Updated from 11:53 a.m. EDT
Stocks on Wall Street plunged Monday as traders awaited action by Congress on government support for the financial sector and assessed
government-assisted purchase of
Dow Jones Industrial Average
dropped 328 points to 10,815, and the
lost 51 points to 1162. The
plummeted 106 points to 2078.
Over the weekend,
Congress was finalizing
the Treasury's $700 billion bailout proposal to aid the floundering financial sector. A report from
The Associated Press
indicated that the House of Representatives would vote on the bill Monday and that the Senate would follow suit later in the week.
Peter Morici, professor at the University of Maryland's Robert H. Smith School of Business, wrote in an email, "The bailout hardly restricts executive compensation. Those provisions are vague, except for golden parachutes, and really only apply to banks the government would take over."
Morici also wrote that the possibility of the government taking equity positions in banks doesn't necessarily mean that firms' management practices will change.
Hugh Johnson, chief investment officer at Johnson Illington Advisors, said he's more optimistic. "Given time, if properly executed, this plan should work," he said. He also said he's confident
Chairman Ben Bernanke will take further action if the proposed legislation fails to mitigate credit-market unrest.
The FDIC announced early Monday that Citigroup was buying the senior and subordinated debt as well as banking operations of
, in a deal facilitated by the Federal Deposit Insurance Corp. The FDIC said that Wachovia did not fail. Shares of Wachovia fell from Friday's closing price of $10 to 94 cents.
"Boy oh boy has the landscape changed," said Johnson. By his count, only five major players are left in the financial space:
Bank of America
, JPMorgan and Citigroup. "I never would have guessed that."
Johnson said that the spate of consolidation among financial firms is "going to usher in a whole mess of problems, concentration of power being among them. It's only five guys that have to sit down and figure they can rule the world." He said it would be interesting to see whom the Treasury's bailout package helps and what price it pays for troubled assets. "You can bet it's going to be watched carefully," he said.
got a $9 billion investment from Japanese bank
A report in
The Wall Street Journal
said that private equity companies
Hellman & Friedman
were in the hunt to buy the
arm of bankrupt brokerage
insurance firm AIG
was contemplating the sale of 15 of its businesses to repay an $85 billion bridge loan from the
and keep from being taken over by the government.
( NCC) were dropping precipitously, losing 42% of their value to trade near the $2 mark as investors feared it may be the next bank to fall.
The credit crisis was also causing turmoil overseas. European governments early Monday arranged rescues of
Bradford & Bingley
Hypo Real Estate
Johnson said it's worrisome that the financial crisis is being transmitted to other parts of the world. He said that the globalization of the turmoil means lenders of last resort will now have to coordinate internationally.
Looking at the day's earnings, electronics retailer
reported a wider second-quarter loss and withdrew its previous 2009 earnings forecast.
, meanwhile, reported profit that rose 13% year over year on strong revenue.
In the pharmaceutical sector,
was still in talks to sell itself to a large drugmaker following a hostile takeout bid from
As for economic data, the Department of Commerce said that in August, personal incomes rose 0.3%, up from a 0.7% decrease in July and above economists' estimates. Personal spending was flat in August, falling short of analyst predictions of 0.2% growth.
In the commodities space, the price of crude oil was declining $8.12 to $98.77 a barrel, and gold was gaining $6.10 to $894.60 an ounce.
Longer-dated U.S. Treasury securities were rising in price as investors sought safety from the credit crisis. The 10-year note was up 1-20/32 to yield 3.66%, and the 30-year was gaining 3-1/32, yielding 4.19%. The dollar was rising sharply against the euro and pound but falling vs. the yen.
Concerns about the bailout's passage and efficacy are spurring a flight bid into treasuries, said John Canavan, market analyst at Stone & McCarty Research Associates. New victims of the credit crisis abroad and a tumble in equity markets are also driving up Treasury prices, he said.
Canavan said the Fed's recent increase in its swap lines should help provide liquidity but simultaneously reveals stresses in money markets. "Yields and the stresses on the short end ... are numbers that haven't been seen since at a minimum the 1950s," he said. "It's no longer a question of trying to get a good return. In the near term, it's merely a matter of capital preservation."
Overseas exchanges, including the FTSE in London and the Dax in Frankfurt, were taking losses. Asian indices such as the Nikkei in Japan and the Hang Seng in Hong Kong closed on the downside.