Wall Street Sinks, Dow Closes Well Below 9000

Traders were looking ahead to a meeting of the Group of Seven industrial nations in Washington Friday, in hopes of seeing Treasury Secretary Henry Paulson and other finance ministers and central bankers work together to further shore up the financial sector. On Thursday, South Korea and Taiwan cut their interest rates.

In an effort to further prop up the financial system, the Treasury was considering buying equity stakes in U.S. banks to try to bolster their capital levels, according to media reports. Financial firms have been crippled by their exposure to illiquid mortgage-backed securities, and the Treasury's previous plan, known as the Troubled Asset Relief Program, was designed to buy those assets from banks in exchange for fresh capital.

Bloomberg reported that BlackRock (BLK Quote) and Pimco, a unit of Allianz (AZ Quote), had both proposed to manage mortgage-backed securities to be bought by the Treasury as part of its $700 billion financial-sector rescue plan. BlackRock dropped 8.1% to $153.55, and Allianz tumbled 11% to $9.88.

Neil Hennessy, manager of Hennessy Funds, said that the assistance package will bring up the value of mortgage-backed assets, which he said are currently undervalued. "We know for a fact that 93% of people are paying their mortgages on time," he said. Even if only 50% were paying, mortgage-backed securities are worth more than their current market value, he said.

Furthermore, Hennessy said, investors have irrationally fled stocks. The total dividend return on the entire Dow Industrials index is currently at 3.5%, and every company in the index but Citigroup (C Quote) and General Motors (GM Quote) is highly profitable, he said. Over the long term, said Hennessy, stocks are a good value. "Tell people to turn off their TV for the next week," he said.