Stocks soar on news of pick of Geithner for Treasury
President of New York Federal Reserve reported to be Obama’s choice to lead economic agenda
NEW YORK — Wall Street staged a comeback Friday, with the major indexes jumping more than 5 percent and the Dow Jones industrials surging nearly 500 points.
The late afternoon rally ended another volatile week that saw stocks reach six-year lows.
Stocks erased about half of the steep losses from Wednesday and Thursday, as investors got an unexpected jolt of confidence following an NBC News report that President-elect Barack Obama plans to name New York Federal Reserve President Timothy Geithner as Treasury secretary.
Investors have been looking for a clear message from Obama on who will lead his economic brain trust at a time when the country is facing its biggest financial crisis since the Great Depression. In addition, some on Wall Street have grown frustrated with outgoing Treasury Secretary Henry Paulson over his handling of the government’s effort to rescue the banking system.
“Something needed to be done on the economy,” said Ben Halliburton, chief investment officer at Tradition Capital Management. “The fact that they’ve got the team together, maybe that is going to shorten the period of indecision.”
A senior Democratic official familiar with the deliberations confirmed to The Associated Press that Geithner is likely to be named as Treasury secretary as early as Monday. The official requested anonymity because the nomination hasn’t been formally announced.
If nominated and confirmed by the Senate, Geithner, 47, would assume chief responsibility for tackling an economic slowdown and credit crunch that threaten to create the deepest recession in more than a generation. In his current post in New York, he has played a key role in the government’s response to the financial crisis and has worked closely with Treasury Secretary Henry Paulson and Ben Bernanke, chairman of the Federal Reserve.
As a Treasury Department official during the Clinton administration, Geithner (pronounced GITE-ner) dealt with international financial crises and played a major part in negotiating assistance packages for South Korea and Brazil.
Lawrence Summers, a former treasury secretary and one-time Harvard University president, was being considered as an economic adviser. Economic posts also seemed likely for Obama’s top two economic advisers during his campaign, Austan Goolsbee and Jason Furman.
Officials also said New Mexico Gov. Bill Richardson had emerged as a likely pick as commerce secretary, although he had hoped to be secretary of state — a post accepted Monday by Sen. Hillary Rodham Clinton, D-N. Y.
Investors were also reassured Friday by news that the Federal Deposit Insurance Corp. would guarantee up to $1.4 trillion in U. S. banks’ debt for more than three years as part of the government’s financial rescue plan. The directors of the FDIC voted Friday to approve the plan, which is meant to break the crippling logjam in bank-to-bank lending.
The FDIC will provide temporary insurance for loans between banks — except for those for 30 days or less — guaranteeing the new debt in the event of payment default by the borrowing bank.
The FDIC also will guarantee deposits in non-interest-bearing “transaction” accounts by removing the current $250,000 insurance limit on them through the end of next year. That could add as much as $500 billion to FDIC-backed deposits.
The guarantee program has been in effect since Oct. 23. All federally-insured banks and thrifts have been automatically covered since then but will have to decide by Dec. 5 whether to participate or “opt out.”
Well over half of the roughly 8,500 U. S. banks and savings and loans are expected to tap the FDIC’s temporary guarantees, which are in addition to the government’s $250 billion program of directly buying shares in banks and financial companies.
In other financial news Friday, pressure intensified on Citigroup to sell part or all of itself as its stock fell below $4 a share on Friday and fears escalated about future loan losses.
CEO Vikram Pandit told managers earlier in the day he opposes breaking up the company, but the bank’s board of directors was meeting Friday to discuss whether to do exactly that, the Wall Street Journal reported.
What investors are worried about is that all the risky debt sitting on Citigroup’s balance sheet will eventually turn into losses as the economy worsens and the markets stay turbulent — losses that could be nearly impossible to reverse.
Investors were also fearful that the government might orchestrate a takeover of Citigroup over the weekend that could wipe out common shareholders, said Paul Miller, a Friedman Billings Ramsey banking analyst.
The government was instrumental in JPMorgan Chase & Co.’s buyout of Bear Stearns and Washington Mutual, deals that left shareholders with little or no payouts.
Stocks fluctuated throughout most of trading Friday, as fresh concerns over the stability of the financial sector prevented the market from establishing any sustainable gains. But stocks moved sharply higher in the final half hour after the report on Geithner.
The Dow rose 494.13 points, or 6.54 percent, to settle at 8,046.42. The Standard & Poor’s 500 index jumped 47.59, or 6.32 percent, to 800.03, and the Nasdaq composite advanced 68.23, or 5.18 percent, to 1,384.35.
The Russell 2000 index of smaller companies rose 21.23, or 5.51 percent, to 406.54.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 2.37 billion shares.
Bond prices fell Friday as credit markets eased somewhat following a freeze-up Thursday. The yield on the benchmark 10- year Treasury note, which moves opposite its price, jumped to 3.19 percent from 3.00 percent late Thursday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.02 percent from 0.01 percent late Thursday.
Overseas, Japan’s Nikkei stock average jumped 2.70 percent. In European trading, Britain’s FTSE 100 fell 2.43 percent, while Germany’s DAX index fell 2.20 percent, and France’s CAC- 40 fell 3.33 percent.
Log into MyBuffalo to post a comment
MyBuffalo is the new social network from Buffalo.com. Your MyBuffalo account lets you comment on and rate stories at buffalonews.com. You can also head over to mybuffalo.com to share your blog posts, stories, photos, and videos with the community. Join now or learn more.
Reader comments