Dow falls more than 600 points; markets in free-fall

msn.com ^ | 10/09-2008 | By Charley Blaine and Elizabeth Strott

[Red Badger]

The Dow Jones industrials fell under 9,000 this afternoon for the first time since the summer of 2003 as investor confidence that markets would stabilize appeared to collapse. At 3:40 p.m. ET, the blue chips were down 641 points, or 6.9%, to 8,617. The Standard & Poor's 500 Index was off 74 points, or 7.5% to 911. The Nasdaq Composite Index was down 94 points, or 5.4%, to 1,646. The S&P fell under a closely monitored support level of 960. A support level is important because it is supposed to trigger new buying. At those levels, the crash of 2008 has left the Dow 39% below its record close of 14,164.53 and the S&P 500 down 41% from its record close of 1,565.15. Ironically, both records were set exactly one year ago today.

[JasonC]

That's because they haven't paid over a dime of it yet.

The treasury is talking about direct help to banks in a few weeks time, maybe even by the end of the month.

We will be lucky if there are any banks open at the end of the month, if they keep dithering like this.

[ari-freedom]

most people won’t ‘get’ it when they see it in the polling booth next to an unfamiliar name.

[cliniclinical]

Nice reply...I agree...

What can I add to your first two points?

The only thing that is going to oppose the existing system without outright war / revolution is a Congress fully educated on the historical perspective, dedicated to the fundamental tenets of freedom, and strong enough to oppose the central bank (Federal Reserve). Find me that Congress!

As for the alternatives, gold, etc., I am frankly not the guy to ask! Monetary theory is a simple hobby, so I do not purport to know the solution. Somehow man’s labor must be converted into an object of value that can be traded for that which he does not produce himself. The object of value must remain a benchmark, never to inflate or deflate in value. It must be tangible. It must be abundant. It must not be hoarded by a government.

All of this supposes an honest government, bound by the principles of freedom for all men, and a system of constant education to raise the next generations honestly with the knowledge of those previous.

The things we long for in America...

[JasonC]

You are completely wrong. The treasury money which is for actual outright purchases hasn't even spent a dime. The *Fed*, not the treasury, has in the meantime been trying to hold the line by making *loans*, but loans aren't purchases and they have to be paid back the next day, some of them the next week. It is the difference between someone buying your house (treasury, not happening, too damn slow) and running up your home equity line of credit even higher. Which one helps you when the problem is the first mortgage being larger than the house's value?

[pissant]

Our task at hand is to make it a household name.

[pieceofthepuzzle]

“The ants gather the food. The grasshoppers eat the food.”

[Myrddin]

Ant and Grasshopper Fable

[fzx12345]

WHAT? UNDER NINE THOUSAND? THERE’S NO WAY THAT CAN BE RIGHT—CAN IT, VEGETA?

[supercat]

The DOW might recover, but many of our portfolios won't (in time to retire)

If a stock is bought above its real worth, money is lost then and there. The previous owner's profit will come from one or more future owners. If demographic trends cause more money to be pulled out of the stock market than is being pushed in, stock prices will fall to slightly below their real worth before very many people cash out. Having them fall to match their real worth sooner rather than later is generally a good thing.

[Cold Heat]

They have actually used nearly two trillion and there will be more. Most if not all will come back to the Fed by way of U.S. Bonds and securities.

The 700B was the amount that had to go trough Congress, and it has yet to be used and will not be for at least two more weeks as they set it up. This too will largely be recovered. Some will not.

I guess you never read much about the depression. That's not unusual because they don't teach it in the schools anymore. I guess they figured it could not happen again.

They were wrong. And yes, the reason the depression occurred was two fold. There was insufficient regulation and a insufficient response from government. This turned what should have been a recession into a depression.

There are indeed a lot of things that I don't know. This issue is not one of them.

Have a nice day.....

[Jaded]

If it is a correction... economists have been predicting this since around 1997. The market has never (or should have never) been a get rich quick scheme.

This time it’s not just the “rich”, it’s anyone in a pension plan.

[April Lexington]

Nice rant! I’ll give it a 10!

Store not your treasure on Earth where rust and moth destroy

[Cold Heat]

Markets have continual corrections. A technical correction is ten percent. This is a once in a blue moon, 100year major correction due to a bubble busting, and a correlating commodity bubble that worked to cause what we commonly call a crash.

Those warnings in 1997 were for the Tech bubble that busted in 2000-2001. Markets always go to excess. It's their nature to do so and that will continue to happen. You cannot weed that out without destroying the profit motive and thus the market.

You don't want crashes, and the regulators will look at this one, determine how they could have prevented it and hopefully do something sensible. But not now. Too late to do that now.

It does not take a genius to figure out the cause and effect on this one. Congress demanded that banks lend to people who could not pass a routine financial test for a mortgage. The mortgage people asked the markets to help them find a way to spread out the excess risks, and in a few years they developed a ongoing small market for credit default swaps that was unregulated to help placate the always demanding Congress Critters.

As this operation grew in size, they used Fanny and Freddie to warehouse the trashy loans and issue securities to cover the risks which every major financial house would eventually buy or invest in. In time they spread them to the entire world. The more the merrier.

Then, after the foreclosures began, the warnings sounded but effort to fix it were rebuffed by the dems. Many times actually.

When gas hit 4 bucks for a extended period, the entire damn thing came crashing down with round after round of foreclosure's resulting in lower prices resulting in more foreclosures.

Now the market have been hit, the credit markets seized, and the world is going into recession and the U.S. could face a depression if the recession goes deep and long.

That's about it.......

[Misterioso]

Thanks for the tip.

[Scotswife]

“We will be lucky if there are any banks open at the end of the month, if they keep dithering like this.”

Do you mean that? Any banks?
Do you think they can all fail?

My head is dizzy.
I was originally supportive of the first bailout proposal - and I suppose I still lean that way for the most part.

But after learning more about what actually passed - and even McCain’s proposal - I’m thinking to myself “OK. What is stopping the REST of us from throwing our hands up and saying FINE! the deadbeats are getting their principal cut in half? FINE! Guess what? We’re not paying on time anymore - can you knock $50 grand off my principal?”

Now - I personally would not do that (unless, of course, we wind up without jobs!)
But really - what is going to stop the rest of america from rebelling like that?

I’m beginning to think the bailout will lead to more trouble resulting from unintended consequences.

[tatsinfla]

i am one of those boomers....not looking good at all...

[Red Badger]

So , you’re really saying this is the long awaited “correction”? Only it’s a bigger correction than anybody ever considered possible?...............

[trophywife]

I agree that it is a sad day when anybody puts any stock into what Reid says. However, I do think that Santa Claus could have said it at that point and there still would have been a reaction just because it was one more bad piece of information.

[JasonC]

Um, how do you think this started? Mainstreet deadbeats stuck their lenders with $1.4 trillion in unpaid debts on loans those mainstreeters signed. All the smaller players got wiped out by that deadbeats tsunami, until the accumulated losses from all of it ended up in the hands of the banks, as the creditors with claims to all the collateral for all the loans that went south. But it is blowing out their capital, too. That means the losses keep right on going and hits the bank's creditors. The banks' creditors are all of us, as depositers. Or as taxpayers supporting the FDIC. Take your pick.

The bailout was the right idea, but it is too darn slow. It isn't helped by the ridiculous oversight provisions and strings attached warrants etc hair that the congress took two precious weeks to add. The only useful thing they did was raise the FDIC cap, everything else they added to the original Paulson plan was destructive or a matter of indifference in the short run. Not one dime of the bailout money has been spent, because the Treasury can't comply with all those requirements in days. They've said maybe they can support the banks in weeks. Too darn slow.

As a result, the only thing left to help is the Federal Reserve, and so far they have stuck to their legal mandate to only lend short term on secured assets. That helps with liquidity but it doesn't actually buy anything or inject net new equity. The closest is the asset backed commercial paper plan, which has at least prevented money market funds from failing in the midst of it all. Meanwhile, the short selling ban just *expired*, and they let it - that is why the downdraft became ferocious this week. Ruthless men are deliberately trying to destroy the likes of Morgan Stanley, Royal Bank of Scotland, and Citigroup as we speak, and the SEC is standing aside and letting them.

The Brits have become helpful on RBS, using public money, and aren't taking a month to do it. Even they couldn't avoid the populist crapstorm, however - their backbenchers called for nationalization without compensation instead. Way to bring private money back to financials, guys, keep it up! The EU central bank (ECB) has been starving the panic, charging 9.5% for half of what banks ask, but finally relented on Thursday. Japanese money is being violently repatriated, but their government wants to help via the IMF and is saying so at today's G7 meeting.

The regulators are way behind events and the politicians are in slow motion. The populace meanwhile is in denial, stunned, and lashing out at the people that need to be helped to solve this.

Will the stronger banks still be open at month's end? If the monetary authorities continue wholesale intervention, yes. Will additional large banks fail with additional catastrophic consequences, absent direct government help? Yes, with certainty. Help doesn't mean a press conference or an announcement, or even a bill passed. Help means money actually purchasing assets *now*. Not "in weeks".

[EnquiringMind]

I’ve got 20-25 years to recoup

Lucky you.