- The Washington Times - Monday, February 23, 2009

UPDATED:

Investor uncertainty spread throughout Wall Street on Monday, pulling the Dow Jones Industrial Average and the broader Standard & Poor’s 500 down to their lowest levels in more than 11 years.

All three of the major indexes plunged by more than 3 percent, and the tech-heavy Nasdaq fell through the 1,400 level.

At the close, the Dow plummeted 250.89, or 3.41 percent, to 7,114.78, its lowest level since May 7, 1997. The Nasdaq dived 53.51, or 3.71 percent, to 1,387.72. The S&P 500 fell 26.72, or 3.47 percent, to 743.33, its lowest point since April 1997.

The broad-based sell-off, which accelerated toward the close, hit industrials, energy and information-technology stocks hardest on a modest volume of 1.5 billion shares.

American International Group, the insurance giant that received a $150 billion bailout from the federal government, which now owns 80 percent of giant company, was in discussions with the feds for more financial aid, CNBC said.

AIG is expected to report on March 2 a loss of $60 billion, the biggest loss in U.S. corporate history, the TV network said.

The markets opened higher on government assurances to the financial sector but turned sour early on apparently because of reports that Yahoo! Inc. plans to reorganize, a sign of more problems across a broad sector of the sagging economy. Then the blue chips started falling.

The swooning markets “still reflect that we’re in a universe of uncertainty,” Bernard Baumohl, chief global economist of the Economic Outlook Group in Princeton, N.J., told The Washington Times. “There’s a great deal of anxiety in the market.”

In addition, he said, investors — most of them institutional — are impatient because the economy has not begun to turn around despite the $700 billion authorized by Congress to bail out the financial industry, President Obama’s $787 billion stimulus package and the $75 billion to $275 billion plan to tackle the housing crisis.

“This is a great experiment, the most unprecedented financial program ever undertaken,” Mr. Baumohl said. “Yet investors don’t know when it will work or even when it will begin to work” to turn around the economy.

“Once investors pick up a hint that the worst is over, then (the economy) will turn around,” he said, but “investors still don’t have confidence that a turnaround in the economy is near.

“The mere announcement of these programs (by the administration) doesn’t mean the economy is going to turn around next week. What you need, first and foremost, is to get credit flowing again” from the banks.

Markets in Europe and Asia also rose following reports that Washington was negotiating with Citigroup to boost the government’s stake in the huge financial company by as much as 40 percent. The government already has given Citigroup $25 billion in bailout money that Congress authorized in the fall.

Germany’s DAX and France’s CAC-40 were up more than 1 percent.

Concerns last week that the government would nationalize one or two banks — Citigroup and Bank of America — to take over their losses stemming from investments in what later became known as toxic assets pushed the Dow at one point to an 11-year low Friday before it recovered on Obama administration assurances that nationalization was not in the works.

Nationalization of one or more banks would wipe out shareholder investments in those institutions.

The Dow closed about 100 points lower Friday to 7,365.67, one of the lowest points reached during the bear market six years ago that followed the burst in the dot-com bubble.

Treasury Secretary Timothy F. Geithner has said the major banks will undergo a “stress test” to determine how the government should act in rescuing them from their bad debts.

In Britain, reports said that the severely troubled Royal Bank of Scotland planned to isolate its bad assets so that a value could be placed on its viable operations. A restructuring by the bank could mean the loss of 20,000 jobs and a withdrawal of the bank’s operations from 60 countries.

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