Bank Rescue Buoys U.S. Stock Market
Bank stocks are leading a rally this afternoon on the U.S. stock market. The Dow Jones Industrial Average (^DJI) is up more than 200 points after yesterday’s below-8,000 close right now as the financial sector cheers the rumors that the government is committed to propping up the banking system. Indeed, there are plenty of rumors circulating about the possibility of infusing Bank of America with another $200 billion, as well as making sure that bank rescue is a part of the latest economic stimulus legislation. (The bank rescue in the U.S. is being greeted completely opposite to the reception the U.K. bank bailout has met.)
Even thought the stock market tumbled dramatically earlier today, there is confidence that the government won’t let the banking sector fail, and that is driving investors to put their money back into equities. CNN Money reports that the fact that many stocks have been oversold is also contributing to the rally:
“It’s an oversold rally after days of selling,” said Joseph Saluzzi, co-head of equity trading at Themis Trading. He said that the market action so far in 2009 is likely to continue throughout the next few months. “We’re going to see this kind of thing, where you have negative headline after negative headline, until one bit of good news comes out that squeezes the short-sellers.”
Billions (maybe trillions) for banks. Not so much for taxpayers.
Even as the government prepares to spend billions more — ultimately it is conceivable that bank rescue will run in the trillions — on rescuing the large banking entities that made poor decision, it plans to offer a sop to American taxpayers: A $500 tax credit. Many see this tax credit is mostly a gesture meant to placate the masses angry at watching their hard-earned tax dollars go to the folks at the top of the economic food chain. $500 over two years isn’t nearly enough to make a real difference to most taxpayers. Indeed, the thinking is that if we are going to have to pay all this economic stimulus back with interest, the money should be given directly to the taxpayers, rather than to big banks.
After all, the banks haven’t proved that they are any better at financial decision making than the rest of us.
January 23rd, 2009 at 1:50 pm
[…] negative news in the euro zone is being outweighed by the possibility of increased risk appetite as bank rescue news helps spur support for the idea that the financial crisis may be coming to an end soon.Even though […]