Dow plummets 500 points after House rejects bailout bill

Bill defeated 229:206; Citigroup buys out Wachovia; UK government nationalizing major mortgage lender.

By JERUSALEM POST STAFF
wall street 224 88 (photo credit: )
wall street 224 88
(photo credit: )
The Dow Jones Industrial Average plummeted some 500 points Monday after the House of Representatives defeated Monday a $700 billion bill to bail out troubled financial companies. The vote, according to Sky News, was 229:206, with 141 Democratic representatives voting for the bill and 95 against, and Republicans voting 65:133 against the measure. Earlier Monday, financial markets endured another difficult start ahead of the planned House vote on the plan to rescue troubled financial companies and as investors examined a deal for Wachovia Corp. The Dow Jones industrial average fell more than 300 points, while demand for safe-haven buying in government debt remained high ahead of the vote. Wall Street is fearful the government's plan to buy up toxic debt wouldn't be sufficient to resuscitate nearly frozen credit markets. Investors also reviewed the buyout at Wachovia. The Federal Deposit Insurance Corp. said Monday that Citigroup Inc. will acquire Wachovia's banking operations and that the deal protects Wachovia debtholders - a welcome prospect for investors given the strains in the credit markets. Investors had been worried about Wachovia's stability as it grappled with mounting losses over souring mortgage debt. Citi fell 28 cents to $19.87. Investors appeared to find little reassurance in a move by the Federal Reserve and other countries' central banks to pump money into the world's credit markets. The said it would boost the amount of 84-day cash loans available to US banks to $75 billion, up from $25 billion. The plan will triple the supply of 84-day loans to $225 billion from $75 billion, the Fed said. The news comes as President George W. Bush and other congressional leaders looked to shore up support for the rescue measure, which they and many on Wall Street believe is a difficult but necessary choice to revive moribund credit markets. Banks and other financial houses are hesitant to lend to one another because of fears about bad mortgage debt on companies' books. Tight lending conditions make it harder and more expensive for businesses and consumers to get a loan, which can hurt the economy. While congressional leaders said they had the headcount to pass the vote - a Senate vote could come as early as Wednesday - investors were likely to be unnerved until the votes are complete. Credit markets remained strained Monday. The yield on the 3-month Treasury bill, considered the safest short-term investment, fell to 0.37 percent from 0.87 percent late Friday. The yield on the T-bill falls as demand grows; investors are at times willing to take the slimmest returns to safeguard their principal. The yield on the benchmark 10-year Treasury note fell to 3.65 percent from 3.84 percent late Thursday. In midmorning trading, the Dow fell 272.72, or 2.45 percent, to 10,870.41 after having been down more than 350. Broader stock indicators also fell. The Standard & Poor's 500 index declined 41.31, or 3.41 percent, to 1,171.96, and the Nasdaq composite index fell 92.36, or 4.23 percent, to 2,090.98. The dollar was mixed against other major currencies, while gold prices rose. Light, sweet crude fell $6.60 to $100.29 on the New York Mercantile Exchange. Wall Street is also worried about overall sluggishness in the world's economy. In the US, for example, unemployment now sits at a five-year high of 6.1 percent. That rate is expected to increase, perhaps putting further pressure on consumer spending, which accounts for more than two-thirds of the nation's economic activity. Investors overseas were nervous ahead of the votes in Washington and after three European governments agreed to inject Fortis NV with a $16.4 billion bailout. Fortis, with has headquarters in Brussels, Belgium and Utrecht, Netherlands, is Belgium's largest retail bank. The British government said it is nationalizing mortgage lender Bradford & Bingley, which has a $91 billion mortgage and loan portfolio. It was the latest sign that the credit crisis has spread beyond the US. Japan's Nikkei stock average fell 1.26 percent. Britain's FTSE 100 declined 2.85 percent, Germany's DAX index fell 2.60 percent, and France's CAC-40 fell 2.97 percent.