The stock market suffered its worst daily plunge in nearly seven years Monday as the bankruptcy of Lehman Brothers Holdings threw the U.S. financial system into an abyss, uncertain where the bottom of its credit-related problems lies.See also the reports at the New York Times and the Washington Post.
Lehman's demise makes it the biggest casualty yet in the long-running credit crisis, which has so far seen torrents of red ink, restructurings and acquisitions, and shutterings of a few commercial banks. But until Sunday night, no Wall Street firm of such size and stature had suffered an all-out meltdown.
The Dow Jones Industrial Average, which languished with a loss between 200 and 300 points for most of the day, saw its losses accelerate in the last hour of trading to suffer its worst daily point drop since trading resumed after the 9/11 terror attacks. The Dow ended down by 504.48 points on Monday, off 4.4%, at its daily low of 10917.51, down 18% on the year.
All 30 of the Dow's components fell, led by a 60.8% plunge in American International Group. The Federal Reserve on Monday asked Goldman Sachs Group and J.P. Morgan Chase to help make $70-$75 billion in loans available to the company, according to people familiar with the situation. The insurer has been racing to restructure its business and raise fresh capital to avoid a downgrade of its credit ratings.
The number of big players on Wall Street is dwindling, but traders said it remains to be seen where and for how much longer the ill effects of soured credit bets will continue to surface. A series of events through the end of the week, including a Fed meeting Tuesday and stock-options expiration Friday, could shed more light on the state of the financial system and send investors on another dizzying ride.
As noted above by the Journal, we'll know more about the impact of the market crash on the financial system and broader economy later, but Barack Obama and the Democrats are wasting no time in hammering John McCain as out of touch on pocketbook issues:
Hours after Senator John McCain said “the fundamentals of our economy are strong,” Senator Barack Obama seized upon the remark on Monday and offered a blistering critique of the Republican Party’s stewardship of the economy as the Wall Street turmoil created ripples in the presidential campaign.Prolonged economic difficulty would benefit Obama, but as financial markets stabilize, and as the Dow rallies to recover from the slide over the next few days, the political impact of today's turmoil may not be enough to improve Obama's fortunes.
“We just woke up to news of financial disaster and this morning and he said that the fundamentals of the economy are still strong?” Mr. Obama told voters at an afternoon rally here. “Senator McCain, what economy are you talking about?”
As he campaigned in Florida on Monday, Mr. McCain cautioned against panic as the stock market fell, Lehman Brothers filed for bankruptcy protection and Merrill Lynch was abruptly acquired. He acknowledged “tremendous turmoil in our financial markets” but said taxpayers should not be forced to pay for a government bailout.
“People are frightened by these events,” Mr. McCain said at a rally in Jacksonville. “Our economy, I think still, the fundamentals of our economy are strong. But these are very, very difficult times.”
This raises dangers for the Democrats.
John McCain won plaudits coming out of the Saddleback Civil Forum last month, not the least because of his decisive optimism. Left-wing commentators are arguing that Obama needs to hammer harder against the GOP, and the Wall Street mess presents an opportunity. But the party will be poorly received for cheering hard times, especially in the light of the overall positive economic record of the Bush administration, and the federal government's well-received performance on Hurricane Gustav earlier this month.
The "sky is not falling," although many on the left are claiming otherwise.
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