- The Washington Times - Tuesday, February 10, 2009

UPDATED:

Wall Street went into a tailspin Tuesday with the unveiling of the Obama administration’s rescue plan, the sell-off triggered by displeasure over the lack of details about how to get banks out of their severe financial crisis. All of the major indexes dropped more than 4 percent.

At the close, the Dow Jones Industrial Average plummeted 381.99, or 4.62 percent, to 7,888.88. The tech-laden Nasdaq dived 66.83, or 4.20 percent, to 1,524.73. The broader Standard & Poor’s 500 plunged 42.72, or 4.91 percent, to 827.17.

The Dow came off its low of 422, but all of its 30 stocks were lower. Financials and industrials led the way down, dragging blue chips such as Procter & Gamble and Coca-Cola with them. The price of a barrel of light, sweet crude oil fell below $38.

Treasury Secretary Timothy F. Geithner presented a sweeping outline of a package to help financial institutions, small businesses and homeowners that in part would use $300 billion remaining from the original $700 billion bailout package authorized by Congress in the fall.

“The markets were expecting more details,” Bernard Baumohl, chief global economist for the Economic Outlook Group of Princeton, N.J., told The Washington Times, explaining why the markets nose-dived in reaction to Mr. Geithner’s speech. “Wall Street was expecting a specific plan, and we didn’t get it.”

“This,” he said of the speech, “was not ready for prime time. Someone miscalculated.”

What Wall Street was hoping for, Mr. Baumohl said, was a specific plan about how the government would help to eliminate the toxic assets — the securities based on mortgage, credit-card and auto loans — “that everybody is trying to get rid of.”

Mr. Geithner’s reference to those assets, which are difficult to value, was to a public-private investment fund that would involve loans from the government. “We are exploring a range of different structures for this program,” he said.

“But there were no specifics, such as guarantees from the government that those toxic assets will not fall to a lower value,” Mr. Baumohl said. “We didn’t get any details.”

“This is the most important program of all, and it’s surprising that they haven’t gotten their act together,” he said.

Another example, the economist said, was a $50 billion program to help people who are holding on to their mortgages but are threatened with foreclosure. But, he said, Mr. Geithner merely asserted that details would be coming in the next few weeks.

“They created an atmosphere that they were going to present concrete proposals, but what we got instead was an outline … even though the administration has been saying that this is a severe economic crisis,” Mr. Baumohl said.

The first $350 billion of the rescue package delivered during the final months of the Bush administration failed to loosen credit to help businesses and consumers and carried few if any restrictions about how the money was to be used. Major banks spent billions buying other banks or financial institutions.

At the same time, the Senate passed President Obama’s proposed $838 billion stimulus package by a 61-37 vote. The Senate version of the package, which Mr. Obama says is intended to save or create up to 4 million jobs, differs from the $819 billion House-passed bill and will go to a conference committee.

If there was a bright spot, it came from the hard-pressed corporate world. Chip maker Intel Corp. announced it planned to spend $7 billion over the next two years to upgrade its U.S. plants. That spurred high-tech stocks on the Nasdaq to advance.

In further bleak news from General Motors Corp., the automaker announced that it will eliminate 10,000 salaried workers, 3,400 of them in the United States, in a restructuring plan that will reduce the number of those employees to 63,000. Most of the dismissals will be made by May 1.

Denver-based Qwest Communications International Inc. said it earned $185 million, or 11 cents a share, in the final three months of last year, a drop from $366 million, or 20 cents a share, in the same period a year ago. The company cut 1,700 jobs during the quarter.

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