Investors are frustrated with the government's latest bank bailout plan — and showed it by unloading stocks.
The major stock indexes fell more than 4% Tuesday, including the Dow Jones industrial average, which tumbled 382 points. Financial stocks led the market lower, a sign of how concerned Wall Street is about the government's ability to restore the health of the banking industry. Demand for safe havens like Treasurys and gold rose.
Traders and investors complained about what they saw as a lack of specifics from Treasury Secretary Timothy Geithner on how the government will direct more than $1 trillion in public and private support to the financial system.
The new plan is aimed at restoring proper functioning to credit markets, which seized up over worries about bad debt after the September bankruptcy of Lehman Brothers Holdings. The latest plan calls for a government-private sector partnership to help remove banks' soured assets from their books. It would also boost an effort to unclog the credit markets that govern loans to consumers and businesses.
"The good news is they are going to spend a trillion dollars, the bad news is they don't know how," said James Cox, managing partner at Harris Financial Group.
"They built this up as being a panacea," he said. "There was so much hope pinned on them to do a good job. The expectations have been so high. It's hard to live up to."
But Peter Jankovskis, co-chief investment officer at OakBrook Investments, said the government was right to outline a broad plan rather than putting something together hastily that might otherwise fail.
"They are doing the right thing by taking their time and not rushing through with bad policy," Jankovskis said.
Some investors questioned whether the plan, which followed previous efforts in the final months of 2008, would work. Some selling was to be expected, however, as stocks rose sharply last week ahead of the announcement.
Geithner's speech "basically puts a spotlight on the fact that the government has no idea how to fix the problem," said Jeff Buetow, senior portfolio manager at Portfolio Management Consultants. "People bought on rumor and hope, and now they're selling on reality."
Investors focused on the financial rescue showed little reaction to the Senate's approval of its $838 billion economic stimulus package. The bill must now be reconciled with an $819 billion version passed by the House. Congressional leaders hope to have the bill on President Barack Obama's desk before a recess next week.
"The economy is in deep trouble. The stimulus plan is not very stimulative. It's not addressing the real problem," Buetow said. "We have an insolvent financial system. The government is trying to find a comprehensive way to save it. They can't afford to just throw money at it. That's what they tried to do in the fall and that clearly did not work."
Stocks extended their slide after Federal Reserve Chairman Ben Bernanke didn't elaborate on the plan in testimony at a House Financial Services Committee hearing. Bernanke said the programs designed to revive the credit markets are showing promise and that any fix to the worst financial crisis since the 1930s would take time to work.
The Dow industrials fell 381.99, or 4.62%, to 7,888.88. It was the biggest drop for the Dow since Dec. 1, when the blue chips fell 680 points, or 7.7%.