Dow plunges 679 to fall to lowest level in 5 years

NEW YORK – Stocks plunged in the final hour of trading Thursday, sending the Dow Jones industrial average down 679 points – more than 7 percent – to its lowest level in five years after a major credit ratings agency said it might cut its rating on General Motors Corp.

The Standard & Poor’s 500 index also fell more than 7 percent.

The declines came on the one-year anniversary of the closing highs of the Dow and the S&P. The Dow has lost 5,585 points, or 39.4 percent, since closing at 14,198 on Oct. 9, 2007. The S&P 500, meanwhile, is off 655 points, or 41.9 percent, since recording its high of 1,565.15.

U.S. stock market paper losses totaled $872 billion Thursday and the value of shares overall has tumbled a stunning $8.33 trillion since last year’s high. That’s based on preliminary figures measured by the Dow Jones Wilshire 5000 Composite Index, which tracks 5,000 U.S.-based companies’ stocks and represents almost all stocks traded in America.

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U.S. Treasury May Buy Stakes in Banks Within Weeks

Oct. 9 (Bloomberg) — The government is planning to buy stakes in a wide range of banks within weeks as the credit freeze increasingly threatens to tip the U.S. economy into a deep recession.

Treasury Secretary Henry Paulson and top aides are still considering options on how the purchases would work, including having the government acquire preferred stock, two officials informed of the matter said.

The move would be a shift in emphasis in Paulson’s original intention for the $700 billion bailout package passed by Congress last week. While the Treasury still aims to buy troubled mortgage-backed securities from financial institutions, a direct capital injection would offer more immediate relief by giving banks quick access to funds they could then lend out.

“The Treasury is no longer looking for one silver bullet,” said Steve Bartlett, president of the Financial Services Roundtable, which represents 100 of the biggest firms in the industry. “They have to proceed on all fronts.”

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Indonesia Keeps Stock Exchange Closed

Traders walk on the trading floor as the market is suspended at the Indonesia Stock Exchange in Jakarta, 09 Oct 2008

Indonesia closed its stock exchange for the second day to halt a flurry of selling that sent the main stock index plummeting more than 20 percent this week, while Asian trading ended mixed. VOA’s Nancy-Amelia Collins has more from Jakarta.

Trading on the Jakarta Stock Exchange was canceled for a second straight day and officials say it may stay closed for the remainder of the week.

Stock exchange president Erry Firmansyah said it will remain closed to give investors a chance to “calm down before they make decisions.”

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Bernanke, Paulson Seek Global Help as Crisis Spreads

Paulson yesterday signaled he’s considering pumping capital (=Taxpayers’ Money) into U.S. financial institutions, saying “we will use all of the tools we’ve been given to maximum effectiveness” under the $700 billion Troubled Asset Relief Program.

Henry Paulson, secretary of the U.S. Treasury, left, and Ben S. Bernanke, chairman of the U.S. Federal Reserve, testify before the House Financial Services Committee in Washington, D.C., on Sept. 24, 2008. Photographer: Joshua Roberts/Bloomberg News

Oct. 9 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson are discovering both the leeway and limits they have as policy makers as they struggle to combat the 14-month-old credit crisis.

The two have worked to come up with novel strategies, including a complex plan for the Fed to backstop the everyday finances of corporate America by buying commercial paper, and potential injections of capital into banks. So far, they’ve made scant progress in restoring calm to the markets and are turning abroad for help, including joint interest-rate cuts yesterday.

“The relative position of the U.S. in the world economy and the world of finance is much lower than it used to be,” said Allen Sinai, chief economist at Decision Economics in New York. “With markets so global, so interconnected, we need a more unified approach to fighting the world financial crisis.”

Which proves more important in the end — the continued creativity of Bernanke and Paulson in fashioning policies to tackle the turmoil or the intractability of the now global crisis facing them — will go a long way in determining whether a developing global recession turns into something even worse.

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British banks rated less sound than Botswana’s

Business leaders in Britain rated UK banks a mere 44th in the world for solvency, well behind countries in Africa and Latin America including Senegal, Botswana, El Salvador – and even behind Iceland, whose three main banks have all been taken into national ownership after collapsing into financial turmoil this week.

The United States was rated 40th in the survey of executives around the world on the relative health of their national economies.

Top of the league in the executive opinion survey came banks in Canada, which were awarded a rating of 6.8 out of 7 by Canadian businesspeople. Under the scoring system, 7 is taken to represent banks that are generally healthy with sound balance sheets, and 1 is when banks are felt to be insolvent and in need of a government bailout.

Sweden, Luxembourg, Australia, Denmark and the Netherlands came just behind Canada, on 6.7. Iceland was rated 6.2. The US was rated at 6.1 and the UK 6.0, placing both about a third of the way down the table of 134 countries.

The opinion survey was carried out before recent seismic upheavals in the global financial system, including the UK’s £500 billion rescue scheme for its banks, the international 0.5 per cent cut to interest rates, both announced yesterday, and the US’s proposed $700 billion bank bailout, agreed last Friday.

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Paulson: “Some financial institutions will fail.”

Dow slides 189 points despite global interest rate cuts

Dow Jones Industrial Average falls for six successive days, losing 14.7% of its value

Specialists check a screen on the floor of the New York Stock Exchange on Wednesday. Photograph: Richard Drew/AP

A gloomy day on Wall Street ended with another plunge in stocks after the US treasury secretary, Henry Paulson, warned that financial “turmoil” will not end soon and that more banks are likely to bite the dust.

Cuts in interest rates around the world failed to provide any lasting cheer as the fell by 189 points to 9,258. The index has fallen for six successive days, losing 14.7% of its value, amid signs of weariness and capitulation among investors.

Leading US retail chains including Target and JC Penney produced poor trading figures, fuelling concerns of a high-street slowdown. America’s largest aluminium producer, Alcoa, saw its shares slide by 15% as it cut back on capital spending after a dive in profits.

At a press conference to provide details of the US government’s $700bn bail-out package, the treasury secretary said it would be several weeks before the treasury is ready to begin cleaning up banks’ balance sheets by buying distressed mortgage-related assets.

In a prepared statement, Paulson used the word “turmoil” seven times to describe the financial environment and he made efforts to limit expectations on the rescue package: “One thing we must recognise – even with the new treasury authorities, some financial institutions will fail.”

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Central banks all but stop lending bullion

Central banks have all but stopped lending gold to commercial and investment banks and other participants in the precious metals market, in a move that on Tuesday sent the cost of borrowing bullion for one-month to more than twenty times its usual level.

The one-month gold lease rate rocketed to 2.649 per cent, its highest level since May 2001 and significantly above its five-year average of 0.12 per cent, according to data from the London Bullion Market Association.

Gold lease rates for two, three and six months and for a year also jumped to levels not seen in the last seven years.

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Zeitgeist: Addendum

Related: Zeitgeist, The Movie, Final Edition

Added: Oct 3, 2008

Source: Google Video

Remember 1929 – what seemed to be the end was only the beginning

Dick Fuld, former Lehman Brothers’ chief executive Photo: AP

The dismemberment of Dick Fuld, Lehman Brothers’ former chief executive, before a Congressional committee on Monday was a compelling, albeit brutal, event.

His televised humiliation was orchestrated by a veteran Democrat, Henry Waxman, whose simple question about Fuld’s alleged $480m of earnings – Is that fair? – hit the banker like a haymaker, rendering him speechless.

As the cameras focused on Fuld’s haunted stare, there was a sense of action replay. Hadn’t we seen this freak show, or at least something remarkably like it, long before Lehman went under – a display of furious inquisitors wiping the floor with Wall Street’s loftiest reputations?

Yes, history was repeating itself: “As the ghosts of numerous tyrants, from Julius Caesar to Benito Mussolini will testify, people are very hard on those who, having had power, lose it or are destroyed. Then anger at past arrogance is joined with contempt for present weakness.

“The victim or his corpse is made to suffer all available indignities. Such was the fate of the bankers. They were fair game for Congressional committees, courts, the press and comedians.”

These are the observations of economist J K Galbraith in The Great Crash, 1929. First published in 1954, his analysis of the greed and self-delusion that led to the unravelling of America’s stock market and the subsequent Depression is undimmed by time.

Replace 1929 with 2008 and the story, I’m afraid, is eerily familiar: a speculative orgy, crescendo, climax and crash. As this plays out, important people – business and political leaders – rely on “the power of incantation” to keep the rest of us calm. Their efforts are doomed to fail.

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Brown and Darling commit £500 billion for bank bailout

Gordon Brown and Alistair Darling set out a radical £500 billion package today to restore confidence in the UK banking sector and break the crippling logjam in credit markets.

The three-part package includes committing up to £50 billion of taxpayer funds for a partial nationalisation of stricken banks, met from increased public borrowing and with political strings attached that would include reining in executive pay.

In addition, the Bank of England will pump at least £200 billion into the money markets under its existing Special Liquidity Scheme. The Government is also making a further £250 billion available for banks over the next three years to guarantee medium-term debt to help restore confidence and get banks lending to each other again.

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