The Auto Maker Bailout Battle Evolves Into A Tug Of War Of Sorts
Thursday, November 20, 2008SUSIE GHARIB: The selling accelerated on Wall Street today. The Dow plunged 444 points, closing at 7552 and it's down almost a thousand points this week. The NASDAQ lost 70 and the S&P tumbled 54 points to its lowest level since 1997. Fueling the sell off: anxiety over the plans to rescue the nation's auto makers. Law makers couldn't reach a bailout deal today, but will try again, returning to Capitol Hill December 8. We have two reports looking at the latest developments for the big three and the mess on Wall Street. We begin with Stephanie Dhue in Washington.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Senate Majority Leader Harry Reid says today the votes aren't there to pass the auto makers' request for $25 billion in aid. The CEOs didn't do themselves any favors this week flying corporate jets to DC to ask for the money.
SEN. HARRY REID, MAJORITY LEADER: I know it wasn't planned, but these guys flying in their big, corporate jets doesn't send a good message to people in Searchlight, Nevada or Las Vegas or Reno or any other place in this country.
DHUE: At least six senators from both sides of the aisle thought they had the votes for a compromise plan. It would take the $25 billion already set aside for new auto technology and devote it to general use. But Reid and House Speaker Nancy Pelosi say there will be no deal unless the auto makers give Congress a plan outlining how the money will keep the industry alive.
REP. NANCY PELOSI, HOUSE SPEAKER: Until we see the plan, until they show us the plan, we cannot show them the money.
DHUE: Barclay's analyst Chuck Marr expects Congress to ultimately come up with the money for the industry.
CHUCK MARR, SENIOR POLITICAL STRATEGIST, BARCLAYS CAPITAL MANAGEMENT: They could not just afford to just go home for the year and take the chance that something would happen while they're out of session.
DHUE: But any money is likely to come with more strings attached. Missouri Republican Kit Bond had one suggestion.
SEN. KIT BOND, (R) MISSOURI: There are a lot of steps that the auto industry is going to have to take. One would suggest selling corporate jets might be one.
DHUE: Law makers have given the auto industry until December 2 to submit their plans. After that, there will be more hearings. Maybe this time, the CEOs will ditch their jets and drive. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Scott Gurvey in New York, where throughout the day, stocks rose and fell with the news coming out of Washington. Traders finally gave the day's events a big vote of no confidence. Strategist Milton Ezrati of Lord Abbott says the possibility General Motors will collapse is now sinking in.
MILTON EZRATI, SENIOR ECONOMIC STRATEGIST, LORD ABBETT: I think the market has factored in the possibility of bankruptcy and I think what the market is more concerned here is that there is no resolution. And right now I think the market would be happy yes or no one way or the other. And the fact that this thing is still hanging fire is what is weighing on stock prices.
GURVEY: But GM was just one of the factors as Wall Street finished the day well below recent closing lows. Shares of Citigroup fell under fierce pressure and the firm asked the SEC to reinstate the short selling ban on financial stocks. Energy shares plummeted on expectations of deflation and short-term Treasury bond yields fell to near zero as investors sought safety. Strategist Tony Dwyer says investors should stay defensive.
ANTHONY DWYER, EQUITY STRATEGIST, FTN MIDWEST SECURITIES: Our view is that investors should just stand aside for the time being. We think it's far too late to sell because when credit spreads are this wide, it's hard to suggest it's going to get even worse than the current global economic shutdown. But we also think it's a little bit too early to buy. You need to see the credit markets improve before investors are going to be willing to buy stocks.
GURVEY: Standard & Poor's reports the yield on the S&P 500 is now well above the 10-year Treasury yield. That indicates the need for a premium payout to offset the perceived risk in stocks. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
