The bottom line on the financial bailout plan offered today by Treasury Secretary Timothy Geithner is that despite weeks of planning, it was short on details and long on creating the one investors hate more than anything else; uncertainly.
Aside from promising to throw more money at the problem via the Fed's expanded Term Asset Lending Facility, the plan offered no solution for one of the main difficulties facing the financial sector, which is exactly how the government will go about pricing and removing all those toxic assets from the banks' balance sheets.
As far as relief for troubled homeowners is concerned, don't hold your breath. Mr. Geithner said the plan to stem foreclosures would be announced in coming weeks.
Even worse, it appears the government will force banks to undergo what Mr. Geithner termed as a "stress test" in order to determine if they will require an additional capital injection, meaning the government will be determining which banks it will take an ownership position in. Needless to say, this will only create further uncertainties for investors in the financial sector.
An important test will be the one facing Bank of America. CEO Ken Lewis was all over CNBC last week insisting that the nation's largest bank doesn't need additional funds from the government, but it now looks as if we'll have to wait for the government's stress test in order to determine the final outcome on the matter.
All this talk of stress testing the banks and lack of details drove investors en masse to the exits on Tuesday. At the close of floor trading on the NYSE, the DOW was on 7888.88 after falling 381.99 points (-4.62%) while the S&P finished on 827.17 with a loss of 42.72 points (-4.91%). The tech-heavy NASDAQ fared only slightly better, closing on 1524.73 after falling 66.83 points (-4.2%). Bonds were bought heavily as traders ran from riskier positions. The yield on the 2-year note fell 10.8 basis points to 0.899% while yield on the benchmark 10-year note fell 16.7 basis points to 2.822% after rising to over 3% yesterday for the first time since November. The dollar traded in pure risk-aversion mode after the speech, gaining 0.8% to the euro, 3.94% against Australia's currency and 2.63% against the formally-resurgent pound while it fell 1.25% the yen.
Crude oil for March delivery was recently trading down $1.61 (-4.07%) to $37.95 per barrel as investors speculated the lack of a plan from the Treasury would hurt economic growth.
Gold for April delivery was recently trading up $24.10 (2.7%) to 916.50 per ounce on the theory that the precious metal will continue its surge against all asset classes.