WASHINGTON – The Bush administration is hammering out the final details of a plan that would allow the government to inject cash into banks in exchange for ownership stakes in an effort to shore up confidence in the faltering financial system, according to officials and sources who have been in contact with the Treasury Department.
On Wall Street, the Dow Jones industrial average fell for a seventh straight session Thursday, dropping 7.3 percent.
Senior Treasury officials believe they have the authority to take ownership stakes in banks under the $700 billion rescue package that was passed by Congress and signed into law last week, the sources said. But the administration has yet to work out several critical issues, such as how many banks should be included and when the plan should be put into effect.
Treasury is expected to announce the plan by the end of the month or even sooner, the sources said, speaking on condition of anonymity because their conversations with the agency were private. Congressional leaders could be briefed as early as today.
The proposal already is generating controversy on Capitol Hill and among private-sector firms concerned that a broad intervention of this kind would represent a vote of no-confidence in the entire banking industry, not just troubled institutions.
White House press secretary Dana Perino suggested Thursday that President Bush would support a government move to buy shares in troubled U.S. banks if Treasury Secretary Henry Paulson decides to do so.
“It was a part of the rescue package that the president supported, and it gives the Treasury secretary a range of possibilities, and investing in banks directly was one of those authorities,” Perino said. “Secretary Paulson can use that authority as he sees fit.”
Fear and foreboding took hold on Wall Street on Thursday, as the stock market again plunged and investors became convinced that the nation is on the verge of a deep and prolonged recession.
Share prices fell across every industry and for each of the 30 stocks in the Dow Jones industrial average, which was down 679 points, or 7.3 percent. The Dow closed at 8,579.19, its lowest level since May 2003. The blue-chip index is now down 39 percent from its all-time high set one year ago Thursday – with half of that decline coming the last seven trading days alone.
No stock symbolized the market’s dire state Thursday more than General Motors Corp. Shares of the country’s largest automaker, long a mainstay of the economy, plummeted 31 percent to $4.76 – their lowest level since the Korean War. Beset by falling auto sales and tightening credit, GM has seen its stock plunge 87 percent in the last year.
The plummeting stock market could not be blamed on any single piece of horrible news – there were no additional bank failures or government bailouts or corporate bankruptcies.
“I’ve never seen a panic like this,” said David Wyss, chief economist at Standard & Poor’s. “I’ve seen stock market drops, but not an overall panic.”
Fear from Wall Street flooded into Asia today, where markets were dramatically lower in early trading. Japan’s benchmark Nikkei average plunged nearly 10 percent, Australia markets slid more than 7 percent and South Korea stocks were down about 8 percent.
“It’s a domino effect. Stocks are falling out of bed. There is distrust in the market and distrust in the government that is trying to heal this,” said Peter Cardillo, chief market economist with New York-based Avalon Partners.
Investors pulled a record $72 billion out of stock and bond mutual funds in September, the research firm TrimTabs said Thursday, and in the past week alone took out $52 billion.
President Bush, who has said little publicly during this week’s prolonged market dive, is scheduled to make a statement about the crisis this morning in the Rose Garden. He also will take the unusual step of meeting with finance ministers from the Group of Seven industrialized countries Saturday.
Perino said Bush would “assure the American people that they should be confident that economic officials are aggressively taking every action to stabilize our financial system.”
Meanwhile, global economic policymakers are gathering in Washington today for the International Monetary Fund and World Bank annual meetings, and will try to find coordinated responses.