U.S. stocks dropped sharply today as investors reacted with disappointment to Treasury Secretary Timothy Geithners plan to bail out the financial system.
The Dow Jones industrial average closed down 381.99, or 4.62%, at 7,888.88; the S&P 500 fell 42.73, or 4.91%, ending at 827.16; and the Nasdaq composite closed down 66.83, or 4.2%, at 1,524.73. All numbers are preliminary.
Details of Mr. Geithners proposed public/private investment fund which he said could provide up to $1 trillion of financing are still under development, Mr. Geithner said in a long-anticipated speech outlining the Obama administrations plans for financial bailouts.
Mr. Geithner said the objective of the new proposed public/private investment fund was to use private capital and private asset managers to help provide a market mechanism for valuing the troubled assets.
We are exploring a range of different structures for this program, and will seek input from market participants and the public as we design it, Mr. Geithner said. We believe this program should ultimately provide up to $1 trillion in financing capacity, but we plan to start it on a scale of $500 billion, and expand it based on what works.
But market participants were disappointed in what they heard.
Bud Haslett, director of options analytics at brokerage firm Miller Tabak, said: People were expecting some form of a bad bank announcement where bad assets would be dumped in. It did not happen. Mr. Geithner did not seem ready for this.
Added David Resler, chief economist at Nomura Securities International: We were led to believe the government had some comprehensive plan. People were looking for specifics, not for more rhetoric. We still dont know what is happening here. Dont come out and say you have a new program until you have a new program.
Also today, the Senate voted 61-37 in favor of an $838 billion economic stimulus package. The plan goes to a conference with the House, which had approved an $819 billion package last month, for a compromise.