Panick in US Markets...
The stock market posted is worst one-day percent decline in 21 years after the House of Representatives rejected the $700 billion financial relief plan.
Dowjones is down about 6.71% or 748.21pts ........
Stocks were down 3.5% at 1:30 PM ET on news that Wachovia (WB 1.84, -8.16) sold its banking operations at fire-sale prices, reports that several European financial institutions had to be bailed out and concerns that the changes made to the financial relief plan over the weekend would limit financial firm participation.
The S&P 500 then plummeted to a loss of 8.8% after the House of Representatives rejected the Emergency Economic Stabilization Act by a vote of 228 against it to 205 for it. A total of 218 votes were needed to pass. The act was expected to pass, so the stock market's reaction was decidedly negative on the fear that the economy will suffer if credit markets do not improve.
Presumably, Congress will work toward a new plan to ease the financial market turmoil, although it is not clear how long it might take.
To be sure, credit markets remain tight. The TED Spread -- the difference between what banks charge each other for 3-month dollar loans (3-month Libor) and what the U.S. government pays for 3-month loans (3-month T-bill) -- rose 63 basis points to 3.55%. This is the highest level since at least 1984 and indicates that banks are reluctant to lend to each other.
With regard to Wachovia, Citigroup (C 18.98, -1.17) will pay Wachovia roughly $2.2 billion in stock (worth roughly $1 per WB share) for more than $700 billion of Wachovia's banking operation assets and related liabilities in an FDIC-facilitated transaction. Citi will raise $10 billion in a common stock offering and cut is dividend by 50% to help absorb the acquisition. Wachovia will continue to own brokerage AG Edwards and invesment managment firm Evergreen Investments.
Overseas markets also tumbled, with clear signs that the global financial system is strained. Three European governments bailed out Belgian bank Fortis, the U.K. nationalized mortgage lender Bradford & Bingley and Germany's Hypo Real Estate Holding was rescued by a consortium, according to The Wall Street Journal.
To help improve dollar liquidity, the Fed coordinated with nine central banks across the globe to more than double their swap authorization limits to $620 billion. In addition, the Fed is increasing the size of its Term Auction Facilities. The moves gave a modest improvement to credit markets, only to be overshadowed by the rejection of the financial relief plan.
__________________
|
|
"A market analyst is an expert who will know tomorrow why the things he predicted yesterday didn't happen today!"
|
|
