WALL Street roared higher this morning after the US government announced a full-scale attack on the financial crisis, including a plan to save banks drowning in toxic mortgage debt.
A new ban on stock short sales to curb speculation and a Treasury plan to insure money market funds also helped calm nervous traders and ease the risk of financial meltdown.
"Short selling" is when a trader sells a borrowed stock, hoping it will then fall so that it can be bought back at a lower price. The trouble is that sometimes the traders are not bothering to borrow the stock or check that it can be borrowed in the first place.
Plunges on Wall St this week sent doom and gloom around the world, including in Australia where the local market lost about $40 billion in one day and plenty of companies saw their shares nosedive.
But there were also recoveries. And after the US Treasury announced its rescue package, worth hundreds of billions of dollars, markets seemed to breathe a little easier.
"Wall Street appears to have turned the corner," said Fred Dickson at DA Davidson & Co, reacting to what he called "a package designed to attack the problems at the heart of the financial crisis and reduce the general level of fear".
John Ryding at RDQ Economics said: "The Treasury and the Fed have finally realised the depth and systemic nature of the crisis. We believe that these actions will constitute the wider firebreak that will contain the crisis."
Chris Lafakis at Economy.com said the latest flurry of action "has significantly eased the concerns of skittish investors".
Amid a powerful global equity rally, the Dow Jones Industrial Average jumped 357.21 points (3.33 per cent) to 11,386.90 at the closing bell overnight.
The tech-heavy Nasdaq vaulted 74.80 points (3.40 per cent) to 2273.90 and the broad Standard & Poor`s 500 index lifted 45.81 points (3.80 per cent) to a preliminary close of 1252.32.
Financial shares led the surge. Morgan Stanley, which had complained about short sellers driving its shares lower, leapt 20.7 per cent to $US27.21. Some reports said talks by the Wall Street investment bank on a merger were making progress.
Rival investment firm Goldman Sachs vaulted 20.2 per cent to $US129.80.
Troubled savings and loan Washington Mutual jumped 42 per cent to $US4.25 amid reports it was in talks on a tie-up with Citigroup, up 24 per cent at $US20.65.
Treasury Secretary Henry Paulson said the rescue plan being drafted with Congressional leaders to help purge bad assets from the banking sector will cost "hundreds of billions" of dollars.
As officials scrambled to draft legislation, US authorities offered fresh guarantees to stem a run on money market deposits and issued new emergency rules to curb short sales, seen as a factor in driving financial firms into ruin.
The package could be voted into law as early as next week.
Will the US Govt also introduce tighter regulations so these cowboys don`t get into the same situation again? Or will they continue to provide multi-billion dollar rescue handouts to reward extremely bad business practices? Will the Treasury use important tax payer funds, or will the Fed continue to create money out of nothing, take majority ownership of these companies, then at the same time cause high inflation? The horse has already seemed to have bolted. No matter what the solution, the US economy will suffer. This is just a band-aid. We will all have to end up paying for this somehow.
Posted by: Me of Here 7:57am today
I said it in a letter to the treasurer "when a correction occurs, there may be significant calls to 'place a floor' under asset prices in the guise of economic stability", suggesting that they should resist the urge for the benefit of all Australians in the long run. But yesterday an analyst from INVESCO put it better, to paraphrase she said "on the way up it's all out free markets, but on the way down it's all out socialism"!! So Baghdad Bob, the new spokesman for the Australian Realestate Spruikers Etcetera Society was right, they did "tackle them and destroy them"
Posted by: Brett of www.geocities.com/homes4aussies 7:55am today
The whole financial market is a total joke.... how can it go from doomsday to great in 24 hours.What a crock of sh*t!
Posted by: Nick B 7:45am today
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