- The Washington Times - Wednesday, October 8, 2008

A presidential pep talk and a dramatic move by the Federal Reserve to boost business lending could not shore up sagging U.S. markets as the Dow Jones Industrial Average plunged more than 500 points Tuesday to a four-year low.

The economic woes spilled over into the political realm before the second presidential debate. The House Oversight and Government Reform Committee released documents showing that top executives of American International Group Inc. spent $440,000 on a company retreat just days after the government’s $85 billion takeover of the insurance giant, including room charges of up to $1,000 a night and $25,000 for pedicures, manicures, facials and massages.

The expanding global scope of the credit crisis is expected to dominate a previously scheduled meeting of finance ministers of the Group of Seven industrial powers over the weekend, being held on the sidelines of the World Bank and International Monetary Fund (IMF) annual meetings in Washington.

President Bush spoke with a number of his Western European counterparts by telephone about the global credit crunch, and White House press secretary Dana Perino said Mr. Bush would be “open” to a summit of G-7 leaders struggling to resolve the emerging economic crisis.

“I wish I could snap my fingers and make what happened stop,” Mr. Bush said on a morale-boosting trip to a Guernsey Office Products outlet in Chantilly, Va., on Tuesday, “but that’s not the way it works.”

The colossal failures of U.S. financial titans are having a big impact on Americans’ retirement plans, which have lost as much as $2 trillion in the past 15 months, the Congressional Budget Office estimated Tuesday.

Wall Street reacted to growing fears that policymakers have yet to get control of the economy’s many weaknesses.

“We are to the point of fearing fear itself,” Bill Gross, manager of California-based Pacific Investment Management Co., wrote in a note to clients. “America in all its resplendent free market capitalistic glory is on the auction block with few bidders.”

Sellers far outnumbered buyers on Wall Street, where all three major stock indexes fell to levels not seen since 2004.

The Dow industrials shed 508 points (5.11 percent) to 9,447.11, after a 369-point decline Monday.

The tech-heavy Nasdaq Stock Market lost 108 points (5.8 percent) to 1,754.88, while the broader Standard & Poor’s index of 500 stocks slid 60.66 points (5.73 percent) to close below the 1,000 mark at 996.23.

“The financial panic of the past month has sent the economy into a tailspin,” said market analyst Mark Zandi at Moody’s Economy.com. “The question is no longer whether there is a recession, but how severe it will be.”

Adding to the pessimism, the Congressional Budget Office announced late Tuesday that the U.S. budget deficit hit a record $438 billion in fiscal 2008, which ended Sept. 30, the result of rising government spending for defense and lower revenues because of the troubled economy. The Wall Street bailout will only widen the shortfall, at least in the short term, budget analysts said.

The drumbeat of bad news came despite a $700 billion Wall Street rescue package approved by Congress last week and clear signals from Federal Reserve Chairman Ben S. Bernanke that the central bank is ready to take extraordinary measures to get banks back into the lending business.

The Federal Reserve, invoking an obscure Depression-era emergency law, said it will begin purchasing “commercial paper” — the short-term money companies borrow to meet basic needs such as payroll and inventory.

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