Oct 14, 2008 8:53 am US/Eastern
Investors Wait To See If Historic Rally Continues
Reporting
Jay Dow
NEW YORK (CBS) ―
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Traders work on the floor of the New York Stock Exchange moments after the opening bell on Oct. 13, 2008, in New York City.
Spencer Platt/Getty Images
One day after the worst financial week on Wall Street, stock markets posted their biggest gains in history. But as traders wait to see if we've reached a turning point in the financial crisis, or only saw what traders term a "dead cat bounce," the government is moving ahead with plans to buy partial ownership of several banks.
The revised Wall Street bailout plan calls for an initial, $250 billion installment designated strictly for direct investment into the nation's banks. The government will actually buy parts of major
American banks in order to immediately infuse them with cash.
The
heads of J.P. Morgan Chase, Morgan Stanley, Citigroup and Bank of
America were all summoned to the Treasury Department to hear details of
what amounts to a partial nationalization of the banking industry.
Neel
Kashkari, the new Assistant Treasury Secretary for Financial Stability,
assured bankers, though, that they are getting a good deal.
"The
equity purchase program," he said, "will be voluntary and designed with
attractive terms to encourage participation from healthy institutions."
The U.S. program is expected to follow the model set by British
Prime Minister Gordon Brown, who is advocating buying stakes in leading
financial institutions.
The French and German governments have also
pledged roughly $1 trillion dollars to assist in their respective
countries.
Direct ownership stakes means the banks will get money right
away rather than have to wait weeks or months for the buy up of
"toxic" mortgage properties.
Investors believe the move will get the economy moving quickly. That should translate to higher stock prices.
"The equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions," said Neel Kashkari, Assistant Secretary of Financial Stability. The taxpayer dollars will be divided among nine major banks, many of them healthy, and smaller savings and loans. The goal is to spread the wealth to avoid stigmatizing any one bank that takes the financial aid.
To help unfreeze the credit markets, the government through the FDIC
also intends to guarantee new debt issued by banks for the next three
years. "You need it to restore confidence in the banking system among consumers and among banks willing to lend other banks," explained Dennis Gartman, economist and editor of The Gartman Letter.
In another extraordinary move, the FDIC is temporarily removing the recently raised $250,000 deposit insurance limit, all to discourage business from removing their money from small to medium size banks.
Wall Street, finally satisfied with the government's helping hand, rallied big, gaining 936 points on Monday. That's an 11-percent increase, the largest one-day gain since the 1930s.
"I'm happy. I was buying a little bit on Friday so it's nice to see it going up already," said investor Greg Gamester, while on vacation to New York from his home in Tampa.
CBS 2HD's Lou Young also contributed to this report.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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