- The Washington Times - Tuesday, September 16, 2008

Lehman Brothers Holdings Inc. and Merrill Lynch & Co.

The pullback occurred around much of the globe as investors absorbed Lehman’s bankruptcy filing and what was essentially a forced sale of Merrill Lynch to Bank of America for $50 billion in stock. While those companies’ situations had reached some resolution, the market remained anxious about American International Group Inc., which is seeking funding to shore up its balance sheet. A faltering of the world’s largest insurance company likely would have implications far beyond that of Lehman, already the largest U.S. bankruptcy in terms of assets.

The swift developments that took place Sunday are the biggest yet in the 14-month-old credit crisis that stems from now toxic subprime mortgage debt. For the first part of Monday’s trading, the market was falling, but in a largely orderly fashion as investors seemed to draw some relief from the resolution of Lehman’s problems.

But as the session wore on and there was no word about AIG, the market suffered another bout of fear that the credit crisis will continue to devastate the financial sector. Selling accelerated in the final hour and then took on more momentum as stock indexes broke through lows set in July - an ominous sign for some traders.

Adding to the woes, government data show the nation’s industrial output plunged in August by nearly four times the amount that had been expected.

It was the worst performance since Hurricane Katrina devastated the Gulf Coast in 2005.

The Federal Reserve reported Monday that industrial output dropped 1.1 percent last month, far worse than the 0.3 percent decline that economists had been expecting. The weakness was led by an 11.9 percent drop in production of motor vehicles and parts, reflecting the hard times facing the U.S. auto industry.

The Dow fell 504.48, or 4.42 percent, to 10,917.51, moving below the 11,000 mark for the first time since mid-July. It was the worst point drop for the Dow since it lost 684.81 on Sept. 17, 2001, the first day of trading after the terror attacks. It was also the sixth-largest point drop in the Dow, just behind the 508.00 it suffered in the October 1987 crash.

Broader stock indicators also fell. The Standard & Poor’s 500 Index declined 59.00, or 4.71 percent, to 1,192.70 - also its biggest drop since Sept. 11 and the first time it closed below 1,200 in three years.

The Nasdaq Composite Index fell 81.36, or 3.60 percent, to 2,179.91; that was its worst point loss since Jan. 4.

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