Asian markets fall on doubts about U.S. bailout

HONG KONG -- Asian investors, unimpressed with Washington's $700 billion financial bailout plan, sent stocks tumbling across the region Monday.

Hong Kong's benchmark Hang Seng Index skidded 4.29%, to 17,880.68. Tokyo's benchmark Nikkei 225 fell 1.3% to 11,743.61. South Korea's KOSPI retreated 1.4% to 1,456.36.

The chilly reception in Asia "doesn't surprise me," said fund manager Marc Faber, publisher of the well-known investment newsletter The Gloom Boom & Doom Report, "because the bailout plan will not change the situation very much in the financial sector."

Over the weekend, U.S. Treasury Secretary Hank Paulson negotiated a deal with Congressional leaders to rescue a financial system drowning in bad debt. The plan, which still must be approved by Congress' rank and file, would authorize the Treasury to buy bad loans and other distressed assets from struggling banks, insurance companies and investment firms.

Many critics, such as Faber, believe the government should have directly pumped additional capital into weak institutions instead of going on a shopping spree for rotten loans. Private investors would have bought up the dreck on their own if prices fell far enough, he said.

"There's no silver bullet for what's plaguing the financial markets," said William Kaye, managing partner of the Great Asia Hedge Fund in Hong Kong.

Kaye believes the U.S. government should have allowed financial institutions to fail if they made irresponsible bets on subprime mortgages and other risky investments. "Why not let them go broke?" he said. "People who do stupid things should get punished." He said the Paulson bailout reminds him of the piecemeal way Japan let a banking crisis drag on throughout the 1990s by periodically rescuing banks instead of allowing them to go out of business.

Stocks initially rose a bit Monday morning in Tokyo and the South Korean capital Seoul, as investors greeted the bailout with muted enthusiasm.

"This is an important first step," said Tatsuo Ishikawa, senior strategist for the Royal Bank of Scotland in Tokyo. "But there's still uncertainty, especially about the price at which the U.S. government will buy" distressed assets from fragile banks and investment firms.