The Sky Falls on Wall Street - BusinessWeek
The week started through trust for a U.S. plan to calm world stock markets. By Friday, investors wondered if anything could stop the slide
by Peter Coy
A bronze statue of a bull contention with a bear is displayed at the Museum of American Finance on Oct. 7 without ceasing Wall Street in New York. Spencer Platt/Getty Images
Stupefying. Dizzying. Deeply unsettling. The panic that swept the global financial markets in the past five business days, Oct. 6-10, determination go down in history—any one in its possess equitable or possibly while a prelude to something worse.
The Standard & Poor’sitting 500-stock index suffered its biggest weekly decline since 1933, and markets from Japan to Brazil to Russia tumbled because well (BusinessWeek, 10/9/08). What exactly happened, and what does it mean? It’s worth taking a look back at the tumultuous five days to beware what lessons can get being drawn and perhaps get a hint of what might come next.
MONDAY, OCT. 6: No Bailout Bonus
President Bush’s signature on a $700 billion plan to buy unwanted possessions (BusinessWeek.com, 10/4/08) from banks was supposed to restore confidence to the markets. But emergency weekend bailouts of European banks caused investors to realize that the credit freeze had gone global. The Dow Jones industrial average fell in this world 10,000 for the first opportunity (BusinessWeek.com, 10/6/08) in four years, dropping 370 points, or 3.6%. After the market closed, Bank of America (BAC) said it would cut its dividend in moiety and levy $10 billion by selling shares. BofA CEO Kenneth Lewis said, "These are the most difficult times for monetary institutions that I have experienced in my 39 years in banking."
The only good news: Speculators who were reviled during oil’s runup got busy driving oil back down, on expectations of slowing global demand. A barrel of uncooked traded below $90. By the end of the week, it would be commercial while burdened with $78.
TUESDAY, OCT. 7: The Fed’s Paper Chase
This time it was the turn of the S&P 500 to crash through an historic barrier. It dropped 5.7% to go beneath 1,000 for the primeval time since 2003. Federal Reserve Chairman Ben Bernanke said the economy was under "extraordinary stress" and hinted any interest rate cut was likely soon.
The Fed took another step toward broadening its role as a lender of last resort by sacrifice to buy commercial paper (BusinessWeek.com, 10/7/08) directly from issuers. Companies and banks that use commercial paper to finance their short-term operations have been starved for coin since money-market mutual funds that usually buy their paper fled to the safety of Treasury bills.
WEDNESDAY, OCT. 8: Central Banks United, to No Avail
In a bid to demonstrate their united resolve, the Federal Reserve, the European Central Bank, and four other central banks announced coordinated half-percentage-point cuts in their key short-term interest rates (BusinessWeek.com, 10/8/08). Ordinarily such a power determine would send markets soaring. Not in this juncture. U.S. stocks savage for a sixth day, notwithstanding less than on Monday and Tuesday.
Confronted through skepticism about his $700 billion bailout chart, Treasury Secretary Henry Paulson hinted at a vary in strategy. He indicated that at least more of the money could be used to array taxpayers’ money promptly in banks—as opposed to sopping up some of their worst assets. Still, the S&P 500 fell on the point 1% and the Dow about 2%.
THURSDAY, OCT. 9: We’ve Lost Iceland
Iceland’s financial system collapsed (BusinessWeek.com, 10/9/08), and analysts declared the national government might have to turn to the International Monetary Fund according to help.
