Stocks Fall As 'Urgent' Bailout Plan Stalls

Stocks finished lower today on concerns the massive $700 billion bailout plan, being pitched to lawmakers today by Henry Paulson and Ben Bernanke, may take longer to pass and in the end become more complicated, expensive and burdensome. There is also concerns that if the plan passes, but fails to produce the desired results, the U.S. government is out of options in dealing with the massive credit crisis.

The Dow fell 161 points, the Nasdaq dropped 26 and the S&P 500 slipped 19.

Today, most of Wall Street had their eyes and ears fixated on Washington, as Treasury Secretary Paulson and Federal Reserve Chairman Bernanke testified to the U.S. Senate Banking Committee about the ongoing crisis in the financial markets and urged immediate action on the bailout. Both warned that if something is not done quickly the economy will suffer significantly. The plan involves buying troubled assets from regulated financial institutions in the U.S. The theory is that if the troubled assets are removed from the bank's balance sheets, they will be freed-up to start lending again.

Bernanke issued a stark warning to Congress, saying, "Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy." Paulson requested immediate action "to avoid a continuing series of financial institution failures and frozen credit markets that threaten American families' financial well-being, the viability of businesses both small and large, and the very health of our economy."

Bernanke shed some light on how the process of buying the troubled assets will work. Bernanke argued that buying assets from banks in a controlled auction somewhere near 'hold-to-maturity' prices instead of 'fire-sale' prices will protect bank balance sheets. Banks are required to mark their assets to the market, which in this current environment of fire-sale asset sales exacerbates the problems creating write-offs and restricting capital. The comments from the Fed Chairman indicates that the Treasury is willing to buy assets on the banks books at prices that could be above the current mark-to-market prices. Bernanke said valuing assets at 'hold-to-maturity' prices versus 'fire-sale' prices will provide confidence to the system and bring back liquidity. Some question this strategy, saying that many of these debts will not be paid to maturity.

Members of the Senate Banking Committee expressed their concerns about the bill. Democrats demanded more support for homeowners and a limit on executive pay. Republicans questioned the scope of the plan.

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