Rallies, Revival & The Rescue Plan
Tuesday, September 30, 2008SUSIE GHARIB: A sharp U-turn on Wall Street today on hopes that Washington lawmakers will revive the financial rescue plan later this week. The Dow surged 485 points, a gain of nearly 5 percent; the NASDAQ jumped almost 100 points, and the S&P 500 added 5 percent, recovering more than half of yesterday's huge losses. In Washington, lawmakers in the House and Senate were working behind the scenes to salvage the $700 billion bailout plan that they rejected yesterday. Some congressional leaders said yesterday's market sell-off sent an urgent message to Capitol Hill. The House is scheduled to reconvene on Thursday. We have two reports tonight looking at the bailout negotiations and the market reaction. We begin with Stephanie Dhue in Washington.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: With the $700 billion bill on the skids, President Bush sought to assure investors that the legislative process isn't over, and he gave a broad outline for what's next.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We need legislation that decisively addresses the troubled assets now clogging the financial system, helps lenders resume the flow of credit to consumers and businesses, and allows the American economy to get moving again.
DHUE: Presidential candidates Barack Obama and John McCain have similar ideas how to do that. Today, each endorsed at least doubling the limit on FDIC insurance. FDIC Chairman Sheila Bair also threw her support behind the idea. The financial services industry has long opposed that move since it increases their costs. In exchange, the industry will see changes in their accounting rules. The Securities and Exchange Commission and the Financial Accounting Standards Board today issued new guidelines for valuing troubled assets. Steve Bartlett, who heads the Financial Services Roundtable, welcomes the change.
STEVE BARTLETT, PRES. & CEO, FINANCIAL SERVICES ROUNDTABLE: I think this is a compromise that will allow the auditors -- give them guidance to make a value assessment of what is the fair value based on the cash flow. That's -- and by the way, that's only in a market which is a distressed market where there are no buyers.
DHUE: A new bill could come back for a vote as soon as tomorrow. Community groups want to see more provisions to help people keep their homes. Jim Carr of the National Community Reinvestment Coalition wants the government to work out more troubled mortgages.
JIM CARR, COO, NATIONAL COMMUNITY REINVESTMENT COALITION: What's missing from the bill is a requirement that the loans that are held by the federal government, that are transferred from these financial institutions to the federal government, be modified to the greatest extent possible. That's a big piece of the puzzle that's missing.
DHUE: Business groups, like the U.S. Chamber of Commerce, say, never mind changing the bill. They are focused on changing votes. The chamber's chief economist, Martin Regalia, says businesses are feeling the effects of the credit crunch and sharing those stories with lawmakers.
MARTIN REGALIA, CHIEF ECONOMIST, U.S. CHAMBER OF COMMERCE: Congress said they didn't hear from enough people; they said, we heard -- the only people we heard from are the people that said, you know, it is not our problem. Well, those people at this point now understand a little bit better why it is their problem, and when they see their 401(k)s, they'll understand even more why this can become their problem.
DHUE: House and Senate leaders on both sides of the aisle say they are confident they can pass a responsible bailout soon. But having heard that before, some observers are skeptical. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Erika Miller in New York. Hope returned on Wall Street that a major financial rescue plan can still be passed quickly by Congress. Investors are betting House lawmakers who voted no on the plan will rethink their positions. Like many investment strategists, Mike Ryan believes Congress will ultimately pass a version similar to the original.
MIKE RYAN, CHIEF INVESTMENT STRATEGIST, UBS WEALTH MANAGEMENT: It may be modified a bit from its current form, but I think it will hold most of the major issues -- or most of the major measures that were included in the original proposal will be put forth in the one that they come out with probably by the end of this week from the House and the Senate.
MILLER: However, even if a plan does pass, Ryan warns it may not be enough. He would like to see more international cooperation to address the extreme stress in the banking system.
RYAN: This is not a U.S. issue. Yes, sub-prime was centered in the U.S., the problems originated here, but the impact is being felt globally, and the ramifications for the financial markets outside the United States and the real economy is significant enough that global policy-makers need to make a response.
MILLER: Today's strong stock market recovery overshadowed a worrisome sign in the credit markets. The rate banks charge each other for overnight loans surged to an all time high. The overnight London inter-bank offered rate, or LIBOR, rose by more than 4 percentage points to 6.8 percent. Morgan Stanley credit expert Greg Peters says that's a reflection of the continuing crisis of confidence in the entire banking system.
GREG PETERS, GLOBAL HEAD OF FIXED INCOME RESEARCH, MORGAN STANLEY: I would characterize the state as being completely broken, it's fractured. The credit system isn't really functioning the way it ought to. And that is really the clear concern that we have, for sure.
MILLER: If a government rescue plan is passed, analysts predict stocks will surge on the news. However, they don't think there can be a sustainable rally until credit conditions improve. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
