How ‘Lost Faith’ Has Impacted Financial ETFs

The latest bank rescue plan by Treasury Secretary Timothy Geithner was unveiled today, but is there any more faith restored into the taxpayers and voters, and is there more chance markets and exchange traded funds (ETFs) can begin to heal?

The revised banking rescue plan by the Obama administration has policy-makers hoping Wall Street can be part of the solution. Policy-makers did reveal their feelings that the major U.S. banking institutions are insolvent, reports Aaron Task for ClusterStock, something that government seems loath to consider.

While the plan does address key issues such as transparency and accountability  on behalf of the banks receiving bailout money, the main problem was the government increasing the lending, which is addressed in the approach.

After the bailout plan was announced, it wasn’t enough to keep stocks afloat, and stocks continued to fall midday. Ahead of the announcement, the Dow Jones Industrial Average was already down about 200 points. It fell even further afterward, reports Sara Lepro for the Associated Press.

According to sources, the plan comprises $50 billion in the form of measures for curtailing home mortgage foreclosures. Intending to shore up nearly $1.5 trillion in new lending and handling of troubled assets, the proposals of the plan are aimed in three main areas:

• Additional capital for banks.
• $1 trillion for financing for consumers and businesses.
• Public financing for investors that purchase troubled assets.

Swiss bank UBS (NYSE:UBS) reported a larger-than-expected loss of $6.9 billion in the fourth quarter and announced it would cut another 2,000 jobs. Banks that are under stress to receive the injections are pending, as regulators figure out whether these firms could withstand a downturn even worse than the current one.

The major component to the problem is that nobody really knows what is on the banks’ books, so the “stress test” and further examination should reveal more, as well as restore trust, Obama paraphrased in last night’s speech, reported by David Cho and Lori Montgomery for The Washington Post.

• iShares Dow Jones U.S. Financial Sector Index Fund (IYF): down 12.2% for the month

• Financial Sector Select SPDR (XLF) down 14.4% for the month

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