Wall Street's Fear Factor

Despite Bailout, Credit Markets Remain Tight, Leading Investors To Ask, When Will It Bottom Out?

(CBS/AP)  Just a year ago, investors were swaggering as the stock market surged to an all-time high. Now, almost everyone on Wall Street and Main Street seems to be shuddering amid a frightening reversal of fortune that has erased $8.3 trillion in shareholder wealth in the past 366 days.

"We aren't dealing with a fundamental economic issue any longer," said James Paulsen, chief investment strategist for Wells Capital Management. "We are dealing with fear. And that doesn't respond to economic medicine."

The Dow dropped a staggering 679 points yesterday, closing below 9000 for the first time in five years. Over the past seven sessions, the Dow has plummeted more than 20%, nearly 40% of its all-time high of above 14,000, exactly one year ago.

The slide on Wall Street has also brought down some of the biggest blue chips. GE, Boeing, and American Express have all seen their stock values cut by more than half. General Motors' stock fell below $5 a share, a level not seen since the 1950s.

Forbes Magazine managing editor Andy Serwer told CBS' The Early Show that fear is at the core of the current crisis.

"What you have to understand is, all of the subprime, all of those derivatives, all of those terrible investments we made, all of the borrowing we made as Americans (both as individuals and as a nation), are now coming back to haunt us," Serwer said. "It's a perfect storm of problems and here it is roosting, and really the fear is carrying us forward."

And Serwer says there is nothing to end it at this point.

In a series of moves aimed at avoiding the mistakes that culminated in the Great Depression nearly 80 years ago, the government already has committed to spend more than $1 trillion to prop up ailing banks and other lenders during the past month of turmoil.

But none of it seems to be working, which only seems to be scaring people even more, especially after the nation's leaders spent nearly two weeks painting a gloomy picture of the economic outlook to persuade Congress to approve a $700 billion bailout of the banks.

The words, meant to convey the gravity of the situation, certainly spoke to the emotion of fear: "Major sectors of America's financial system are at risk of shutting down," said President Bush.

"If we don't do this [bailout package], we may not have an economy on Monday," said Federal Reserve Chairman Ben Bernanke.

"I think right now there are just some very powerful negative images that are alive in many people's minds - images of the Depression, images of people selling apples," said George Loewenstein, a behavioral economist at Carnegie Mellon University. "The images of the downside are just so salient in people's minds, and nobody has presented an upside image yet."

Some investors, like software engineer Sandeep Bhanote, are trying their best not to be spooked.

"Fear is the most dangerous emotion. It can really do the market a lot of harm when maybe it is not necessary to be afraid," Bhanote said Thursday at a coffee shop near the New York Stock Exchange.

The quarterly 401(k) statements that are starting to arrive in the mail will only serve as another grim reminder of the financial carnage. And it has gotten worse since the quarter ended in September, with the Dow Jones industrial average tumbling every day so far this month.

The tailspin on Wall Street has hit many retirees hard, like Diane and Frank Mayer of Detroit, Mich., who rely on their 401(k) retirement savings. They've seen its value lose $24,000.

"Don't have any pension check," Frank Mayer said. "All we have is our 401(k)s and our savings. And it keeps shrinking down like this and the cost of everything keeps going up."

Social Security is their only backup.

Stemming The Flow Of Red

The Federal Reserve and Treasury Department have promised to pump more than a trillion dollars into the financial system but that hasn't put to risk the fears that the credit markets will remain frozen.

Despite congressional approval of the $700 billion bailout, intended to bring confidence back to the credit market, Serwer says banks are still not lending to one other, while the interest rate that banks use to lend to one another is still, relatively speaking, astronomical.

"How does that get cut loose?" The Early Show's co-anchor Harry Smith asked.

Serwer says it's basic psychology coming down to trust. "If I'm the Andy Bank and you're the Harry Bank, 'I'm still looking at you and saying I don't know if he will pay my back next week, I'm not sure, because I don't know about his business. I don't trust him the way I used to.' It's human interaction and trust - and it's hard to get that going [again.]"

A global meeting this weekend in Washington is aimed at getting nations to work together to confront the crisis.

"We've had interest rate cuts and jaw-boning by the Feds, and everything has not helped at this point," Serwer said. "Maybe a coordinated global effort is what we need. It certainly is a try, we'll tell you that."

In London, CBS News correspondent Sheila MacVicar says the question for many traders there Friday morning is, "How many ways can you say 'tanked'?"

In the U.K. and across Europe, markets opened sharply down. In London the FTSE Index (the leading 100 largest stocks) opened nearly 10% down and below 4000 points for the first time since 2003. Even with some steadying in recent hours of trading, what traders and analysts are saying this morning is that the situation is very close to "panic" (their choice of words).

The banks are still not lending to one another and as long as that's not happening, the system remains stuck and in peril, says MacVicar.

In Tokyo CBS News correspondent Barry Peterson says the Japanese economy has been in pretty good shape - the banks are solid - but the Nikkei index is being hit more by emotion than economics. Investors were spooked when a small Japanese life insurance company and a real estate investment company went belly-up. In the last two weeks the Tokyo market has lost almost a third of its value.

Japan's biggest fear right now is that Americans will stop buying. The country depends on exports to live and if Americans close their wallets, factories and companies here will be howling in agony.

[missingamerica]

Blame Waters, Dodd, Pelosi, Frank, Obama, Reid and others who pushed for easy mortgages as part of the "we''re all equal so everyone is entitled to a mortgage even though many don''t qualify for one";

[...]

Stop blaming the Republicans. Blame the real culprits, the filthy swine Dems who encouraged Frannie and Freddie while being on the take from them.

Posted by Credibility2 at 08:15 PM : Oct 10, 2008

Tsk, tsk...you better call George Bush up, and tell him to take this (http://www.hud.gov/news/speeches/presremarks.cfm) down:

[bq]
So I''ve set this goal for the country. We want 5.5 million more homeowners by 2010 -- million more minority homeowners by 2010. (Applause.)

[...]

And so what are the barriers that we can deal with here in Washington? Well, probably the single barrier to first-time homeownership is high down payments. People take a look at the down payment, they say that''s too high, I''m not buying. They may have the desire to buy, but they don''t have the wherewithal to handle the down payment. We can deal with that. And so I''ve asked Congress to fully fund an American Dream down payment fund which will help a low-income family to qualify to buy, to buy. (Applause.)
[eq]

Bush%u2019s Republican words, chuckles...regardless of the fact that he probably only did so in order to give some "leverage" to some boyz on Wall Street...

You guys should fact-check your revisionism.

[onevoicetoo]

I%u2019m so sick of the partisan comments. Let%u2019s be real and understand that we have a systemic problem that crosses all lines (party lines and corporate lines alike), and is rampant at all levels of the political spectrum (local, state, and federal). Blame can be laid at the feet of everyone, Corporate America for showing a complete lack of morals and promoting individual greed, Governments for allowing unprecedented pork barrel spending for the last several decades (not to mention the lack of morals and individual greed), and the average American, who somehow has been convinced that they%u2019re %u201Centitled%u201C to have something they can%u2019t afford to pay for. Boards of Directors should be fired for allowing executive contracts that stipulate a golden parachute even if the company has been driven down the toilet, and conversely the American people should do the same thing to the people representing them (regardless of party affiliation). This is the AMERICAN PEOPLES money they%u2019re spending%u2026YOUR money and my money. Governments (again, local, state, and federal), need to be held accountable.

[credibility2]

The Dems caused this and the spineless liberal media continues to turn away from pressing for the truth. Blame Waters, Dodd, Pelosi, Frank, Obama, Reid and others who pushed for easy mortgages as part of the "we''re all equal so everyone is entitled to a mortgage even though many don''t qualify for one"; let''s give everyone part of the American Dream and never mind about having earned this right. Stop blaming the Republicans. Blame the real culprits, the filthy swine Dems who encouraged Frannie and Freddie while being on the take from them.

[godsmission]

How about everyone watch the movie "One Good Year" with Russell Crowe. Drink a glass of wine and relax. I am because I trust in God and so should y''all!!!!

[irishmail42]

This has been coming since Reagan became president and introduced America to "voodoo economics."

[impeach__w]

The World Bank Group''s computer network %u2014 one of the largest repositories of sensitive data about the economies of every nation %u2014 has been raided repeatedly by outsiders for more than a year, FOX News has learned.

It is still not known how much information was stolen. But sources inside the bank confirm that servers in the institution''s highly-restricted treasury unit were deeply penetrated with spy software last April. Invaders also had full access to the rest of the bank''s network for nearly a month in June and July.

In total, at least six major intrusions %u2014 two of them using the same group of IP addresses originating from China %u2014 have been detected at the World Bank since the summer of 2007, with the most recent breach occurring just last month

[noloyalisti]

This will continue until we stop the corporate welfare and get to the root of the problem. That corporate lobbyist are setting our policies and writing many our regulations. We need to admit that the ideas of Friedman and Norquist and Reagan and Bushoccio are DEAD, DEAD, DEAD. Corporations need severe and constant oversight, like little children. No difference.

[lloydbest1]

On another thread, I postulated a DJIA index of 2000 or under by the end of this year and one in the 400 to 500 range before we see any sign of recovery.
I was told by a few others I was hysterical.
I am afraid I didn''t make my message clear that the hysteria wasn''t necessarily mine but the collective panic of investors, large and small, falling all over each other trying to get out of the market - no matter the cost.
It is this fear factor that is driving the market down and it is FAR from over. Because we are seeing emotion, rather than prudence rule the day, the rush to get out of investments suddenly going sour is the biggest factor driving prices even lower. It is a vicious cycle I believe will repeat itself for at least another year, if not two.
Make no mistake, it was the shocking lack of oversight, the voodoo econmic manipulation of the financial industry and Bush''s and Cheney''s successful attempt at putting all regulatory functions to sleep that directly CAUSED the mess we are now in; but it is the climate of fear that is perpetuating it.

[georgew1956]

WHAT IS BUSH''S APPROVAL RATING NOW? 6, 8 , 10 %

AND WHERE IS CHEANY IS HE COUNTING OIL MONEY ?

[dronemonk]

The theater is on fire. But we can''t leave, because the government has promised to put the fire out in time for us to continue watching the show.

[missingamerica]

First the Republicans made a stake with "trickle down" economics, and then they made a sledge hammer with "free trade", and then they used the muscle of "deregulation" to slam it home into America''s heartland.

The shame of it all is the Republicans did all of those things not because our wealthy elite and our corporations were not getting richer in the 1970s, but because they weren''t getting richer fast enough.

Sad, isn''t it? America had it all, and then the Republicans sold us out.

[hypnotoad72]

People who typically don''t like to marry just got the right to do so in Connecticut. No wonder things are going bad! :P

[nomorelibs]

The economy will come back eventually all on it''s own. No matter who''s in office. Then whoever is in office will take full credit for it. These morons all voted for the "bailout "rescue" bill and it''s not doing a thing. The market goes through this every so often. But with the media and internet it is scrutinzed 10 fold. The government needs to stay out of the way. This regulation *** is going to make it work. We need them to enforce existing laws. Not make up new ones to make people feel better. Sad to say, most Americans are pretty clueless. All they care about is there own pocket book, not the country as a whole. Good luck to all of you. Your going to need it.

[antoniof123]

I don''''t know what change you''''re looking for. Of course regulation is the theme of the day but I don''''t trust the Dems to regulate in a pro growth manner. It''''s obvious the disdain they have for wall street, for free markets and for wealth. They hate it. Obama wants to redistribute wealth. period.
Posted by standlee5 at 10:14 AM : Oct 10, 2008

Hey I absoutly don''t trust the Republicans anymore they had there chance.

But you know about redistribute wealth why don''t you ask the Russian Czars if that would have been a good idea. Oh wait they ended up dead and histroy seems to keep repeating itself.

I believe that it was Jeffereson (not certain) that said the wealthy must guard the freedoms and rights and watch out for the poor, because they have the most to lose.

So it looks like the founding fathers were right again. But hey you can''t tell a conservative that they wanted to remain under England''s rule.

[rsoxfan1123]

Look closely at the leadership in hard hit economic locales. Is it Dem or Repub. This election is local. The fed can''''t bail everybody.


--------------------------------------------------------------------------------

Posted by standlee5 at 10:19 AM : Oct 10, 2008

The locals control the war in Iraq, tax cuts for the wealthy and oil company profits? Last I checked our locals were dependent on federal money to get anything done and allocations for education, transportation, law enforcement and general financial help has been radically reduced.

[o2brich]

To say that the current financial crisis is all Bush%u2019s fault or that Clinton carried us thru a golden era that will repeat if a democrat gets in the white house is crazy. This crisis has its roots farther back than any one president can take credit for. The blame needs to be spread far and wide among financiers, politicians, voters, CEOs, investors, lenders and borrowers. What is needed is some sound economic and fiscal policy, something neither side has been inclined to provide for decades. It is not so much more bailout money that will solve this crisis as much as solid, responsible economic policy changes that can restore investor confidence and stabilize the markets. Currently, neither candidate is talking about that and Bush certainly can%u2019t be relied upon to provide it. If the candidates would just quit bashing each other and put forth some responsible positions on economic issues a winning candidate would emerge and markets would stabilize. The world is watching. Is either candidate up to it?

[standlee5]

Look closely at the leadership in hard hit economic locales. Is it Dem or Repub. This election is local. The fed can''t bail everybody.

[tbuckl]

Our Government took us off the gold standard, Corp. America took our nation''s manufacturing base (JOBS) overseas where they could abuse the people and the land there and make a better profit for themselves.
Corp. America, Insuance scammers, and the banking system have swindled our last few dollars. How much more shall we give? Shall we become slaves of the rich who created this mess in the first place.
Jefferson said it best, "I sincerely believe, with you, that banking establishment are more dangerous than standing armies; and that the principle of spending money to be paid by all future generations, under the name of funding, is but swindling the future on a large scale." Well I feel swindled on a large scale don''t you?

[standlee5]

I don''t know what change you''re looking for. Of course regulation is the theme of the day but I don''t trust the Dems to regulate in a pro growth manner. It''s obvious the disdain they have for wall street, for free markets and for wealth. They hate it. Obama wants to redistribute wealth. period.

[walt1944-2009]

The Great Emperor Bush II will speak on the economy again today!

Will anyone listen???
Will anyone who listens, believe a word he says???

SIG HEIL, LET''S THROW MORE MONEY AT IT!!!, BUSH!!!
sig heil, LETS TAKE OVER THE BANKS AND PEOPLE''S MORTGAGES!!!, McBush!!!
sig heil, LET''S BUILT 2 BRIDGES TO NOWHERE!!!, Palin!!!