- The Washington Times - Friday, October 10, 2008

America’s stock wealth withered anew Thursday, with investors trampling the shares of venerable corporations from Morgan Stanley to Ford in a stampede that left General Motors’ stock at 1950 levels and drove major stock indexes an astonishing 40 percent or more below their peaks a year ago.

What started out as a relatively quiet day of trading ended with a ghastly 679-point plunge in the Dow Jones Industrial Average to below 9,000 barely a week after dipping below 10,000, erasing another $900 billion of wealth from retirement and savings accounts. Capping an already horrendous month for the market, it was the second-largest point drop in history and the second day in the past two weeks that stocks lost more than 7 percent of their value.

Previously strong sectors like energy and technology succumbed to the panic that has shattered financial and consumer stocks, while short-sellers returned with a vengeance after a three-week hiatus to take down banking, insurance and finance stocks that had been temporarily protected by government order.

The turmoil of the past month has driven major stock gauges well below the losses typically seen during modern bear markets, with the market now lurching into a manic state of a kind not seen since 1937, during the Great Depression.

The irony was that it happened on a day when credit markets that had been frozen for a month were showing scattered signs of life in a breakthrough for what many analysts consider the root cause of the financial crisis. Some investors were retreating from safe havens like gold and Treasury bills and tentatively dipping their toes back into abandoned markets like commercial paper and municipal bonds.

But stock investors ignored these improvements, as well as a solid earnings report from IBM, and instead focused on the declining fortunes of icons like Ford and GM and the elevated levels of key bank lending rates, which sent them running for the exits.

“The news is grim, no doubt,” said Asha G. Bangalore, an economist at Northern Trust Co., noting that stocks worldwide have lost nearly half their value since peaking in October a year ago.

The carnage continued in Asian markets early Friday: the Tokyo Nikkei-22 index lost 10.64 percent in its morning session; Hong Kong’s Hang Seng Index fell 7.7 percent in its first few hours; and Australia’s benchmark S&P;/ASX 200 index plunged 6.5 percent in early trading.

The Indonesian stock exchange president said trading would be suspended “to prevent deeper panic” and trading in some of Tokyo’s commodity and futures markets was temporarily halted.

While the financial and economic outlook is bleak these days, he said, the markets have overshot by far and stocks eventually will recover to more rational levels once resuscitation measures recently put into place by the U.S. Federal Reserve and Treasury and world banking authorities start to take effect.

“Central banks have moved heaven and earth, as they say, to support the working of global financial markets,” and are not standing aloof as neglectful bystanders as they did during the Great Depression, Miss Bangalore said. “Capitalization and cleanup of balance sheet holds the key to a recovery.”

Shortly after the markets closed, the White House said President Bush would make a statement Friday morning to “assure the American people that they should be confident that economic officials are aggressively taking every action to stabilize our financial system,” White House press secretary Dana Perino said.

“Americans should be confident that every effort is being taken to stabilize our markets,” she said.

Paul Milazzo, a professor at Ohio University specializing in 20th-century history, said that the panic on Wall Street has greatly exaggerated the economy’s problems and suggests that investors are irrationally expecting a repeat of the Depression.

“While this is definitely a scary situation, it doesn’t even approach the magnitude of the crash of 1929,” he said, noting that today’s financial problems are not as profound as those experienced 80 years ago and are being managed better by the government.

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