As an impatient White House prodded banks and other financial companies Tuesday to quit hoarding billions of bailout dollars and start making more loans, Wall Street soared nearly 900 points on bargain-hunting and hopes of a hefty interest rate cut by the Federal Reserve.
The stock market's amazing climb, its second-largest point gain ever, was a welcome burst of good news for a nation seemingly tumbling into a painful recession. But it came as layoffs, plunging home prices and tumbling investments pushed consumer pessimism to a record low in October.
Indeed, by holding on to most of the day's gains - the Dow Jones industrial average rose 889.35, or 10.88 percent, to 9,065.12 - the market seemed to be coming to terms with the fact that bad news will continue to stream in.
Other casualties from the global credit crisis piled up Tuesday: A closely watched index of home prices, the Standard & Poor's/Case-Shiller 20-city index, fell by its steepest ever annual rate in August. It dropped 16.6 percent from August last year, the largest drop since its inception in 2000.
The 23.4-point drop in the consumer confidence index, from a revised 61.4 in September to 38 in October, is the steepest since it fell 36.9 points from October 1973 to December 1973, when the economy was in the throes of a severe recession. The Conference Board, a private research group, said the new mark was the lowest point since it began tracking consumer sentiment in 1967.
Hoping to thaw the credit freeze that has chilled the economy, the Bush administration sent banks an unmistakable message to put aside fears and open up loan windows for cash-starved businesses and consumers who have pulled back on spending.
"What we're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said.
Under the $700-billion financial bailout, the administration is doling out $250-billion to banks in return for partial ownership.
The Treasury Department, which is overseeing the massive capital injection program, will pour $125-billion into nine of the country's largest banks, which account for 50 percent of U.S. deposits. Anthony Ryan, a Treasury's acting undersecretary, said the first payments went out Tuesday. Another $125-billion will start flowing to other banks within days.
The infusion of federal money is intended to rebuild banks' battered capital reserves so they would feel comfortable resuming more normal lending practices. But reports have surfaced that bankers might use the money to buy other banks. Indeed, the government approved $7.7-billion for PNC Financial Services Group Inc. in return for company stock Friday, the same time PNC said it was acquiring National City Corp. for $5.58-billion.
There is no language in the bailout bill that obligates banks receiving money to increase their loans. Officials had argued that attaching strings would discourage participation.
An economy in painful throes
-Tampa Bay area home prices plunged 18.1 percent from August 2007 to August 2008, but that's nothing compared to the pricing bloodbath in places like Miami and Las Vegas. The S&P/Case-Shiller home price index rated Tampa's performance the seventh worst among the 20 cities that it measures. Phoenix, Las Vegas and Miami showed annual price declines of about 30 percent. Dallas did the best. Home prices slid 2.7 percent there.
- Layoffs continue as Whirlpool Corp. said Tuesday it will cut 5,000 jobs. That's on top of other recent layoffs of thousands of workers by Xerox Corp., drugmaker Merck & Co. Inc. and financial services firm National City Corp.
-The International Monetary Fund's $250-billion set aside to help struggling nations through the economic crisis is beginning to look puny, with Iceland, Pakistan, Hungary and Ukraine already clamoring for mountains of cash aid. Gordon Brown, the British prime minister, said Tuesday that China and oil-rich Persian Gulf states should fund the bulk of a major boost in the IMF's bailout pot. There was no immediate comment from the Chinese government, which has reported foreign currency reserves totaling $1.9-trillion. Persian Gulf nations, likewise, offered no comment.
- Credit card offers with sky-high credit lines may soon vanish as lenders curtail both. The pullback is affecting even creditworthy consumers and threatens the banking industry with another wave of losses. Lenders wrote off an estimated $21-billion in bad credit card loans in the first half of 2008 as more borrowers defaulted. With growing layoffs, the industry stands to lose at least another $55-billion over the next 18 months, analysts say.