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Another nightmare on Wall Street: Dow down 450
AP
Issue date: 9/17/08 Section: News
The stock market took another nosedive Wednesday as the American banking system appeared even shakier and investors worried that the financial crisis is spinning so far out of control that even government rescues can't stop it.
The Dow Jones industrial average, which only two days earlier had suffered its steepest drop since the days after the Sept. 11 attacks, lost another 450 points. About $700 billion in investments vanished.
One day after the Federal Reserve stepped in with an emergency loan to keep American International Group Inc., one of the world's largest insurers, from going under, Wall Street wondered which companies might be the next to falter.
A major investor in ailing Washington Mutual Inc. removed a potential obstacle to a sale of the bank, and stock in two investment banks, Morgan Stanley and Goldman Sachs, was pummeled.
It was the fourth consecutive day of extraordinary turmoil for the American financial system, beginning with news on Sunday that another venerable investment house, Lehman Brothers, would be forced to file for bankruptcy.
The 4 percent drop Wednesday in the Dow reflected the stock market's first chance to digest the Fed's decision to rescue AIG with an $85 billion taxpayer loan that effectively gives it a majority stake in the company. AIG is important because it has essentially become a primary source of insurance for the entire financial industry.
As the stock market staggered, the price of gold, which rises in times of panic, spiked as much as $90.40 an ounce. Bonds, a traditional safe haven for investors, also climbed.
"The economy is not short of money. It is short of confidence," said Sung Won Sohn, an economics professor at California State University.
The financial stocks in the Standard & Poor's 500 dropped even more, falling 10 percent, and insurance that backs corporate debt soared for the last two surviving independent U.S. investment banks, Morgan Stanley and Goldman Sachs.
The Dow Jones industrial average, which only two days earlier had suffered its steepest drop since the days after the Sept. 11 attacks, lost another 450 points. About $700 billion in investments vanished.
One day after the Federal Reserve stepped in with an emergency loan to keep American International Group Inc., one of the world's largest insurers, from going under, Wall Street wondered which companies might be the next to falter.
A major investor in ailing Washington Mutual Inc. removed a potential obstacle to a sale of the bank, and stock in two investment banks, Morgan Stanley and Goldman Sachs, was pummeled.
It was the fourth consecutive day of extraordinary turmoil for the American financial system, beginning with news on Sunday that another venerable investment house, Lehman Brothers, would be forced to file for bankruptcy.
The 4 percent drop Wednesday in the Dow reflected the stock market's first chance to digest the Fed's decision to rescue AIG with an $85 billion taxpayer loan that effectively gives it a majority stake in the company. AIG is important because it has essentially become a primary source of insurance for the entire financial industry.
As the stock market staggered, the price of gold, which rises in times of panic, spiked as much as $90.40 an ounce. Bonds, a traditional safe haven for investors, also climbed.
"The economy is not short of money. It is short of confidence," said Sung Won Sohn, an economics professor at California State University.
The financial stocks in the Standard & Poor's 500 dropped even more, falling 10 percent, and insurance that backs corporate debt soared for the last two surviving independent U.S. investment banks, Morgan Stanley and Goldman Sachs.
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