Will markets be reassured?

L.A. Times Archives

Oct. 13, 2008 12 AM PT

From the Associated Press

Investors agonizing over whether the stock market is bottoming out or about to continue its precipitous decline face more uncertainty this week as they await action on the government’s rapidly expanding effort to pull the financial system from the brink.

If last week was any indication, Washington’s medicine has yet to take hold. Wall Street suffered through its worst five-day period ever as fears about frozen credit markets deepened and investors yanked money out of the markets, sending major indexes tumbling from New York to Hong Kong.

But amid the turmoil, some saw reason for hope: Friday’s trading left the Dow Jones industrials 128 points lower, a tame pullback compared with previous sessions. That left people wondering whether confidence could trickle back into world markets.

It’s far too early to tell. But investors will be watching this week to see whether the Treasury’s newly announced plan to buy equity in troubled banks, rather than just their bad assets, is enough to halt the huge losses on Wall Street and revive the lending process that is so vital to the functioning of the U.S. economy.

Treasury Secretary Henry M. Paulson’s latest market-stabilizing attempt must clear a high hurdle to please Wall Street. Investors so far have barely blinked at a series of government-led fixes.

“We’re running out of arrows in the quiver,” said Chuck Gabriel, managing director of Capital Alpha Partners in Washington. “There’s just not much left after this, and at some point we’re going to find a bottom.”

In Britain, officials are also drawing up a plan to take major stakes in the Royal Bank of Scotland, Lloyds TSB and HBOS under a $500-billion financial rescue. At a meeting Sunday of European leaders, French President Nicolas Sarkozy said he expected an ambitious and coordinated plan to tackle the financial crisis.

Sen. Chuck Schumer (D-N.Y.), chairman of the Joint Economic Committee, said the proposal to inject federal money directly into certain banks “is gaining steam.”

“I am hopeful that [Monday], the Treasury will announce that they’re doing it. And they have to do it quickly. . . . Markets are waiting,” Schumer said.

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At a glance

Today

Government offices are closed for Columbus Day.

Bond markets are closed.

Nobel memorial prize in

economics is announced in Stockholm.

Tuesday

Weekly Treasury auction and briefing.

Weekly Treasury briefing

Quarterly earnings reports due from Genentech, Intel, Johnson & Johnson, PepsiCo and Supervalu.

Wednesday