Investors give bailout plan ho-hum reception

"Without this rescue plan, the costs to the American economy could be disastrous," President Bush said in a statement late Sunday after the legislation was finalized.

Stocks have been volatile and the credit markets have been tight for over a year. The turbulence escalated to unprecedented levels a few weeks ago.

T-bill yields fell to zero for the first time since 1940 as investors pulled their money out of money-market funds and turned to the safest assets out there even if they offered no returns. The difference between those T-bill yields and bank-to-bank lending rates — a key measure of banks' willingness to lend — rose to the highest levels since 1982. And the Dow Jones industrial average swung violently, dropping to its lowest point since November 2005.

The proposed $700 billion bailout is aimed at reviving a market for mortgage-backed securities that has all but disappeared as credit has tightened.

"This gives us a much stronger background to work in compared to the past three weeks," said Ned Riley, chief investment officer of Boston-based Riley Asset Management. He added, however, that "we're still not out of the woods relative to all the other problems facing the economy, and there will be doomsayers who predict this package won't work."

The plan gave no details about how the government will buy banks' troubled assets, leaving it up to the U.S. Treasury Department to come up with the fine points. The government could price the assets very conservatively, which will mean further losses for institutions with souring debt on their books. Pricing the assets too high might leave taxpayers on the hook.

Obama administration faults Senate bank bill The Obama administration on Friday pushed back against a proposal in the U.S. Senate to create a single bank super-regulator and strip the Federal Reserve of its supervisory powers. Warren Buffett: Financial panic is over Pay czar concerned firms could lose talent U.S. banks to prepay $45 billion to FDIC Geithner encouraged by policies in Asia

While those details have yet to be worked out, the market's biggest worry is that the rescue package may trigger inflation, said Quincy Krosby, chief investment strategist for The Hartford. She said "the government might have to print money to pay for the bailout" by issuing large amounts of Treasury debt.

"If the market believes this is going to be inflationary, you'll see mortgage rates go up and money go into commodities," Krosby said.

That would deliver another blow to already struggling consumers. Banks have tightened up their lending practices, making it more difficult to get everything from home loans to credit cards. And surging energy prices and an uncertain job market have caused Americans to pare spending.

After the events of the past few weeks, analysts believe Americans are even angrier and more distrustful of the U.S. financial system. Many have watched their stock portfolios and nest eggs plummet in the past few weeks, and are going to be more unwilling to take risks.

"Who is going to want to borrow to buy a new home in this environment?" Battipaglia said.

Also in msnbc.com business Your Career: Married to the job, and each other Answer Desk: Qualifying for more jobless benefits Venza sorta-crossover is Toyota’s latest mistake ConsumerMan: Chinese drywall remains a big threat   Video: This beer would cost you at least $8,000

MORE FROM STOCKS & ECONOMY

Stocks & economy Section Front

Stocks close higher after upbeat earnings Leaps of faith holding up the stock market Consumer sentiment falls to lowest in 3 months Move over, feds, as locals try stimulus too J.C. Penney's profit drops, outlook brightens Disney CEO hints at successor as profits rise Obama administration faults Senate bank bill Oil dips to lowest level since October U.S. trade gap widens more than expected Warren Buffett: Financial panic is over Stocks & economy Section Front   Add Stocks & economy headlines to your news reader: