- The Washington Times - Friday, February 20, 2009

UPDATED:

Financial stocks led Wall Street on a roller coaster ride that at one point dropped the Dow to an 11-year low Friday until the Obama administration stepped in to assure investors that nationalizing banks was not its idea of how to rescue them.

The markets recovered most of their earlier losses but ended a tough four days with the blue chip Dow Jones Industrial Average down 6 percent for the holiday week.

At the close, the Dow plunged 100.28, or 1.34 percent, to 7365.67. The tech-heavy Nasdaq dipped 1.59, or 0.11 percent, to 1441.23. The broader Standard & Poor’s index of 500 stocks fell 8.89, or 1.14 percent, to 770.05.

The panicky sell-off at one point pushed the Dow past the 7,286 mark, the lowest point for the 30 stocks since the bear market of October 2002 following the dot-com bust in 2000. The Dow closed Friday at a new six-year low set during trading Oct. 9, 2002.

Bank stocks fell over a cliff, pushed in part by Sen. Christopher J. Dodd, Connecticut Democrat, suggesting that the government temporarily may have to nationalize one or more of the major banks in order to rescue them from failure.

“I don’t welcome that at all, but I could see how it’s possible it may happen,” he said in an interview on Bloomberg Television’s “Political Capital with Al Hunt.” “I’m concerned that we may end up having to do that, at least for a short time.”

Enter the White House in a bid to calm investor fears, with spokesman Robert Gibbs saying, “This administration continues to strongly believe that a privately held banking system is the way to go.”

The markets rebounded.

The Treasury Department plans to unveil details of its bank rescue plan next week, CNBC said.

Bank shares recovered from their lowest points, with Citigroup closing down 22 percent, Bank of America off 4 percent and Wells Fargo declining 10.5 percent. Bank of America CEO Ken Lewis sent a memo to employees saying the institution had enough money and did not need more bailout help, CNBC said.

About 833 million shares of Bank of America and about 614 million shares of Citigroup changed hands.

Shares of General Motors Corp. slid to a low of $1.52 to what CNBC said marked their lowest value in 74 years before recovering to close at $1.77, down 11.5 percent for the day.

Gold, which investors consider a safe haven along with Treasury bonds, rose to close at $1,002.20 an ounce.

Investors’ fear about uncertainty over what the Treasury Department will do to help the major banks emerge from their financial crisis, including concern that it may nationalize one or more of them and thus wipe out the holdings of shareowners, has been the main driver behind the slide of the markets this week.

“Investors have lost confidence in the government and are selling,” Matt McCall, president of Penn Financial Group in Ridgewood, N.J., told The Washington Times. “The markets have been going down due to uncertainty more than anything.”

Mr. McCall, who said he opposes nationalization because “the banks will make it on their own,” said Treasury Secretary Tim Geithner “needs to step up to say that we’re not going to nationalize the banks. That’s exactly what needs to be done” in order to calm investor fears.

“The government shouldn’t be in the business of running banks,” he said.

“The U.S. government cannot afford to nationalize the banks,” Dick Rove of Rochdale Securities LLC of Stamford, Conn., told CNBC. He said nationalization of the banks would triple the size of the U.S. debt, a move “that would trash the dollar.”

Wall Street has been waiting for Treasury to decide what to do about the major banks and trying to place a value on assets that has been skewed because of securities created from loans based on mortgages, credit cards and automobile purchases that have been sold globally.

Economists have said that the banking crisis must be resolved before confidence can be restored among investors and Wall Street can turn around. Mr. Geithner sought to ensure investors more than two weeks ago that help was on its way from the government, but Wall Street pooh-poohed the effort because it lacked details.

The higher cost of energy pushed consumer prices up 0.3 percent in January, the Labor Department said, in the biggest monthly increase since July — when the price of a barrel of oil surged to over $147 and gas prices soared to well over $4 at many U.S. stations. Despite the increase, economists expect the recession to hold inflation to zero.

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