Washington
14 October 2008
Wall Street ended Tuesday with a moderate loss, after U.S. President George Bush announced plans for the government to spend $250 billion to buy stock in private banks. VOA's Kent Klein reports from Washington.
The Dow Jones Industrial Average fell 77 points, or 0.8 percent, to finish Tuesday at 9,311. It was the first time in nine days that the Dow did not close up or down by triple digits.
The S&P 500 was off half a percent, five points, to 998. And the NASDAQ dropped 65, 3.5 percent, to 1,779.
Investors seemed pleased with the government's plan to inject capital into the banking system, sending stocks soaring in the early hours. But share prices slid due to profit taking from Monday's record advance and because of worries about corporate profits.
European markets were higher on Tuesday. London's Financial Times 100 index, the CAC-40 in Paris and the DAX in Frankfurt were all up about three percent.
Asian stocks soared Tuesday. Tokyo's Nikkei index gained a record 14 percent, and the Hang Seng in Hong Kong closed three percent higher.
Early Tuesday, President Bush detailed an unprecedented plan of direct government involvement in private banks. He said the U.S. government will use $250 billion from the $770-billion financial rescue plan to purchase preferred stock of several large banks. The proposal includes some components of a similar European plan announced Sunday.
Paul Krugman, the winner of the Nobel Prize in Economics, says the plan should help get credit moving again. "This is what a lot of economists have been calling for. The problem is, the banks do not have enough capital to do their business. People do not trust them. This is what the doctor ordered."
Kevin Jacques, a former U.S. Treasury economist, agrees that the bold move should work, but says it will take time. "This is all going to play out over a number of months and well into next year. Things will get better, but we should not expect a quick, immediate, 'I took my pill yesterday and now the problem is gone away' remedy," he said.
And the Chairman of the Senate Banking Committee, Democrat Christopher Dodd, who met with Treasury Secretary Henry Paulson Tuesday, also gives the proposal high marks. "Obviously, as credit begins to loosen up will be the real determination as to whether or not this is all working. But I think this is the right move in the right direction, and I applaud the Secretary of the Treasury for taking this step," he said.
Other parts of the initiative include the government guaranteeing most new loans issued by insured banks, including short-term loans between banks. And, the government will take additional steps to make it easier for businesses to cover day-to-day operations. Mr. Bush said the measures being taken are temporary.
In other money news, oil prices fell below $79 a barrel Tuesday. Light, sweet crude for November delivery fell $2.56, ending the day at $78.63 in New York.
And the Bush administration said the U.S. federal budget deficit soared to almost $455 billion in 2008. The deficit for the year that ended September 30 was more than double the $161 billion deficit recorded in 2007, and surpassed the record of $413 billion set in 2004.