Stocks tumble as bailout plan fails in House

September 29, 2008

Monday September 29, 5:05 pm ET
By Tim Paradis, AP Business Writer

Stocks plunge as financial bailout plan fails in House vote; Dow fall 777, biggest drop ever

NEW YORK (AP) — Wall Street’s worst fears came to pass Monday, when the government’s financial bailout plan failed in Congress and stocks plunged precipitously — hurtling the Dow Jones Industrials (INDU) down nearly 780 points in their largest one-day point drop ever. Credit markets, whose turmoil helped feed the stock market’s angst, froze up further amid the growing belief that the country is headed into a spreading credit and economic crisis.

Stunned traders on the floor of the New York Stock Exchange, their faces tense and mouths agape, watched on TV screens as the House voted down the plan in mid-afternoon, and as they saw stock prices tumbling on their monitors. Activity on the floor became frenetic as the “sell” orders blew in.

The Dow told the story of the market’s despair. The blue chip index, dropped by hundreds of points in a matter of moments, and by the end of the day had passed by far its previous record for a one-day drop, 684.81, set in the first trading day after the Sept. 11, 2001, terror attacks.

The selling was so intense that just 162 stocks rose on the NYSE — and 3,073 dropped.

It takes an incredible amount of fear to set off such an intense reaction on Wall Street, and the worry now is that with the $700 billion plan fate uncertain, no one knows how the financial sector hobbled by hundreds of billions of dollars in bad mortgage bets will recover. While investors didn’t believe that the plan was a panacea, and understood that it would take months for its effects to be felt, most market watchers believed it was a start toward setting the economy right after a credit crisis that began more than a year ago and that has spread overseas.

“Clearly something needs to be done, and the market dropping 400 points in 10 minutes is telling you that,” said Chris Johnson president of Johnson Research Group. “This isn’t a market for the timid.”

The plan’s defeat came amid more reminders of how troubled the nation’s financial system is — before trading began came word that Wachovia Corp. (WB), one of the biggest banks to struggle due to rising mortgage losses, was being rescued in a buyout by Citigroup Inc (C). It followed the recent forced sale of Merrill Lynch & Co. (MER) and the failure of three other huge banking companies — Bear Stearns Cos. (BSC), Washington Mutual Inc. (WM) and Lehman Brothers Holdings Inc. (LEH); all of them were felled by bad mortgage investments.

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House ignores Bush, rejects $700B bailout bill

September 29, 2008

Monday September 29, 4:07 pm ET
By Julie Hirschfeld Davis, Associated Press Writer

House rejects $700B emergency bailout bill in stunning defeat ignoring warnings from Bush

WASHINGTON (AP) — In a stunning vote that shocked the capital and worldwide markets, the House on Monday defeated a $700 billion emergency rescue for the nation’s financial system, ignoring urgent warnings from President Bush and congressional leaders of both parties that the economy could nosedive without it.

Stocks plummeted on Wall Street, beginning their plunge even before the 228-205 vote to reject the bill was officially announced on the House floor. The Dow Jones Industrials sank nearly 700 points for the day.

Democratic and Republican leaders alike said they were committed to trying again, though the Democrats said GOP lawmakers needed to provide more votes. Bush huddled with his economic advisers about a next step.

In the House chamber, as a digital screen recorded a cascade of “no” votes against the bailout, Democratic Rep. Joe Crowley of New York shouted news of the falling stocks. “Six hundred points!” he yelled, jabbing his thumb downward.

Bush and a host of leading congressional figures had implored the lawmakers to pass the legislation despite howls of protest from their constituents back home. Not enough members were willing to take the political risk just five weeks before an election.

“No” votes came from both the Democratic and Republican sides of the aisle. More than two-thirds of Republicans and 40 percent of Democrats opposed the bill.

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US Mint suspends sale of 24-karat gold coins

September 26, 2008

Friday September 26, 2:57 pm ET
By Martin Crutsinger, AP Economics Writer

US Mint forced to suspend sales of American Buffalo 24-karat gold coins due to heavy demand

WASHINGTON (AP) — The U.S. Mint is temporarily halting sales of its popular American Buffalo 24-karat gold coins because it can’t keep up with soaring demand as investors seek the safety of gold amid economic turbulence.

Mint spokesman Michael White said Friday that the sales were being suspended because demand for the coins, which were first introduced in 2006, has exceeded supply and the Mint’s inventory of the coins has been depleted.

The Mint had to temporarily suspend sales of its American Eagle one-ounce gold coins on Aug. 15 and then later that month announced sales of the American Eagle coins would resume under an allocation program to designated dealers.

White said the Mint expected to soon start distributing available Buffalo gold coins through a similar allocation program.

Through Thursday, the day the Mint suspended sales of the American Buffalo, the Mint had sold 164,000 of the coins this year, up 54 percent from the same period a year ago.

“People are scared. Gold has become a safe haven,” said Michael Maroney, a vice president of sales at gold dealer Monex Precious Metals in Newport Beach, Calif.

Maroney said that demand for the one-ounce American Eagle coins was “through the roof.” He said Monex still had American Buffalos available Friday because the company had recently stocked up on them.

With the financial crisis gripping markets in recent weeks, investors have rushed to safe havens such as gold and Treasury securities. Demand for three-month Treasury bills last week pushed their yields down sharply to levels not seen in decades.

Investment advisers, however, caution that the volatility often seen in gold prices could make investments in this area more of a risky decision if gold prices suddenly begin to fall sharply.

As the financial crisis unfolded in the past few weeks, American Gold Exchange Inc. saw demand for coins go up about 50 percent, according to Bill Musgrave, a vice president of the Austin, Texas-based gold dealer.

The Mint introduced the American Buffalo gold coin, the country’s first 24-karat gold coin, in 2006. Congress authorized production of the coin in an effort to capture a portion of the global market for pure gold coins, competing with such coins as the Canadian Maple Leaf.


Bailout in chaos, feds seize WaMu

September 26, 2008

Fri Sep 26, 2008 3:07am EDT

By Tom Ferraro and Richard Cowan

WASHINGTON (Reuters) – A rescue for the U.S. financial system unraveled on Thursday amid accusations Republican presidential candidate John McCain scuppered the deal, and Washington Mutual was closed by U.S. authorities and its assets sold in America’s biggest ever bank failure.

As negotiations over an unprecedented $700 billion bailout to restore credit markets degenerated into chaos, the largest U.S. savings and loan bank was taken over by authorities and its deposits auctioned off. U.S. stock futures fell by more than 1 percent.

The third-largest U.S. bank JPMorgan Chase & Co (JPM) said it bought the deposits of Washington Mutual Inc (WM), which has seen its stock price virtually wiped out because of massive amounts of bad mortgages. The government said there would be no impact on WaMu’s depositors and customers. JPMorgan said it would be business as usual on Friday morning.

Had a bailout deal been reached in Congress, it may have helped the savings and loan, founded in Seattle in 1889. Efforts to find a suitor to buy WaMu faltered in recent days over concerns about whether the government would reach a deal to buy its toxic mortgages.

Earlier on Thursday, U.S. lawmakers had appeared close to a final agreement on the bailout, lifting world stock markets and sending the dollar higher. But things spun off course during an emergency White House meeting between Congressional leaders with U.S. President George W. Bush.

In advance of that meeting, which included the two men battling to succeed him, Democrat Barack Obama and McCain, a compromise bipartisan deal seemed imminent.

After the session, Congressional leaders said an agreement could take until the weekend or longer.

Republican U.S. Sen. Richard Shelby bluntly told reporters, “I don’t believe we have an agreement.” He later said the deal was in “limbo.”

A group of conservative Republican lawmakers proposed an alternative mortgage insurance plan, eschewing the Bush administration’s Wall Street bailout just weeks before the November 4 election as many lawmakers try to hold on to their seats.

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WaMu is largest U.S. bank failure

September 25, 2008

Thu Sep 25, 2008 11:24pm EDT

By Elinor Comlay and Jonathan Stempel

NEW YORK/WASHINGTON (Reuters) – Washington Mutual Inc (WM) was closed by the U.S. government in by far the largest failure of a U.S. bank, and its banking assets were sold to JPMorgan Chase & Co. (JPM) for $1.9 billion.

Thursday’s seizure and sale is the latest historic step in U.S. government attempts to clean up a banking industry littered with toxic mortgage debt. Negotiations over a $700 billion bailout of the entire financial system stalled in Washington on Thursday.

Washington Mutual, the largest U.S. savings and loan, has been one of the lenders hardest hit by the nation’s housing bust and credit crisis, and had already suffered from soaring mortgage losses.

Washington Mutual was shut by the federal Office of Thrift Supervision, and the Federal Deposit Insurance Corp was named receiver. This followed $16.7 billion of deposit outflows at the Seattle-based thrift since Sept 15, the OTS said.

“With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business,” the OTS said.

Customers should expect business as usual on Friday, and all depositors are fully protected, the FDIC said.

FDIC Chairman Sheila Bair said the bailout happened on Thursday night because of media leaks, and to calm customers. Usually, the FDIC takes control of failed institutions on Friday nights, giving it the weekend to go through the books and enable them to reopen smoothly the following Monday.

Washington Mutual has about $307 billion of assets and $188 billion of deposits, regulators said. The largest previous U.S. banking failure was Continental Illinois National Bank & Trust, which had $40 billion of assets when it collapsed in 1984.

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New world on Wall Street

September 22, 2008

Goldman Sachs and Morgan Stanley to face more oversight from the Federal Reserve. Change provides more funding and opens door to more mergers.

By Tami Luhby, CNNMoney.com senior writer
Last Updated: September 22, 2008: 7:19 AM EDT

NEW YORK (CNNMoney.com) — And then there were none.

Federal regulators converted Wall Street’s remaining stand-alone investment banks – Goldman Sachs (GS) and Morgan Stanley (MS) – into bank holding companies Sunday night.

The move allows Goldman and Morgan to scoop up retail banks and to streamline their borrowing from the Federal Reserve. The shift also is aimed at removing them as targets of nervous investors and customers, who brought down their former rivals Bear Stearns (BSC), Lehman Brothers (LEH) and Merrill Lynch (MER) this year.

But it also puts Goldman and Morgan under the Fed’s supervision, increasing the agency’s regulatory oversight and possibly forcing them to raise additional capital. As banks, Morgan and Goldman will be forced to take less risk, which will mean fewer profits.

And it brings to a close the era of the Wall Street investment bank, a storied institution that traded stocks and bonds, advised mergers and showered lavish bonuses on its executives.

“The separation of investment banking and commercial banking has come to an end,” said Bert Ely, an independent banking consultant.

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Fed OKs Goldman, Morgan as bank holding companies

September 21, 2008

Sunday September 21, 9:53 pm ET

WASHINGTON (Reuters) – The Federal Reserve approved applications on Sunday from Goldman Sachs (GS) and Morgan Stanley (MS) to become bank holding companies, putting them directly under the regulatory supervision of the U.S. central bank, the latest step to restore calm to chaotic financial markets.

To provide increased liquidity to the companies, the Fed agreed to lend to the firms’ broker-dealer subsidiaries on the same terms as the Fed discount window for banks and the central bank’s Primary Dealer Credit Facility lending window for investment banks.

It said it was making the same collateral deals available to the broker-dealer subsidiary of Merrill Lynch (MER).


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