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U.S. stocks closed solidly lower Tuesday as investors took profits from a huge rally in the previous session. Monday's surge was sparked by Treasury Secretary Timothy Geithner's announcement of a plan to help banks get rid of toxic assets.
On Tuesday, Geithner and Federal Reserve Chairman Ben Bernanke defended their handling of the AIG (AIG) bailout before the House Financial Services Committee. Both supported a strong U.S. dollar in the face of China's call for a new global reserve currency.
On Tuesday, the 30-stock Dow Jones industrial average finished lower by 115.65 points, or 1.49%, at 7,660.21. The broad S&P 500 index shed 16.54 points, or 2.01%, to 806.38. The tech-heavy Nasdaq composite index fell 37.18 points, or 2.39%, to 1,518.59. NYSE breadth was 21-9 negative, while Nasdaq breadth was 19-8 negative.
The dollar index rebounded from recent weakness, helping to send gold futures lower. Treasuries fell despite a well-received 2-year note auction. Energy futures were mixed.
There were no significant economic reports released Tuesday.
In his testimony Tuesday, Geithner called on Congress to grant him new powers to regulate huge financial companies like insurance giant AIG, whose failure would pose a grave danger to the U.S. financial system and the broader economy. Specifically, Geithner told the House Financial Services Committee he wants powers similar to those of the FDIC, which has authority to seize control of banks, take over their bad assets and sell good ones to competitors.
Bernanke said the government's bailout of troubled insurance giant AIG underscores the urgent need to safely wind down financial giants on the verge of collapse and subject them to much stronger regulatory oversight. Much of the discussion centered on ways to help the government better deal with future AIG-like companies whose failure could devastate the financial system and the drag down the economy.
Bernanke said he wanted to sue to stop insurance giant AIG from paying millions in bonuses, but lawyers advised against doing so.
Both Geithner and Bernanke both also rejected proposals for a global reserve currency and shift away from the dollar put on the table by the Chinese recently ahead of the upcoming G20 meeting.
A day after Washington unveiled a plan to soak up toxic assets plaguing credit markets, President Barack Obama called in an article for German newspaper Die Welt for agreement on stimulus measures at the Apr. 2 meeting in London which he said could revive growth. "First, we must take quick measures to stimulate growth," Obama wrote, according to the translation of his comments.
New York State Attorney General Andrew Cuomo says he has persuaded nine of the top 10 bonus recipients at AIG to give the money back, as the Senate retreated on plans to tax such bonuses. A New York Times report said Cuomo said he was working his way down a list of AIG employees, ranked by the size of their bonuses, and had already won commitments to pay back $50 million out of the total $165 million awarded this month. But in a reversal of the stand he took last week, he said he did not intend to release any names.
According to a New York Times report, Goldman Sachs Group (GS) is planning to give back its TARP money soon. Very soon, actually -- ideally within the next month, according to people involved in the process. That's a much quicker timetable than the end-of-year goal previously set out by Lloyd C. Blankfein, Goldman Sachs' chief executive.