Published: Friday Spetember 19, 2008
Wall Street rallied in a stunning late-session turnaround Thursday, shooting higher and hurtling the Dow Jones industrials up 410 points following a report that the federal government may create an entity that will take over banks' bad debt.
A report that Treasury Secretary Henry Paulson is considering the formation of an entity like the Resolution Trust Corp. that was set up during the savings and loan crisis of the late 1980s and early 1990s left investors ebullient. Investors hoped a huge federal intervention could help financial institutions jettison bad mortgage debt and stop the drain on capital that has already taken down companies including Bear Stearns Cos. and Lehman Brothers Holdings Inc.
Financial land mines
Worries about financial land mines on companies' books have hobbled the world's financial markets and led to the intense volatility in the markets this week.
"It's going to take a lot of the bad debt off the balance sheets of these companies," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York, commenting on the possibilities of an entity akin to the RTC. It could alleviate many of the pressures causing the credit crisis, he said, and open up the credit markets again. But Fullman noted, "the devil's in the details."
"Bear markets are very sensitive to news. And on a scale of one to 10, this one is a 13," he said.
The report gave direction to a market that had bolted in and out of positive territory for much of the session as investors shuttled between the safety of Treasury bills and gold and the bargains posed by stocks that have been pounded lower.
Source: Jamaica Gleaner
http://www.jamaica-gleaner.com/gleaner/20080919/business/business6.html
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