Markets on edge waiting for rescue plan

By Charley Blaine and Elizabeth Strott

The waiting on a government plan to rescue the banking system ate at the stock market today and kept the credit markets on edge.

The Dow Jones industrials treaded water for most of the day, fell back, then recovered to a 29-point loss to 10,825. The Standard & Poor’s 500 Index was off 2 points to 1,186. But the Nasdaq Composite Index ended with a two-point gain to 2,156.

It was the third loss in a row for the Dow and S&P 500, despite the announcement that Warren Buffett's Berkshire Hathaway (BRK.A, news, msgs) would invest $5 billion in investment bank Goldman Sachs (GS, news, msgs).

But trading volume was light -- less than 1.1 billion shares changed hands on the New York Stock Exchange; normal is about 1.6 billion shares. Volume on the Nasdaq system was about 1.8 billion shares; 2.2 billion shares is normal.

Crude oil closed down 88 cents to $105.73 a barrel.

So not much was happening, right? Wrong.

The edginess in the credit markets was reflected in the yield on the one-month Treasury bill -- just 0.12%. A year ago, the yield was more than 4%. That means that many investors and traders don’t care about making a return on their money. They want safety first until a rescue package is put together.

At the same time, reports suggested strongly that many lenders are increasingly reluctant to make new loans -- even as interest rates move down.

So, the waiting goes on. So does the worrying. "A long and painful recession" could occur if Congress does not act quickly, President Bush told the nation tonight in an address. "Our entire economy is in danger."

Futures trading suggest stocks will open unchanged on Wednesday. Asian markets were modestly lower in early trading on Wednesday.

Tech stocks were stronger than the overall market, thanks to Google (GOOG, news, msgs), Apple (AAPL, news, msgs) and Microsoft (MSFT, news, msgs). (Microsoft is the publisher of MSN Money.)

Goldman Sachs shares buoyed by Buffett

Goldman Sachs was up 6.4% to $133 on the Berkshire Hathaway news. The company gets a perpetual preferred stock that pays a 10% annual dividend that takes precedence over other payments to Goldman's common shareholders.

Berkshire will also have warrants to buy an additional $5 billion in Goldman common stock anytime over the next five years at $115 a share -- about $10 below Tuesday's closing price.

Berkshire Hathaway was up 3.5% to $133,300.

• Top Stocks blog: Buffett's deal is great -- for him

Goldman also doubled the size of a public offering to $5 billion, the company said this morning. Goldman priced 40.65 common shares at $123 each.

Optimists will interpret Buffett's entry as a turning point; Buffett is known in the investment community as a shrewd judge of fundamental value in stocks. Buffett's last investment in an investment bank was in the late 1980s, when he bought a stake of Salomon Bros.

"Buffett has struck an extremely attractive deal," Merrill Lynch analyst Guy Moszkowski wrote in a note to investors today. "He is, we believe, getting a better deal than he did in 1987 when he bought a Salomon Bros. convertible with a 9% yield, for a company that is considerably more attractive than the '87 Salomon."

But the Buffett move didn't have any coattails.

Merrill Lynch (MER, news, msgs) shares were up 1% to $26.45, and JPMorgan Chase (JPM, news, msgs) was off slightly to $40.50. Morgan Stanley (MS, news, msgs) fell 11.5% to $24.79, and Washington Mutual (WM, news, msgs) fell 29.4% to $2.26.

"In this case, there's no better firm on Wall Street. The price was right, the terms were right, the people were right, and I decided to write a check," Buffett said on CNBC this morning.

Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$105.73	$106.61	-$0.88	-8.43%	10.16%
Heating oil (per gallon)	$3.0133	$2.9963	$0.0170	-5.30%	13.74%
Natural gas (per million BTU)	$7.6790	$7.9310	-$0.2520	-3.32%	2.62%
Unleaded gasoline (per gallon)	$2.5947	$2.5950	-$0.0003	-13.79%	4.17%

Paulson and Bernanke work to make the sale

Meanwhile, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson testified again before Congress today, hoping to sell the Bush administration's $700 billion plan for the financial markets.

• Get free, real-time stock quotes on MSN Money

"When worried lenders tighten credit, then spending, production and job creation slow," Bernanke said in prepared testimony. "Real economic activity in the second quarter appears to have been surprisingly resilient, but, more recently, economic activity appears to have decelerated broadly."

While the economy should get boosts from lower interest rates, lower oil prices and a halt in home price declines, that could all get wiped out by the problems in the credit markets, Bernanke said. "Stabilization of our financial system is an essential precondition for economic recovery," he said.

A plan starts to take shape

While members of the Senate and House have been critical of the plan in front of television cameras, the broad lines of a plan are starting to take shape.

• Analysis: 7 better uses for $700 billion

Sen. Chuck Schumer, D-New York, told CNBC this morning that Americans "don't like" the rescue plan. But that won't stop Congress from acting, Schumer said.

"I certainly think we will get it done before we adjourn," Schumer said. "We have to get it done."

By the end of the day, the package was starting to look like it will include provisions affecting four issues:

• Will compensation for executives whose companies get federal help be limited? The answer seems to be yes, particularly in terms of so-called "golden parachutes" -- severance agreements for executives who leave their companies.

• Should the government get equity stakes in the companies it helps? This idea is starting to get traction.

• Will bankruptcy laws be modified to help struggling homeowners? Possibly. This may be the most difficult issue. The banking industry is adamantly opposed to this idea.

• Will there be a government entity charged with overseeing the program? This seems probable.

Paulson's original proposal amounted to a blank check for the Treasury.

What happens if nothing happens?

"I believe if the credit markets are not functioning that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover," Bernanke told the Senate Banking Committee on Tuesday. "My interest is solely for the strength and recovery of the U.S. economy."

• Talk back: Will the bailout save us?

Buffett chimed in as well, telling CNBC, the financial crisis is "everybody's problem. A collapse of the kind of institutions that were threatened last week would have caused industry, retail and everything else to grind close to a halt."

The plan, he added, "is absolutely necessary to avoid going over the precipice."

Existing-home sales fall

The housing crunch continues to weigh on the economy, and things aren't looking brighter.

The National Association of Realtors today said existing-home sales fell 2.2% to a seasonally adjusted annual rate of 4.91 million in August. Economists had expected existing-home sales to hit 4.93 million last month.

"The headwinds facing housing have intensified," Peter Kretzmer, a senior economist at Bank of America, told Bloomberg News. "Delinquencies and foreclosures continue to rise while credit conditions remain tight."

The number of resales has fallen 10.7% over the past year.

Fed adds more liquidity

The Federal Reserve continues to add liquidity aggressively as Bernanke tries to sell the monster bailout. This morning the central bank added $30 billion to the flood of dollars it is pumping into global markets.

The funds came in the form of new currency-swap agreements with central banks in Australia, Norway, Sweden and Denmark. The agreements allow those banks to trade their currencies for dollars.

"These facilities, like those already in place with other central banks, are designed to improve liquidity conditions in global financial markets. Central banks continue to work together during this period of market stress and are prepared to take further steps as the need arises," the Fed said in a statement.

The new swap lines follow last week's move by the central bank to make $180 billion available to the European Central Bank, the Bank of Japan, the Bank of Canada, the Bank of England and the Swiss National Bank.

FBI to investigate mortgage mess

While Congress debates and the stock market reacts, the Federal Bureau of Investigation is looking into transactions at four companies whose collapses contributed to the credit crisis.

The FBI is investigating potential fraud by Fannie Mae (FNM, news, msgs), Freddie Mac (FRE, news, msgs), Lehman Bros. and American International Group (AIG, news, msgs), according to published reports.

More than 20 companies linked to the crisis have now been mentioned as focal points for the FBI.

Fewer Lowe's stores to open next year

Home-improvement retailer Lowe's (LOW, news, msgs) this morning said "intense external pressures weighing on our industry" are causing the company to reduce the number of stores it had planned to open next year.

Lowe's said it plans to open 75 to 85 stores in the fiscal 2009 year, which represents about 5% footage growth. Lowe's fiscal 2008 plan set a goal of opening 120 stores.

The company also said "it is prudent to remain cautious" in its 2009 forecast. The company said it will earn between $1.48 and $1.56 per share this year; analysts expect Lowe's to earn $1.53.

Lowe's shares were up 0.2% to $23.67.

Chrysler loss reaches $400 million

U.S. automaker Chrysler has lost $400 million so far this year, the company told its auto dealers Tuesday, according to The Wall Street Journal.

While there are still three months left in the year, the company seems to be in a better fiscal position than it was last year, when it lost $1.6 billion.

Chrysler, which is majority-owned by private-equity firm Cerberus Capital Management, said vehicle sales are down 24% in 2008, the paper wrote.

Hoping to counteract the weakness in sales, Chrysler introduced three electric cars Tuesday, with one set to hit the production lines in 2010.

The auto industry has been slammed as soaring gas prices have caused many consumers to shift away from profitable trucks and sport-utility vehicles to smaller models and hybrid cars that carry much slimmer profit margins for the industry.

General Motors (GM, news, msgs) and Ford Motor (F, news, msgs) are also struggling. Both are asking the government for billions in loans to ease the transition to more-fuel-efficient cars. Skeptics believe the automakers will be the next in line for an all-out bailout.

Short hits from the markets -- 4 p.m.

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	0.440%	0.800%	-0.360	-73.96%	-85.99%
5-year Treasury note yield	2.889%	3.023%	-0.134	-6.47%	-16.38%
10-year Treasury note yield	3.771%	3.841%	-0.070	-1.10%	-6.54%
30-year Treasury bond yield	4.378%	4.434%	-0.056	-0.77%	-1.82%
Currencies
U.S. Dollar Index	76.880	76.650	0.230	-0.80%	0.24%
British pound in dollars	$1.8474	$1.8525	-0.0051	1.42%	-7.13%
Dollar in British pounds	£0.5413	£0.5398	0.0015	-1.40%	7.68%
Euro in dollars	$1.4624	$1.4661	-0.0036	-0.34%	0.06%
Dollar in euros	€ 0.6838	€ 0.6821	0.0017	0.34%	-0.06%
Dollar in yen	106.18	105.78	0.40	-2.38%	-5.07%
Canadian dollar in U.S. dollars	$0.963	$0.964	-$0.0013	2.37%	-3.04%
U.S. dollar in Canadian dollars	$1.039	$1.037	$0.0021	-2.32%	3.14%
Commodities
Gold	$895.00	$891.20	$3.80	7.16%	6.80%
Copper	$3.1065	$3.1520	-$0.05	-8.28%	2.15%
Silver	$13.4400	$13.1700	$0.27	-1.95%	-9.92%
Corn	$5.6300	$5.6300	$0.03	-0.92%	23.60%
Crude oil (NYMEX) (per barrel)	$105.73	$106.61	-$0.88	-8.43%	10.16%