES. I'll take a perpetual loan from the Fed at 2% payable as I see fit.
Yahoo! Finance User - Friday September 26, 2008 10:37AM EDT
This is the death knell of the American economy. Either way it goes.
Doug C - Friday September 26, 2008 10:37AM EDT
Great Deal for JP Morgan, if Congress passes the bailout bill. Do the math, JP Morgan buys one of the largest banks in the country, WaMu for the bargian basement price of 2 Billion. Willing to write down 31 Billion in losses and its still a great deal. BUT NO
BONNIE - Friday September 26, 2008 10:37AM EDT
Our great leader's in Washington are doing what they do best, politicing as usual. Only now its all the tax payers who have very little in finances compared to them, and they can not survive without keeping what little they have. I'm 72 and retired not so good. I think the best way to handle this mess the smart people have us in , is to not have a presidential election in November. Neither are worth a vote anyway. Put it off until Washington decides to take care of our problem. Thanks
Doug C - Friday September 26, 2008 10:38AM EDT
Great Deal for JP Morgan, if Congress passes the bailout bill. Do the math, JP Morgan buys one of the largest banks in the country, WaMu for the bargian basement price of 2 Billion. Willing to write down 31 Billion in losses and its still a great deal. BUT NO
Paul - Friday September 26, 2008 10:39AM EDT
opinions are like ***holes, everyone has one.
Yahoo! Finance User - Friday September 26, 2008 10:40AM EDT
Ask the idiot from SEC to remove the short sell ban NOW, the market is highly irrational. Its better for it to drop 10% a day so that people have time to sell than to drop 60% in ONE day and cause a lot of people to have a heart attack!!!
Yahoo! Finance User - Friday September 26, 2008 10:41AM EDT
All part of the necessary de-leveraging. My vote is no bailout of the ones who caused the problem.
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Rayster - Friday September 26, 2008 10:23AM EDT
McCain sense of Financial security is weak. Didn't he say the economy is fine a couple of weeks ago? And suspending his campain? Why? To run and hide in Washington? He didn't take any position and he did say one word in the meeting yesterday....is that productive? I think not, just merly a figure. I would think this is a perfect time to debate. What do you think. -Ray-