Stocks Surge Amid Crisis; Economist Tells Us What The Crisis Means To You

NEW YORK (AP) - Wall Street has ended sharply higher as investors bet that lawmakers will salvage a $700 billion rescue plan for the financial sector. The Dow Jones industrials surged nearly 500 points to the 10,860 level.
   
The rally offset Monday’s 778-point rout, one of the biggest selloffs in years. The recovery wasn’t unexpected as carnage on Wall Street often attracts bargain hunters.
   
However, the seized-up credit markets where businesses turn to raise money showed no sign of relief. A key rate that banks charge to lend to one another shot higher, a tightening of the availability of credit that could cascade through the economy.

Chris Fant, economics professor for Spartanburg Community College, told us what the economic mess means now and will mean in the future for Carolinians.

Here are the highlights:
Immediate effects:
- consumer loans & mortgages are much more difficult to obtain
- even people with perfect credit will have to pay higher interest rates
- businesses, especially smaller ones, will not be able to get loans for raw materials and payroll, which could lead to unemployment
- those about to retire on pension funds like 401Ks will be hit hard because they don’t have the luxury of waiting for the market to clear up

Long-term effects:
- inflation; anytime you inject money into the economy (bailout) without a rise in goods and services, you will create inflation. We could see inflation in prices in a year to 18 months from now, which translates to lower actual earnings for workers.
- higher federal taxes: anytime the government takes on more debt, it can lead to funding problems in the future for programs like social security, which means tax revenues will have to increase to cover social security and national debt

Watch wspa.com for more on Fant’s views on the crisis.

Need help? Check out wspa.com’s economic survival guide.

More stories:
Congressional Leaders Work On Revisions to Rescue Plan
WASHINGTON (AP) - As congressional leaders work on revisions to the 700-billion-dollar bailout of the financial system, some members are reporting a shift in the calls coming into their
offices.
   
Before yesterday’s House vote and the stock market plunge it triggered, many offices were reporting that constituents were expressing overwhelming opposition to the rescue plan. Since then, the anger has shifted to Congress’ lack of action to end the financial turmoil.
   
California Republican John Campbell voted for the bill. He says calls had been 8-to-1 against, before the vote. Now he says constituents are telling him things like: “I lost 10 percent of my retirement yesterday.“
   
Congressional leaders need to pick up about a dozen votes. Among the changes they are considering are extending unemployment insurance and a ban on some forms of short selling. Others included upping the limit on federal deposit insurance and changing some accounting rules that force banks to report huge paper losses.

McCain urges Treasury Department to take action
DES MOINES, Iowa (AP) - John McCain is urging the Treasury Department to intervene aggressively to limit damage from the financial meltdown, action that McCain says President Bush can take with the stroke of a pen.

Opening a business round-table in Des Moines, Iowa, McCain said he has urged the Treasury to use its exchange stabilization fund “as creatively as possible” to backstop the market crisis. He says officials also should use the authority granted in a housing bill to purchase up to a trillion dollars in mortgages.
   
McCain decried the defeat of the financial bailout measure in the House, and he warned that the nation’s political leaders will have to take risks even though solutions to the crisis may be unpopular.

Obama calls on Americans to support rescue plan
RENO, Nev. (AP) - Democratic presidential candidate Barack Obama is calling for Americans to get behind attempts to salvage a 700 billion-dollar rescue plan for the financial sector.
   
Obama told a crowd at the University of Nevada at Reno that if Wall Street fails, ordinary people will be hurt, too.
   
The Illinois Democrat warned that if Congress doesn’t take action, people will find it tougher to get a mortgage for a home, a loan for college or a loan to buy a car.
   
Obama is proposing that the limit on federal deposit insurance for bank accounts be raised from $100,000 to $250,000. Increasing that limit, he says, would help small-business owners and reassure nervous Americans as well as help shore up the economy.

Stocks recovering a fraction of yesterday’s declines
NEW YORK (AP) - Stock prices are bouncing back a bit on Wall Street, a day after a historic decline linked to the failure of the financial rescue package.
   
While the stock market is recovering today, there are still significant signs of stress in the financial system. A key rate that banks charge to lend to one another shot higher, a tightening of the availability of credit that could spread throughout the economy.
   
Oil prices are higher today, rebounding after yesterday’s plunge.
   
Light, sweet crude for November delivery rose $1.90 to $98.27 a barrel in morning trading on the New York Mercantile Exchange.

Bank-to-bank lending rates jump after House rejects bailout
NEW YORK (AP) - Banks are moving into miser mode today, charging each other more to borrow.
   
After Congress’ rejection yesterday of the administration’s 700-billion-dollar financial rescue plan, a key bank-to-bank lending rate known as the London Interbank Offered Rate jumped to 4.05 percent from 3.88 percent for 3-month dollar loans. The rate for overnight loans rose to 6.88 percent.
   
Central banks around the world have been boosting their lending in an effort to keep the markets functional. Yesterday, the Federal Reserve said it was doubling the amount of cash loans to banks and making more available to central banks in other nations. But it’s had little effect.
   
Meanwhile, the demand for Treasury bills remains high. As stocks plummeted yesterday, investors funneled their money into the short-term debt instruments issued by the government. Treasury bills are considered the safest investment available.