How Will Markets React to Senate Action?

Yesterday, the markets roared out of the opening gates and rallied throughout the day on the possibility that some version of the $700 billion Wall Street rescue package would be passed.

Let's see what the markets do today with the Senate poised to vote on a marked-up version of the defeated House bill by tonight.

Critics of the plan pointed to yesterday's 485-point surge by the Dow as a sign that a rescue bill is not needed at all.

Backers of the bill, however, said the Dow jump was merely the market responding in anticipation of some relief -- yesterday's rally did nothing to alleviate the credit crisis underlying the current crisis.

This morning, all the major credit sign posts -- the spreads, the Libor -- continued to paint a tough picture for consumers and businesses trying to get loans.

Speaking of Libor strife, take a look at this story explaining why there's a credit crisis by The Post's Neil Irwin.

Neil writes: "At the core of the financial crisis is a simple problem: Banks don't fully trust each other. So they hoard cash and only lend to each other if the borrowing bank pays enough to justify the risk."

-- Frank Ahrens

October 1, 2008; 9:27 AM ET  | Category:  business
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You're totally right in that last paragraph. Banks don't trust each, which only makes the market tighter and harder for Americans.
Here's a interesting article about how traders and investors are acting in this market and how the market isn't moving on fundamentals.
The author argues that the notion of how can you make money now or what stocks would you buy now is the wrong approach for most folks during a bear market.
good luck

Posted by: Jeff | October 1, 2008 9:33 AM

Banks have to compete. Can you really ever trust your competition? The healthy banks have no interest in sending deposits into some federal ether to bailout the competition that's failing. It's like The Post booming and the other paper is going bust, so The Post should send them some money to keep them floating. It won't happen. Let them sink, it's cheaper than getting blown out of the water. Less explosive and the trained seals have more important things to do.

Posted by: JD in PA | October 1, 2008 9:47 AM

Funny how pure speculation becomes conventional wisdom. How does anybody know that the market gained 500 points on the "possibility" that Congress "might" meet to approve "some plan?" Answer, nobody knows. Here's my guess, if you have a lot of money in the stock market, you want a bailout plan. If you don't have a lot of money in the stock market, you don't want a bailout plan. Most people don't have money in the stock market, most people don't want a bailout plan. People with money control the economy, though, so some plan will get passed.

Posted by: John | October 1, 2008 9:57 AM

by the way, today the market, in less than two hours, has lost 150 points even though there's now a "probability" that a plan will pass the Senate. Hmmm, wonder why that is? What's today's CW?

Posted by: John | October 1, 2008 10:09 AM

The CW here is wrong.

The Dow shot up yesterday because everyone realized that the bailout had failed and yet there wasn't a financial catastrophe. Everyone started to wise up and realize that the bailout wasn't necessary, and that were being asked to buy an expensive, unnecessary pig-in-a-poke.

So today, when it looks like this unnecessary bailout may pass despite being stupid, the market is down.

Posted by: AK | October 1, 2008 11:54 AM

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