- PHILLIPS: Liberal lawyers ensuring illegal aliens are never deported
- Chris Christie leading N.H. GOP presidential field; Mitt Romney lingers large
- NYC creates ID card so 500K illegal immigrants can get services
- Florida judge slaps GOP’s redistricting plans: You ‘made a mockery’ of process
- Muslims give Obama high marks over first half of 2014
- Pennsylvania sends draft notices to 14K dead men
- KISS rocker Gene Simmons touts 1 percent life: ‘It’s fantastic’
- Texas shooting suspect had faced other charges
- Californian who sold secret to China sentenced to 15 years in prison
- Couple, 3 kids among 7 killed in Massachusetts apartment fire
Global markets quake, Dow dives
Question of the Day
Markets went to pieces Monday despite strenuous efforts to calm them by world authorities, with the Dow Jones Industrial Average falling as much as 800 points to below 10,000 and investments from oil to municipal bonds tanking in a global rout that stretched from Bonn to Bangkok.
Credit markets remained locked despite U.S. enactment of a $700 billion bailout package for banks last week, prompting the Federal Reserve to offer an unprecedented $900 billion in cash infusions to bank funding markets where lending has all but stopped.
President Bush said it might take time to restore confidence, but analysts said the bailout and scattered actions by European governments this weekend came too late to prevent a frantic bout of deleveraging in the global financial system, not unlike the 1929 crash, as investors from secretive hedge funds and sovereign funds to apprehensive retirees liquidate their holdings to cover losses and pay off borrowed money.
“This is a global deleveraging,” said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co. While government intervention is helping, he said, investors are peering into the “abyss” and seeing a world where businesses and consumers are forced to rely less on debt, which will have major depressing effects on the global economy for years to come.
Major Wall Street investment houses like Morgan Stanley and Goldman Sachs in the heyday of the credit boom borrowed as much as $30 for every dollar they put into investments, while hedge funds and private equity funds were even more highly leveraged.
Now they are being forced to unwind their extensive holdings around the world to limit and cover their losses, affecting markets in every corner of the globe, from oil to the Japanese yen.
The deleveraging of the financial sector in turn is forcing consumers and businesses who also depended on easy credit to cut back on spending, as loans are harder to obtain. The result is widely expected to be a recession in the United States, Japan and many European countries, and slower growth even when those economies recover.
“What the market is really reading here is that this is a global phenomenon,” said Mr. Battipaglia. “When you delever like this, it is a process that takes a very long period of time measured in years, not quarters.”
“The financial crisis is accelerating globally, making what seemed like a mild slowdown a few weeks ago potentially far more serious,” said David Greenlaw, economist at Morgan Stanley. “The recession now threatens to go global, with industrial economies on the brink, and trade and financial shocks threatening the developing world.”
The spreading economic crisis was reflected in a day of steep stock losses erasing more than $2 trillion in value worldwide. Monday’s selloff began with 4 percent to 5 percent declines in Asian stocks, where investors registered disappointment that the U.S. bailout plan failed to calm markets.
Stock losses accelerated when European markets opened after a weekend of moves by European authorities to stem a run on banks that did little to console investors. Germany arranged a costly bailout of Hypo Real Estate and appeared to declare it would guarantee all savings deposits, while British authorities pledged to “do whatever it takes” to calm markets.
None of the piecemeal moves by European authorities, after a weekend summit where they failed to agree on concerted action to address the crisis, soothed tormented markets.
About the Author
- Crude oil will head north of the border to Canada
- S&P: Boeing to suffer if Ex-Im Bank killed
- U.S. job gains, unemployment dip push markets into record territory
- Unemployment falls to 6.1 percent amid U.S. hiring surge
- Baffled by Belgium: Burst of U.S. bond-buying raised questions, eyebrows
Latest Blog Entries
Senate majority leader practices politics of personal destruction
- Armed militia sets up Texas command center to 'fight for national sovereignty'
- Va. Democrat reportedly seeks nude shots of Kendall Jones
- Obama seeks brisk passage of border children funding bill
- PRUDEN: 'Dirty Harry' Reids increasing eccentricity
- IRS employee suspended for pro-Obama activities
- BRUCE: The feds plot to steal your paycheck
- New York City creates ID card so 500K illegal immigrants can get services
- Bush fixed bowling lanes that Obama wants to renovate
- Hamas orders civilians to die in Israeli airstrikes
- Amid border crisis, Obama to take 15-day vacation in Martha's Vineyard
Obama's biggest White House 'fails'
Celebrities turned politicians
Athletes turned actors
20 gadgets that changed the world
Fighting in Iraq
World Cup's sexiest WAGs