Stocks Plunge Amid Market Pessimism

Dow Falls About 350 As Unemployment Rises, Factory Demand Falls; Bailout Wariness Persists

(CBS/ AP)  Pessimism about a protracted economic downturn washed over the financial markets Thursday, sending stocks plunging and further tightening the credit markets. News of declining factory orders and a seven-year high in jobless claims stoked fears that the government's financial rescue plan won't ward off a recession, and the Dow Jones industrials skidded nearly 350 points.

Investors appeared to be pulling more money out of Wall Street and settling in for a prolonged economic winter. The main concern is that the $700 billion bailout plan won't be enough to stimulate growth, and the latest economic reports delivered Thursday show that the economy continues to struggle.

The government said the number of people seeking unemployment benefits rose last week and that demand at the nation's factories has fallen by the largest amount in nearly two years. The market is interpreting the Commerce Department report on factories as a sign that tight credit conditions are hitting manufacturers.

"The economy is what's driving this weakness," said Subodh Kumar, global investment strategist at Toronto-based Subodh Kumar & Associates. "I think now what's going on is a focus on the economic weakness in a whole bunch of areas."

He also said "the next couple of days are going to be pretty intense politically" as Wall Street girds for another vote on the financial bailout plan.

On Wall Street, the Dow fell 348.22, or 3.22 percent, to 10,482.85. The blue chips plunged nearly 778 points Monday, logged a partial rebound Tuesday and finished modestly lower Wednesday; still the Dow has had triple-digit swings every day this week.

Broader stock indicators also fell sharply Thursday. The Standard & Poor's 500 index fell 46.78, or 4.03 percent, to 1,114.28, and the Nasdaq composite index fell 92.68, or 4.48 percent, to 1,976.72.

The bill that passed the Senate late Wednesday will be sent to the House as soon as Friday. The latest version of the bill adds $100 billion in tax breaks for businesses and the middle class and raises the limit on federal deposit insurance to $250,000 from $100,000.

Supporters are hoping the sweetened bill will be more palatable to some of the 133 House Republicans who rejected the measure in a vote Monday that took Wall Street, and many on Capitol Hill, by surprise.

Those in favor of the plan to let the government buy billions of dollars in bad mortgage debt and other now-soured assets say it will help unclog the world's ailing credit markets. Banks are fearful of making loans, even to each other, because of worries they won't be repaid. That, in turn, is weighing on the economy, making borrowing more difficult and expensive for businesses and consumers alike.

The credit markets showed some increased strain Thursday. The yield on the 3-month T-bill, the safest type of investment, fell to 0.70 percent from 0.79 percent late Wednesday. The historically low yields indicate investors are willing to accept the smallest of returns to safeguard their money.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.64 percent from 3.74 percent late Wednesday.

The stock market is a leading economic indicator of sorts, because investors tend to buy and sell based on where they believe the economy will be six months or more in the future. Thursday's big drop points to a market increasingly resigned to further economic instability whether or not the bailout plan becomes law.

"There are a lot of people who think regardless of a bailout, there's still this economic data and the horror stories out there," said Todd Salamone, director of trading at Schaeffer's Investment Research. "Certainly, there's a negative psychology."

Investors might get another grim reading about the economy on Friday when the Labor Department releases its September jobs report, one of the most closely watched indicators. The September non-farm payrolls report from the Labor Department is expected to show a loss of 100,000 jobs, according to a median estimate from economists. That would be the ninth straight month that the economy has lost jobs.

Meanwhile, banks and investment firms ramped up borrowing from the Federal Reserve's emergency lending facility over the past week, providing fresh evidence of the credit stresses squeezing the country.

(Traders crowd the post that handles General Electric on the floor of the New York Stock Exchange, Oct. 2, 2008.)

The Fed's report released Thursday said commercial banks averaged $44.5 billion in daily borrowing over the past week. That compared with a daily average of $39.36 billion in the previous week.

For the week ending Wednesday, investment firms drew $147.7 billion. That was up significantly from $88.15 billion in the previous week. This category was broadened last week to include any loans that were made to the U.S. and London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley and Merrill Lynch.

The Fed report also showed that $122.1 billion worth of loans were made to money market mutual funds - via banks - to help the funds, which have been under pressure as skittish investors demand withdrawals.

Billionaire investor Warren Buffett said the U.S. has been hit with an "economic Pearl Harbor," and the government must respond quickly. "That sounds melodramatic, but I've never used that phrase before. And this really is one," Buffett said in an appearance on the "The Charlie Rose Show" on PBS stations.

The Labor Department reported Thursday that initial claims for unemployment benefits rose by 1,000 last week to a seasonally adjusted 497,000, above expectations for a 475,000 increase. That's the highest seen since the immediate aftermath of the Sept. 11, 2001, terrorist attacks, and unnerved investors worried about not only about strains in the financial market but also the effect on the broader economy.

Beyond employment, the government reported that orders for manufactured goods fell by 4 percent in August from July. Economists had expected a 2.5 percent decline. It is the biggest drop since a 4.8 percent decline in October 2006.

The dollar was higher against other major currencies, particularly the euro, even after the European Central Bank left interest rates unchanged. Higher interest rates in Europe generally make the euro more attractive to investors than the dollar.

The European Central Bank left its key interest rate unchanged Thursday amid concerns over inflation but explored the option of lowering the rate as the financial crisis increasingly affects the continent. The ECB is also considering a bailout of the region's financial system, similar to what U.S. lawmakers are considering.

That left open the question that policymakers globally might be less focused on fighting inflation, and instead trying to come up with short-term solutions to stimulate the economy.

"At some point, you have to face the realities that we have some serious problems and there aren't going to be any quick fixes," said Ryan Larson, head of equity trading at Voyageur Asset Management. "Even if bailouts pass, the fact remains that it might get credit flowing again but won't solve the broader issues out there."

The Russell 2000 index of smaller companies fell 33.92, or 5.05 percent, to 637.67.

Declining issues led advancers by a 3 to 1 margin on the New York Stock Exchange, where volume came to 1.21 billion shares.

[hypnotoad72]

Taxation is fractional slavery. You are working to support someone else. The someone else is the rich man who has the gold and makes the rules.

Posted by random_radar
----

Many small businesses go out because large ones buy them or drive them out. Does that qualify as being horrific?

[hypnotoad72]

im still praying usa go weaker and weaker and reach in that stage where other countries invade them and burn every american flag sorry but im not satisfied yet.

Posted by guy_hero
---

Go to hell and don''t collect $200.

[random_radar]

Today congress will demonstrate in ever more concrete and graphic detail that we do not live in a free country. Congress and the President mortgage our souls more deeply into slavery every passing year.

Taxation is fractional slavery. You are working to support someone else. The someone else is the rich man who has the gold and makes the rules.

The government is not a protector of your liberty. It is the administrator of your captivity. You think you are free but the evidence all around you says otherwise. Intellectual blindness is all that keeps most people sane in the face of the horrifying truth.

[three-o-six]

I was really too honest a man to be a politician and live.

Socrates

[three-o-six]

It has been said that politics is the second oldest profession. I have learned that it bears a striking resemblance to the first.

Ronald Regan

[three-o-six]

The first thing we do, let%u2019s kill all of the lawyers

William Shakespeare

[three-o-six]

Most bad government is grown out of too much government.

Thomas Jefferson

[three-o-six]

A government big enough to give you everything you want, is strong enough to take everything you have.

Thomas Jefferson

[three-o-six]

A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor and bread it has earned - this is the sum of a good government.

Thomas Jefferson

[daddadah]

OK SO WHAT YOUE SAYING WE SHOULD GIVE ALL OUR WEALTH TO THE GOV.THEN LET THEM PAY FOR EVER THING WE NEED .DAH IST THAT COMMUNISIM OR YOU JUST NEVER GREW UP.OVER THROW THE GOVERMENT WHO YA THINK YA R AT THE BOSTON TEA PARTY .

[daddadah]

GOODMORNING AMERCA HOW R YA,
Listen this is the greatest country in the world thier is no better they cant beat us military so they financely try to destroy us but they sell thier mothers to get here.Burn our flag **** on all of you we should put a dome over usa and then all you idiots kill each other then just come and scoopa poopa your countries

[praiseallah1]

Bill O''Reilly freaks out at Congressman Barney Frank over his role in the Fannie/Freddie scandal which caused our current economic crisis! It''s HILLARIOUS!

Go watch these videos documenting the fraud of our elected officials http://wallstreetmarketnews.blogspot.com

[Latrocinor]

Let''''s protest by withdraw our money from banks.
Posted by niceface69

That''s not a protest, that''s suicide. That is EXACTLY what is causing part of the problem. People like you withdrawing everything.

If you want to be on the street in a cardboard box keep talking like that.

[Latrocinor]

Jailtime for them and bailout for main street.
Posted by noloyalisti

Main street would have to go to jail also.

[joelewiz75]

Which is worse, the $ 1.3 Trillion dollars that evaporated from the Market from pension fund, 401K''s, thrift saving plans and investment counts or the $700 billion proposed Gov''t sponsored purchase in troubled assets? The last time this was done during the S&L collapse of the late 80''s, the Gov''t made money...
Which is worse, wait and debate as frozen credit markets sieze economic activity (like short term lending for payroll accounts which is already happening) or attempt to offer a solution however imperfect to recapitalize confidence in a capitalist systems that depends upon it?

[noloyalisti]

What a fascist scam is this corporate welfare. We are putting the approval on the last decade of crime and fraud with this bailout. I don''t care what color lipstick you paint on this Government of Pigs. How dare these people spend on money on rewarding these crooks. Jailtime for them and bailout for main street.

[staplesla]

They are calling this a rescue but are adding so much stuff to it. This is ridiculous. They need to sit down with economists and other great leaders to figure out a real, long-lasting solution. We''ve already given billions to AIG, Fannie/Freddie, etc. and the problems are still there. This will be $700 billion down the tubes.

Call your Congress member at [phone], or send an email through either of these sites - www.votenobailout.org or www.visi.com/juan/congress

[nothappyatall]

I hope the market knows something the news media do not. I hope this legislation fails.

NO BAILOUT FOR WALL STREET''''S EXCESSES AND GREED!

Posted by gce65

CALL FAX AND WRITE the House of Representatives and tell them NO WAY!! every one of them is up for re-election this year, NOW the public has the most power we''ll ever have to force change- their JOBS are on the line, tell the Reps if they vote for this bill it will be a vote to kick their azzes out in November!

[gce65]

I hope the market knows something the news media do not. I hope this legislation fails.

NO BAILOUT FOR WALL STREET''S EXCESSES AND GREED!

[payasyougo]

Monday a plate of dog poop was offered up to the taxpayer and was rejected by house conservatives and 94 house democrats. They didn''''t want the taxpayer to have to eat it.

Yesterday that same plate of dog poop was surrounded by pudding, cake and other sweeteners. The Senate has decided that it is now ok for the taxpayer to have to eat that dog poop. How will those so called conservatives vote?

None of this will change the fact that we are headed into recession. It''s now another economic stimulus bill w/ lots of pork.

This bill stinks.

The misinformation used to introduce it, it''s very structure and the pork that has filled this porcelain bowl called Washington represents everything that is wrong with our current government.