Wednesday, 11 February 2009

US Treasury unveils rescue plan, markets unimpressed

On Tuesday, the US Treasury announced its latest plan to rescue the financial system. MarketWatch reports:

In its latest effort to stabilize the broken financial system, the U.S. government will use mostly private money to create a fund of at least $500 billion to recapitalize banks and another fund of $1 trillion to support consumer and business lending, Treasury Secretary Tim Geithner announced Tuesday.

As part of the plan, all major U.S. banks will be required to undergo a rigorous stress test to determine if they can survive a more severe economic downturn. If they can, they'll be eligible for government capital.

Apparently, though, markets weren't too impressed by the plan. From Bloomberg:

U.S. stocks fell, sending the Standard & Poor’s 500 Index to its biggest drop since Barack Obama’s inauguration, while Treasuries rallied on skepticism that the government’s bank rescue will work. The dollar and gold rose.

Bank of America Corp. and Citigroup Inc. slipped more than 15 percent after Treasury Secretary Timothy Geithner said he’s still “exploring a range of different structures” to bail out lenders...

The S&P 500 Index dropped 4.9 percent, the most since Jan. 20, to 827.16. The Dow average decreased 381.99 points, or 4.6 percent, to 7,888.88. Ten-year Treasury notes rose, driving their yield down by 0.16 percentage point to 2.82 percent. The dollar gained 0.8 percent against the euro, and gold rose 2.4 percent as investors sought havens.

In other government action on Tuesday, the US Senate approved President Barack Obama's stimulus package. Bloomberg reports:

The U.S. Senate approved an $838 billion economic stimulus package, clearing the way for negotiations with the House over a compromise plan that President Barack Obama wants lawmakers to send him within days.

The Senate today voted 61 to 37 to approve its measure. The bill provides $293 billion in tax cuts and more than $500 billion in new spending that the legislation’s supporters call critical to preventing the economy from sinking deeper into recession.

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