In the largest single-day gain in the U.S. stock market since the 1930s, the DJIA gained 11%, reversing some of the losses of the previous week. The market responded to news that the U.S. government would invest $250 billion and take an ownership stake in a wide range of American banks.
While the $700B government bailout plan was initially met with optimism, it has not stemmed the tide of falling stock prices. The issue seems to be a ripple effect of the U.S. market turmoil on global markets - in the aftermath of the U.S. government's announcement, other national governments such as Great Britain and Germany announced similar plans for intervention. Rather than pointing to a quick rebound, signs are pointing instead towards global recession in coming quarters.
The House of Representatives rejected a $700B bailout plan for the recent collapse of the finance and banking industry. The Dow lost 777 points.
A pair of interventions by the federal goverment raised investor confidence in the market and impacted the Dow Jones postively. The first was the announcement that the federal goverment would loan $85 billion to save insurer AIG at the LIBOR rate plus 8.5 points; the second was speculation that Secretary of the Treasury Henry Paulson would lead a bailout plan in which the federal government would purchase hundreds of billions of dollars in distressed assets like mortgage-backed securities, saving financial firms from massive writedowns and possible insolvency.
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