Stocks Drop amid Worries About Bailout Plan

(page 2 of 3)

In his prepared remarks, Bernanke said that financial markets are under severe stress and urged immediate action to buy hundreds of billions of dollars worth of tainted mortgage assets. "Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress," Bernanke said.

"Action by Congress is urgently required to stabilize the situation and avert what could otherwise be very serious consequences for our financial markets and our economy," he said.

Bernanke also said that "purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions." He said: "removing these assets from institutions' balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth."

Amid rising concerns that the plan gives the government a blank check, Democrats want an oversight board that would include the chairmen of the Fed, FDIC, and SEC to limit the Treasury's powers.

Financial stocks remained in the spotlight Tuesday. The Wall Street Journal reported that Toronto-Dominion Bank (TD) is is among the companies now weighing a bid for Seattle thrift Washington Mutual (WM), according to people familiar with the situation. In addition to Toronto-Dominion, potential suitors include Citigroup (C), JPMorgan Chase (JPM), Wells Fargo (WFC), and Banco Santander (STD), according to people familiar with the situation.

Citigroup named Mike Corbat as CEO of its Global Wealth Management unit (GWM) and Edward Kelly as Head of Global Banking for the Institutional Clients Group (ICG). The company also confirmed that Sallie Krawcheck has decided to leave the firm to pursue other opportunities and will remain as Chairman of GWM through the end of the year.

Oppenheimer analyst Meredith Whitney cut her earnings estimates on Wachovia Corp. (WB), Citigroup, Bank of America (BAC), and Wells Fargo.

November West Texas Intermediate crude oil futures were off $2.32 to $107.05 per barrel Tuesday afternoon on profit taking from Monday's short squeeze that drove the expiring October contract $25 higher. The Commodities Futures Trading Commission is investigating Monday's trading. Tuesday's selling is blamed by some as fear the global economy will fall into a recession for several reasons, including the U.S. financial crisis that is spreading. Some speculators bought yesterday on the argument the Bush administration's $700 billion rescue plan would bolster the U.S. economy and increase demand for commodities. Some believe a slowdown could drive commodities higher on safe haven buying.

December gold futures fell Tuesday on profit taking from Monday's flight to safety surge. But the yellow metal could see more buying due to the uncertainties surrounding the U.S. government's bailout plans and the impact on the real economy, which are weighing on the equity markets, notes S&P MarketScope.