If, like death, there are five stages to bailouts, many folks on Main Street -- and their elected representatives -- appear to be dwelling in either the "denial" or "anger" zones. With stocks listing in a sea of volatility -- and the credit market seizing up -- Wall Street is hoping that they move to the "acceptance" stage in a hurry.
Major U.S. stock indexes struggled for direction Wednesday, ultimately finishing mixed. Even a $5 billion vote of confidence in a major Wall Street firm by the Oracle of Omaha himself, Warren Buffett, wasn't enough to calm the market's nerves. For there is only one thing on market players' minds right now: the progress -- or lack of same -- of the government's $700 billion financial system rescue plan.
The plan was Topic A when Federal Reserve Chairman Ben Bernanke returned to Capitol Hill Wednesday to deliver testimony to the Joint Economic Committee of the House and Senate about the U.S. economy. The Fed chief ran into a second day of congressional complaints about the financial rescue plan that taxpayers are being asked to pay for, amid substantial opposition.
Bernanke, urging quick passage of bailout legislation, said that no action would result in economic turmoil. He said the U.S. economy is already struggling. President Bush planned a nationwide TV address on the issue Wednesday night.
On Wednesday, the blue-chip Dow Jones industrial average finished lower by 29 points, or 0.27%, to 10,825.17. The broader S&P 500 index was down 2.35 points, or 0.2%, to end the session at 1,185.87. The tech-heavy Nasdaq composite index added 2.35 points, or 0.11%, to close at 2,155.68.
Activity in the broader market was negative. On the New York Stock Exchange, 19 stocks declined in price for every 13 that advanced. The ratio on the Nasdaq was 19-9 negative.
Bonds were mixed. The dollar index rose. Gold edged higher. Crude oil futures were lower after the Energy Dept.'s weekly inventory report.
There was little market reaction to a report that existing home sales fell 2.2% in August.
Stocks got an early boost from news that Buffett bought $5 billion worth of Goldman Sachs (GS) preferred stock and another $5 billion worth of warrants to buy Goldman shares. But major indexes tuned mixed as the market's focus soon returned to the uncertainty surrounding the government's $700 billion economic rescue plan.
Wedensday's relatively mild showing for major indexes masked an increasing sense of urgency in financial markets. PIMCO CEO Mohamed El-Erian said the markets are rapidly deteriorating and the rescue package must be passed, as parts of the economy will start collapsing if the credit markets do not open back up for business, according to a report from Action Economics.
Treasury yields moved lower into Wednesday's close, pulled down by some late flight to safety on news that the two-year swap spread blew out to record wide levels above +160 basis points. "That suggests that AAA-rated banks continue to feel the pinch of the credit crunch and counterparties are growing impatient with the debate on the Hill over the financial rescue package, and hoarding their cash despite infusions from the Fed and other central banks," wrote Action Economics analysts in a website posting.
Meanwhile, Republican presidential candidate John McCain is calling for delaying Friday's scheduled debate against rival Barack Obama at the University of Mississippi in order for both senators to return to Washington D.C., to address the economic crisis, according to a Wall Street Journal report.