Wall Street Ends Wild Ride Down 370 Points

$700B Bailout Fails To Ease Worries As Dow Plunges 800 Points Before Recovering Somewhat

(CBS/AP)  Wall Street suffered through another extraordinary and traumatic session Monday, with the Dow Jones industrials plunging as much as 800 points - their largest one-day point drop - before recovering to close with a loss of 370. The catalyst for the selling, which also took the Dow below 10,000 for the first time in four years, was investors' growing despair that the spreading credit crisis will take a heavy toll around the world.

Investors have come to the realization that the Bush administration's $700 billion rescue plan and steps taken by other governments won't work quickly to unfreeze the credit markets.

That sent stocks spiraling downward in the U.S., Europe and Asia, and drove investors to sink money into the relative safety of U.S. government debt. Fears about a global recession also caused oil to drop below $90 a barrel.

"The fact is, people are scared and the only thing they're doing is selling," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "Investors are cleaning out portfolios and getting rid of everything because nothing seems to be working."

The selling was so extreme that only 264 stocks rose on the NYSE - and 2,986 dropped. That's a telling sign considering the stock market is considered a leading economic indicator, with investors tending to buy and sell based on where they believe the economy will be in six to nine months.

In a new CBS News poll, 55 percent of Americans now say the economy is in very bad shape - the highest number ever recorded in the poll - and three out of four see the economy getting worse.

Major department stores like JC Penney, the Gap, Dillard's and Nordstroms all saw their September sales slip more than 5 percent according to early estimates, reports CBS News correspondent Anthony Mason.

As Wall Street reeled and global markets plunged, President Bush on Monday said the U.S. economy is going to be "just fine" in the long run. But he cautioned that the massive rescue plan will take time to work.

Bush said: "I believe that in the long run, this economy is going to be just fine." He said it will take the Treasury Department some time to enact a $700 billion plan to buy up troubled assets from financial firms so that credit will start flowing again to consumers.

As the dust settled after last week's bailout, a clearer picture of why the U.S. banking system malfunctioned has come into focus.

With its clients clamoring for safe investments with above average return, the big Wall Street investment houses bought up millions of the least dependable mortgages, chopped them up into tiny bits and pieces, and repackaged them as exotic investment securities that hardly anyone could understand, 60 Minutes' Steve Kroft reports.

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Watch "60 Minutes'" explanation of the U.S.'s shadow economy.

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Monday's stock trading extended what has been an exceptional stretch of volatility, in which triple-digit drops in the Dow are becoming almost commonplace; in the past week, the blue chips have fallen more than 1,100 points, or nearly 11 percent. This latest decline indicates that investors are becoming more convinced that the country is leading a prolonged economic crisis that is shifting to other nations.

"The market view is shifting from looking just at the misery of the financial sector to the global economy," said Georges Ugeux, chairman and chief executive of New York-based Galileo Global Advisors. "There are enough indication that two things are happening: The crisis is spreading to other sectors, and that it is becoming global."

Ugeux believes Monday's rout had little to do with any short-term problems facing the market, such as paralyzed credit markets or ailing financial companies. He believes that, regardless of the late-day rebound in stocks, "the reaction is clearly giving a downtrend and that there is a lack of confidence of investors into the future growth of the U.S. and the world economy."

The Dow fell as much as 800.06, then recovered in erratic trading to a loss of 369.88, or 3.58 percent, to close at 9,955.50, closing below 10,000 for the first time since Oct. 26, 2004. The Dow surpassed its previous record for a one-day point decline - 778, which the blue chips suffered a week ago when investors feared the bailout package might not pass Congress.

The Dow is down 30 percent from its peak a year ago this week, when it traded as high 14,198.09.

Broader indexes also tumbled. The Standard & Poor's 500 index shed 42.34, or 3.85 percent, to 1,056.89; and the Nasdaq composite index fell 84.43, or 4.34 percent, to 1,862.96. The Russell 2000 index of smaller companies dropped 23.49, or 3.79 percent, to 595.91.

In Asia, the Nikkei 225 closed 4.25 percent lower. Europe's stock markets also declined, with the FTSE-100 down 5.77 percent, Germany's DAX down 7.07 percent, and France's CAC-40 down 9.04 percent.

The global sell-off came after governments across Europe rushed to prop up failing banks, while the governments of Germany, Ireland and Greece also said they would guarantee bank deposits. As the U.S. tries to repair its battered banking system, the German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG. And France's BNP Paribas agreed to acquire a 75 percent stake in Fortis's Belgium bank after a government rescue failed.

The Fed also took fresh steps Monday to help ease credit markets. The central bank said Monday it will begin paying interest on commercial banks' reserves and will expand its loan program to squeezed banks.

Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., said government intervention certainly might help. However, he believes investors are sensing that what's happening in the economy is a shift in the extent to which consumers and businesses take on debt, a change that will take years to play out.

"This is a global deleveraging of many economies," he said. "It might appear that you're going into the abyss where the economy grinds to a halt and the financial system goes into complete disarray. But, what the market is really reading here is that this is a global phenomenon, and when you delever like this, it is a process that takes a very long period of time measured in years, not quarters."

The anxiety was again obvious in the credit markets. The yield on the three-month Treasury bill fell to 0.43 percent from late Friday at 0.50 percent. Demand for bills remains high because of their safety; investors are willing to take extremely low returns just to have their money in a secure place.

Investors also moved into longer-term Treasury bonds. The yield on the 10-year note fell to 3.47 percent from 3.60 percent late Friday.

Anthony Sabino, a professor of law and business at St. John's University in New York, said the "market is displaying one of its worst traits with a herd mentality, and investors have an appetite for feeding on fear." He cautions that, while there are deep economic and financial problems being faced, it is still not a nightmare scenario.

"Most certainly, this is not the Great Depression of the 1930s, but (is like) the savings and loan crisis of the 1980s - and we bailed them out," he said. "Once people catch their breath, they'll see this is the proper analogy and this will breathe life back into banking institutions."

But, most analysts believe that there will be no quick fixes to the current financial crisis. Ryan Jacob, portfolio manager for the Jacob Internet Fund, said he's sensing the market might be getting closer to a short-term bottom but that problems for the economy likely will persist.

He said the passage of the bailout package, billionaire investor Warren Buffett's investment last week in General Electric Co. and even a skirmish between Wells Fargo & Co. and Citigroup Inc. over control of Wachovia Corp. are positive signs.

"We've had some positive anecdotal events in the last week so it's making me a little bit more confident," Jacob said. "These are all signs that make it more likely than not that we're trying to find a near-term bottom."

He's been hunting for bargains lately.

"We had had been a little bit cautious up until really about a month ago," he said. "Over the last few weeks we've been increasing our position levels."

Frederick Dickson, chief market strategist at D.A. Davidson & Co., believes investors are eager for any signs about the well-being of the economy. He doesn't believe that will happen until Wall Street overhauls its expectations for growth of corporate earnings and the overall economy.

"Wall Street at this point is shifting its attention from whether Congress was going to act on the emergency stabilization bill to the realization that the economy is slowing significantly faster than most analysts had expected," he said. "The downturn has shifted from first gear to about third gear in about two weeks."

[yourgold]

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[txgrouch2006]

At this point, anyone who votes for ANY incumbent on Election Day is an ENEMY OF THE PEOPLE.

[txgrouch2006]

The collapse of the USA economy will have ripple effects on THE ENTIRE WORLD economy. Especially the "developing economies" that have been scavenging off of ours through protectionism, currency manipulation, and other forms of uneven trade.
Posted by txgrouch2006 at 07:01 AM : Oct 07, 2008

This is called GLOBALIZATION coming BACK AT YOU.

Ready world? HERE IT COMES.

[txgrouch2006]

HA HA HA ... who cares who wins in November ... america is stuffed and the stupid american people fully deserve what they voted for ... HA HA HA HA
Posted by tapsettle at 01:32 AM : Oct 07, 2008

Don''t look now - but today the FOREIGN markets will go into a tailspin.

The collapse of the USA economy will have ripple effects on THE ENTIRE WORLD economy. Especially the "developing economies" that have been scavenging off of ours through protectionism, currency manipulation, and other forms of uneven trade.

It''s "sink or swim" time for them - let''s see if the developing economies are really ready to be self-sufficient, as we''ve been hearing.

[dr_bridgette]

yeah stuck at ER midnight shift.....

The Constitution Press www.chilitoz.com is reporting that John McCain and Sarah Palin have recieved illegal campaign contributions from a foreign oil dignitary of Iran named Muhahamed Mikhumed Saraji

[variezn34gm]

Gen 1-1 In the beginning.......Mal 4-5 Behold, I send you......Rev 22-12 And behold, I come quickly; and my.........Rev 22-21 The grace of our Lord Jesus Christ be with you all. Amen.

[tapsettle]

The american people have become dumb emotional zombies, who vote for whichever emotion grabs them at polling time. Usually fear, but more often instilled hatred. OJ is not done yet ... the way america is going he may well be a 2012 US presidential candidate.

[staplesla]

Brianbwb, the DOW didn''t tank until 5 hours later. Cramer wasn''t the reason.

[tapsettle]

HA HA HA ... who cares who wins in November ... america is stuffed and the stupid american people fully deserve what they voted for ... HA HA HA HA

[t_barr]

Interview - Naomi Wolf - Give Me Liberty
http://ca.youtube.com/watch?v=_XgkeTanCGI

''Interview with Naomi Wolf author of ''Give Me Liberty: A Handbook for American Revolutionaries'' given October 4, 2008 on Mind Over Matters, KEXP 90.3 FM Seattle.''



The TRUTH About The Bailout
http://market-ticker.denninger.net/archives/596-The-TRUTH-About-The-Bailout.html

''Hundreds of billions of dollars are going to bail out FOREIGN INVESTORS. They know it, they demanded it, and the bill has been carefully written to make sure that can happen.'' - Brad Sherman (D-Cal)

That''s right folks. You are going to have $700 billion - about 25% of the total federal budget - put on your personal credit card (via taxes forever) in order to bail out foreign investors.''

[brianbwb-2009]

"They would dump stocks like mad. It makes this look like a walk in the park." Posted by sjc_1

A stock shakeout would be the best thing in the long run, only well managed firms with verifiable good books would survive, their stocks would me more valuable than gold.

These cooked firms need to be dumped anyway.

[brianbwb-2009]

"That sent stocks spiraling downward in the U.S., Europe and Asia, and drove investors to sink money into the relative safety of U.S. government debt."

Interesting, especially in the light of the fact that due to the existence of $1.6 trillion dollars of Iraq war debt issued by the US, that the Chinese are dumping as fast as they can because they know it can never be paid.

To ibsteve2u,

Did you notice during the senate hearing with the Lehman CEO, senators quoted documents which revealed that Goldman Sachs was overexposed to AIG, and was Lehman''s competitor? That AIG''s bailout benefited GS, as did Lehman''s demise? That it was GS''s collateral call that was the catalyst for the fall of Lehman?

As to your last question, It seems that Americans are not a particularly trusting lot...

[staplesla]

itdfactsu - I saw Cramer''s comments today as well and was surprised. Here''s a clip of it for those that didn''t see it.

http://uk.youtube.com/watch?v=uoSLVCEGKko

[itdfactsu]

TODAY

Jim Cramer (Mad Money) says sell all your stocks - Investing ...
I just saw Jim Cramer on the Today Show on NBC. He says the Stock Market will go down about 20% in the next year and continue to fall. He says if you.

[itdfactsu]

Posted by ibsteve2u at 12:30 AM : Oct 07, 2008

I was against the bailout and let my Reps know

I''ve been a resgistered dem for over 20 years just switched to American Independent recently

This bailout stinks to the clouds

And your post was informative

[babooph]

Most CEO s chose Bush -then cooked the books to steal-now all wonder why there is no confidence in the corp.s !!!!The whole rotten mess is collapsing .

[sjc_1]

The stock market is going to do this for a while. Imagine what would happen if the banks could not borrow any more and there was no asset purchase plan. They would dump stocks like mad. It makes this look like a walk in the park.

[rex76usa]

McCain has it all wrong. He & Repubs want to cut taxes and cut regulations as means of getting out of the financial mess that Bush & the Repubs got us into.
Lax regulations are the cause of this financial crisis.
Lower taxes and even more lax regulations will NOT get us out of this mess.
ONLY a change will enable us to begin working out of this mess.

[missingamerica]

Don''t you stock market investors wish you had paid more attention to the implications of this story (http://www.thestreet.com/story/10286680/1/bush-cousin-heads-to-lehman.html) when it came out?

[bq]
Lehman Brothers has nabbed George H. Walker, the CEO of Goldman Sachs Hedge Fund Strategies, to be the global head of its $188 billion Investment Management Division, Lehman Brothers announced today.

Walker has already resigned from Goldman Sachs and could not be reached for comment. A spokesman at Goldman Sachs did not return a call.

Walker, who is President George W. Bush''s second cousin, had joined the merger and acquisition group of Goldman Sachs in 1991 and became a partner in 1998.
[eq]

Particularly you Lehman investors?

Bushes and Goldman Sachs, everywhere...

Former Goldman Sachs CEO Paulson presiding over the most financial havoc ever seen on Wall Street, and then demanding $700 billion at the risk of the nation''s and even the world''s economies.

And now another Goldman Sachs alumni, Neel Kashkari, gets to play with that $700 billion of taxpayer money (http://www.msnbc.msn.com/id/27047568/).

A tight and very interconnected group, is it not, at the center of this financial fiasco?

The question has become: Are the American people and Congress just a very trusting lot, or fools?

[staplesla]

gwjackie - Why do you think he said no? I would assume it is because Barney Frank''s partner is an exec at Fannie or Freddie (can''t remember which one).