Tuesday: A Wary Look Ahead

The Dow soared some 700 points over last Thursday and Friday. Today, it lost half of that. What will Tuesday bring on Wall Street?

Last week's stock surge was caused by the news that the federal government would proceed with a bailout, poised to buy some $700 billion in bank mortgage debt.

The good feelings lasted all weekend.

By yesterday morning, Wall Street realized such a plan would probably come with some details, which hadn't yet been worked out, such as how much regulation lawmakers would slap on Wall Street and the Treasury, who would oversee the whole shebang and so forth.

Further, Wall Street is uncertain exactly how much the bailout will unfreeze the credit markets, their lifeblood.

Toss in the rest of today's roiling -- Mitsubishi buying into Morgan Stanley, for instance -- and uncertainty ruled the day.

Uncertainty usually leads to sell-offs, and that's what happened.

Tomorrow, we shall see if Wall Street feels any surer of itself or if it remains as skittish as a cat in a room full of rocking chairs, as they used to say down South (and may still).

Also on tap tomorrow:

A living Mount Rushmore of government financial heavy-hitters sits down in front of the Senate Banking committee at 9:30 a.m. in Dirksen G-50 to discuss the bailout. Scheduled to appear before Sen. Chris Dodd's (D-Conn.) committee are:
- Treasury Secretary Henry Paulson
- Fed Chairman Ben Bernanke
- SEC Chairman Christopher Cox
- Federal Housing Finance Agency Director James Lockhart III.

And don't forget two things:

A) Keep checking back here throughout the day for up-to-the-minute news affecting you, your 401(k) and your peace of mind.

B) We are looking for reader questions for our daily Q & A about how the crisis affects your personal finances. Submit your questions here.

--Frank Ahrens

September 22, 2008; 5:55 PM ET  | Category:  business
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Comments

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This is what I have to say:

GD@@M YOU DEMS! GET THE GD@@M BAIL OUT PACKAGE SIGNED TOMORROW! TIME IS OF THE ABSOLUTE ESSENCE! PEOPLE CAN'T AFFORD YOUR LITTLE PET BAIL-OUT PROJECTS-YOUR STUPID SORRY PATHETIC SOCIAL NET-NO UNIVERSAL HEALTH COVERAGE, OH NO-THAT'S TOO DIFFICULT, ISN'T IT? YOU ARE SO SO SO SO PATHETIC!


By JOHN LELAND and LOUIS UCHITELLE

Published: September 22, 2008

Older Americans with investments are among the hardest hit by the turmoil in the financial markets and have the least opportunity to recover.

As companies have switched from fixed pensions to 401(k) accounts, retirees risk losing big chunks of their wealth and income in a single day’s trading, as many have in the last month.

“There’s a terrified older population out there,” said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. “If you’re 45 and the market goes down, it bothers you, but it comes back. But if you’re retired or about to retire, you might have to sell your assets before they have a chance to recover. And people don’t have the luxury of being in bonds because they don’t yield enough for how long we live.”

ONCE AGAIN GD@@M YOU DEMS! YOU BETTER HAVE THIS GD BAIL OUT PLAN SIGNED TOMORROW OR NO ONE WILL VOTE FOR YOUR SORRY ARSES EVER AGAIN!

Posted by: farfalle44 | September 22, 2008 9:23 PM

Mr Ahrens:

Your little drama is not needed. You are paid to report, not to create suspense. So tomorrow, please spare us your anoying parrotting the numbers every time you feel like it's cool. We are resourceful enough to find out ourselves. Just report the hearings. That's what I come to learn about on this site. If I want drama I will go to the theater.

RU

Posted by: RegisUrgel | September 22, 2008 10:41 PM

ABC News reprinted a letter to the editor from the NY Times the other day:

"Dear Mr. Bernanke and Mr Paulson: My student loans are too big and it is hurting the economy. Can I have a bailout, please? I need $92,000."

The note was obviously tongue-in-cheek, but it got me thinking. If economic good times truly start with the financial well-being of the middle class, as the Democrats and the Obama campaign have been saying, what would be the effect of letting these behemoths in the financial sector fail and giving the same amount of stimulus directly to ordinary citizens, by forgiving student loans or small business loans, and investing in public schools, job training, and so forth? I'd be far happier as a taxpayer to see my money going to programs like these than to corporate bailout programs. Or is it true that the only way to keep the economy healthy is to start at the top? I'm not an economist, but claims like that always make me suspicious.

Posted by: Josh Braun | September 23, 2008 8:30 AM

"In his testimony today, SEC Chairman Cox called for the regulation of the credit-default swap (CDS) market, which has taken much of the blame for the state of things (e.g. AIG, Lehman, and Bear-Stearns were the major players in this market). A credit-default swap, or CDS, is an unusual financial instrument in which the risk of default on credit is passed around like a hot potato": http://en.wikipedia.org/wiki/Credit_default_swap

"This market is regulated by absolutely no one," Cox said. "It is a market ripe for fraud and manipulation." Cox said he is using the SEC's anti-fraud authority to investigate the CDS market."

POINT #1. This is definitely a step in the right direction (i.e. fraud investigation), albeit a pathological one (i.e. it addresses the symptom, not the cause...the cause is allowing it into the market in the first place, which, back at the start of the Bush administration, was the financial market equivalent of allowing a pharmaceutical company to sell a new drug without any human trials or FDA approval).

POINT #2. If Cox is one of the few Republicans willing to attack this problem---albeit too little too late---why would McCain demand his firing while slathering Paulson with adulation? After all, Paulson's firm, Goldman-Sachs, along with the geniuses at Morgan-Stanley, was on the ground floor during the development and deployment of these "instruments" and provided much of the investor capital that kept them moving (i.e. provided the gas to blow up the balloon).

The path forward is nowhere near as complex as Paulson, Bernanke, et al would have us and Congress believe:

1. Let those who have created the mess fail...the market will eventually adjust...It will be tough, on all of us, but we'll recover

2. Properly regulate the market. Prior to allowing a debt instrument (or a derivative thereof) a security (or derivative thereof) to be introduced into the financial market, thoroughly evaluate it in terms of "safety" and risk and require registration and a prospectus...like with common stock, mutual funds, etc. That's the challenging part...it's hard work and requires a lot of knowledge and intelligence...things Americans---including our elected and appointed officials--in general don't like or admire.

Having said that, I'm sure Congress will wind up doing whatever Paulson and Bernanke tell them to do (even though they have yet to articulate anything other than vague, unsubstantiated promises on the benefit side of the equation), go through with the bailout, and we will end up with nothing more than an additional $3,300 of debt on our individual balance sheets (all of us...kids too).

Wall Street will be free and clear, we'll just be screwed (i.e. you're dreaming if you think this will have any substantial positive impact on the value of your 401K).

As usual, this "emergency plan" is built on irrational fear and will benefit only the fat cats.

Posted by: RCP | September 23, 2008 2:40 PM

This is directly from the Paulson proposal:

"Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

Wow! Did Vladimir Putin help Paulson pull this together (Representative Brad Sherman calls this a "Henry VIII" clause)?

The American people need someone like former Comptroller General David Walker overseeing the activities of any "bailout" plan, especially considering the conflict of interest and incompentency issues surrounding Paulson.

Posted by: RCP | September 24, 2008 9:02 AM

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