US stocks tumbled for a fifth session, capping the Dow's biggest five- day point loss ever
October 8, 2008 - 8:02AM US stocks tumbled for a fifth straight session, capping the Dow's biggest five-day point loss ever, as fears mounted that the spiraling credit crisis would drag the economy into a deep recession. Federal Reserve Chairman Ben Bernanke did little to reassure markets when he cautioned that downside risks to economic growth have worsened, though he did signal a readiness to lower interest rates. An earlier move by the Federal Reserve to unclog the commercial paper market, which companies use to fund their day-to-day operations, gave the stock market only a fleeting boost. The financial sector was the biggest drag on the market, with the S&P financial sub-index dropping to its lowest level in more than a decade. Bank of America skidded 26.2% the day after it said it would cut its dividend and raise $US10 billion to help staunch rising loan losses. ''The market can't seem to find a footing, no matter what the government or the Fed tells them. We're in uncharted territory and we don't know how that is going to end,'' said Linda Duessel, market strategist at Federated Investors. ''We've all been shellshocked by the momentum on the downside in this market, and now people are talking about a long and deep recession - just a month ago, many thought a recession could be averted.'' The Dow Jones industrial average fell 508.39 points, or 5.11%, to 9447.11. The blue-chip Dow average has lost more than 1400 points over the past five sessions, or nearly 13% of its value, according to Reuters data. The Standard & Poor's 500 Index dropped 60.66 points, or 5.74%, to 996.23 - the first time the benchmark index has closed below the 1000 level in more than five years. The drop was the S&P 500's biggest five- day percentage decline since the 1987 crash. The Nasdaq Composite Index slid 108.08 points, or 5.80%, to 1754.88. The losses came a day after a steep global equity market sell-off and traders said there was some disappointment that central banks had not orchestrated a coordinated interest-rate cut to calm financial markets. The US Federal Reserve stepped forward as a commercial lender of last resort as governments around the world scrambled to stem the global financial crisis and calls arose for concerted action. The Fed created a new commercial paper facility that would buy short-term, highly rated debt, stepping into the corporate debt market in a program that falls outside the $US700 billion rescue plan approved by the US Congress on Friday. Morgan Stanley shares fell as much as 40%, before rebounding to close down 24.9% at $US17.65, after a company spokesman said its deal to sell up to 24.9% of its voting shares to Japanese bank Mitsubishi UFJ Financial Group was on track to close ''imminently''. The drop in financials came on the eve of the lifting of the ban on short selling in a raft of financial companies or companies with financial exposure. Short sellers borrow stocks and sell them on the bet that the stocks will fall in value, so that they can buy them back at a lower price and pocket the difference. The price of US front-month crude oil rose $US2.25, or 2.6%, to settle at $US90.06 a barrel, fueling concerns about consumer and business spending. An index of airline stocks fell 15.6%. Trading volume was low on the New York Stock Exchange, with about 1.73 billion shares changing hands, below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.82 billion shares traded, above last year's daily average of 2.17 billion. Declining stocks outnumbered advancing ones by 7 to 1 on the NYSE and on the Nasdaq, by about 6 to 1. On Oct 8, 9:30 am, "\"Lone Wolf\"" <[EMAIL PROTECTED]> wrote: > European stock markets in freefall following Paris financial summit > > By Peter Schwarz > 7 October 2008 > > The response of European stock markets to the crisis summit held in > Paris on Saturday could have not been clearer. On Monday, share prices > across Europe plummeted. > > The Dax (Frankfurt) lost 7 percent, the TecDax 11 percent, the FTSE > 100 (London) 8 percent and the CAC 40 (Paris) 9 percent. In Iceland, > share trading was halted altogether. Following the nationalisation of > the country’s third biggest bank, the government itself was threatened > with bankruptcy. > > The government heads of the four European members of the G8—France, > Germany, Great Britain and Italy—met on Saturday in Paris to discuss > common action to combat the financial crisis. The results of the > summit were negligible. > > The assembled leaders agreed—in the words of French President Nicolas > Sarkozy, who called the summit—that “every country would resort to its > own measures.” A proposal to set up a common fund to bail out ailing > banks along the lines of the American Paulson plan failed to appear on > the summit agenda following opposition from Germany. > > Over the weekend, a series of events made clear the extent to which > Europe, and especially Germany, has been hit by the international > financial turbulence. > > On Saturday, the plan drawn up a week ago by the German government and > a number of banks to rescue Hypo Real Estate (HRE), Germany’s second > biggest mortgage lender, collapsed. The German central bank > (Bundesbank) and private banks had planned to make €35 billion > available to prop up HRE, a DAX company with total assets of €400 > billion. For its part, the German government issued a surety loan of > €26.5 billion in taxpayer money. > > On Saturday, the private banks withdrew from the bailout plan after it > emerged that the financial problems at HRE were much greater than > originally presented. Losses by the bank are estimated at between €50 > and €60 billion this year, and could climb to over €100 billion next > year. > > The banks neither informed the German government of their new estimate > of HRE’s financial problems, nor of their intention to quit the rescue > package. Angry government leaders first learned of the situation from > a press statement issued by HRE. > > HRE attempted to blame German Finance Minister Peer Steinbrück (Social > Democratic Party—SPD) for its new problems because Steinbrück had > spoken of a “liquidation” of the bank. Evidently, the banks are > attempting to pressure the government to make more funds available for > bailouts. > > On Sunday, further crisis talks were held to draw up a new bailout > plan for HRE. The government took the situation so seriously that on > the same afternoon Chancellor Angela Merkel (Christian Democratic Union > —CDU) and Finance Minister Steinbrück held a joint press conference to > announce a government guarantee for all private savings in Germany. > “The deposits of savers are safe, the government gives its assurance” > Merkel declared. > > The declaration of a guarantee had two aims: To appease public anger > over the government’s decision to make billions of euros available to > cover the banks’ speculative losses, under conditions where ordinary > savers faced the loss of their savings, and to avert a panic run on > the banks similar to that which took place in Germany in 1931. > > The seriousness with which the situation is regarded by ruling circles > was reflected in comments made by Interior Minister Wolfgang Schäuble > (CDU). In the latest edition of Der Spiegel magazine, Schäuble drew > direct parallels to the economic crisis of the 1920s and 1930s and > warned: “Such an economic crisis can result in an incredible threat to > all of society. The consequences of that depression was Adolf Hitler > and, indirectly, World War II and Auschwitz > > Instead of calming the situation, the government’s promise to > guarantee deposits has heightened fears by revealing the scale of the > crisis. The German government has committed itself to cover an almost > unlimited amount. According to government data, the guarantee will > include private bank assets worth some €568 billion—twice as much as > the entire annual federal budget. By some calculations, the various > forms of savings total €4.5 trillion. > > Spiegel Online commented: “Merkel and Co. have nothing more to > increase their promises to savers. There are no reserves should the > German financial system collapse... if the state really does have to > compensate for lost deposits beyond the legal guarantee of €20,000 and > the private banks’ deposit guarantee fund the state debt will rise for > years, capital spending will fall, social welfare systems will be > additionally burdened.” > > The guarantee issued by the German government met with harsh criticism > from other European capitals, particularly London. At the Paris > summit, the Irish government was criticised for giving similar > assurances for its six leading banks. Now the German government was > doing the same thing. > > The Guardian described the “anger” in Downing Street over Merkel’s > moves. The newspaper said: “British officials were furious with > Merkel. They said she gave no indication of the move at a summit in > Paris on Saturday designed to coordinate a European response to the > economic crisis.” The newspaper cited a financial expert who declared, > “It’s every man for himself in a united Europe.” > > The Daily Mail quoted an “angry British official” who declared: > “Merkel agreed that we should all work together, then got on a plane, > flew home and did her own thing.” > > On Sunday evening, the German government and banks finally agreed on a > new rescue package for HRE. In addition to the already agreed €35 > billion, the financial sector said it would provide further liquidity > of €15 billion, without increasing the federal guarantee of €26.5 > billion. > > The government justified the rescue package with reference to the > “unforeseen consequences” that would result from a collapse of HRE. > Merkel said it was necessary to use taxpayer money to rescue the bank > because otherwise the damage “would hit not only Germany, but would be > huge for many in financial services throughout Europe.” > > Despite the new bailout plan, HRE shares plunged 37 percent on Monday. > The banks demanded more public money. > > The Deutsche Sparkassen und Giroverband (Association of German Savings > Banks and Clearing Houses) demanded that the government “put up an > umbrella to cover the risks of the entire banking industry.” Spiegel > Online quoted one banker as saying piecemeal solutions would not solve > the problem. “We have never looked into such a deep abyss,” he said. > > The near-collapse of HRE is only the tip of the iceberg. The mortgage > provider was plunged into crisis through its subsidiary Depfa, which > it had purchased only last year for €5.7 billion. The Depfa boss at > the time, Gerhard Bruckermann, was sent into retirement with a golden > handshake of €100 million, not an unusual figure for the sector. > > Depfa, which emerged from the Deutschen Pfandbriefanstalt (German > Institute for Mortgage Bonds), has its headquarters in Dublin, where > it enjoys a far lower tax burden than in Germany. It specializes in > financing public bonds, which are usually considered to be without > risk. It was thrown into crisis because it made long-term loans and > financed them with short-term credit raised on the interbank market, > where banks lend one another money. > > Since the collapse of Lehman Brothers, however, the interbank market > has virtually run dry, since banks are no longer willing to lend each > other money. Depfa could no longer find short-term credit at > favourable rates, and HRE now has to dig into its pockets to come up > with the missing billions. > > HRE is one of the most important players in the €900 billion German > mortgage bond market, which provides financing to many other banks and > insurance companies. It is feared that bankruptcy for HRE will lead to > the collapse of the entire mortgage bond market and set off a chain > reaction that would hit pension funds and mutual associations, as well > as the länder (states) and municipalities. > > Depfa is not an isolated case. According to an analysis by Der > Spiegel, other German banks have made even bigger long-term loans that > are financed with short-term credit. According to the magazine, > Landesbank Baden-Württemberg will have to “refinance some 100 billion > euros by December 2009,” more than twice as much as HRE. At Nord/LB, > the figure is €42 billion, at WestLB and Eurohypo the figure is > approximately €30 billion each, while the Landesbank Rhineland-Pfalz > must find €10 billion and Saxonia LB needs €3.5 billion. > > The financial meltdown is far from reaching its nadir. What is taking > place is the bursting of an enormous bubble of fictitious capital that > was accumulated over recent decades at the expense of the working > class. > On Oct 8, 5:32 am, Cold Water <[EMAIL PROTECTED]> wrote: > > > I predict that 30 days from today: > > > 1. John McCain will be President-Elect > > of the United States. > > > 2. Regular gasoline will be widely avail- > > able at $2.49/gal or less. > > > 3. The economic 'crisis,' ie, credit crunch, > > will be largely over. > > > Anyone care to bet against me? --~--~---------~--~----~------------~-------~--~----~ Thanks for being part of "PoliticalForum" at Google Groups. 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