Stocks: A Bronx Cheer for Geithner

The S&P 500 dropped nearly 5%, while the Dow cracked solidly below 8,000 Tuesday as investors complained the financial rescue plan was short on details

Timothy Geithner unveiled the government's revised financial-sector rescue plan on Tuesday, and investors turned an emphatic thumbs down on the eagerly awaited announcement from the Treasury Secretary. U.S. stocks plunged Tuesday, with the large-cap benchmark S&P 500 falling nearly 5% and the Dow industrials dropping below the psychologically significant 8,000 mark.

Financial stocks led the market lower, with the S&P Diversifed Banks index down nearly 14%, reflecting Wall Street's growing concerns about the government's ability to revive the banking industry. Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC) were among the industry stocks that finished significantly lower Tuesday. Homebuilding and consumer stocks were also hit hard.

The speech failed to deliver enough details to satisfy investors, says S&P MarketScope. Tuesday's sell-off came after investors last week scooped up issues in anticipation of the plan's unveiling.

Meanwhile, the Senate passed President Obama's economic stimulus plan. legislation, while

Federal Reserve Chairman Ben Bernanke defended the central bank's actions dealing with crises before a cantankerous House Financial Services Committee.

On Tuesday, the 30-stock Dow Jones industrial average finished lower by 381.99 points, or 4.62%, at 7,888.88. The broad S&P 500 index was off 42.73 points, or 4.91%, at 827.16. The tech-heavy Nasdaq composite index shed 66.83 points, or 4.20%, to 1,524.73.

On the New York Stock Exchange, 26 stocks were lower in price for every 5 that advanced. Nasdaq breadth was 22-5 negative. Trading was active.

Treasuries were sharply higher as stocks plummeted, aided by a strong three-year note auction, with the yield on the 10-year note falling to 2.83%. The dollar index rose. Gold futures were sharply higher in a flight to safety. Crude oil futures slid in New York trading ahead of Wednesday's weekly U.S. inventory data.

Geithner said Monday that the new administration will wage an aggressive two-front battle against the worst financial crisis in seven decades, while the Federal Reserve announced it was expanding a key lending program to up to $1 trillion. The efforts were part of the government's major overhaul of the widely criticized financial rescue program. The Fed said it would expand the size of a key lending program to as much as $1 trillion from $200 billion. The program, which has yet to begin operations, is designed to boost resources for consumer credit and small business loans. The Fed said the program would be expanded to cover the troubled commercial real estate market and certain residential mortgages.

"Right now critical parts of our financial system are damaged," Geithner said in his speech. "Instead of catalyzing recovery, the financial system is working against recovery and that's the dangerous dynamic we need to change." "It is essential for every American to understand that the battle for economic recovery must be fought on two fronts," Geithner said in a speech in Treasury's ornate Cash Room. "We have to both jump-start job creation and private investment and we must get credit flowing again to businesses and families," he said.

In responding to criticism and an implied rebuke from the stock market, the Treasury Secretary said in a subsequent CNBC appearance that the financial crisis is "enormously complicated" and a solution will take time to implement and heal. When posed a question on the miscues on the "bad bank" solution, Geithner said he will avoid any program that leaves the government and tax payers vulnerable to the accusation of overpaying for assets. He said parts of the financial system are functioning well, others are under repair and still others badly damaged, requiring a public-private partnership.

As to vagueness in the details on the plan, he emphasized the "complexity" of the issue.

The response from Wall Street was swift -- and negative.

"The lack of detail in today's announcement suggests that this is another hurried attempt to prop up the banks," says Grant Lewis, head of bond research at Daiwa Securities in London.

"Geithner spoke in plain terms, catering more to Main Street than to Wall Street, clearly showing the fear that exists within Washington over the use of taxpayer money," says Miller Tabak strategist Tony Crescenzi. "The problem is that Geithner needed to speak more to Wall Street, where the problems lie, rather than stay at a distance as he did, and leave Wall Street with too few details with no roadmap by how it might find its way out of current difficulties."

The drop in equities suggests the market isn't too impressed that this "new" Treasury plan will be any better than its predecessor, says Action Economics. "These guys really know how to disappoint, despite having many prior failures from which to learn."