Tuesday, September 16, 2008

Dow Drops 504 points; AIG Talks Bankruptcy

The nation's largest insurance company seeks a FED lifeline

Today's Deseret News carries a pretty good synopsis of yesterday's stock market action, wherein the Dow dripped 500+ points, as a result of the chaos in the financials sector. From this morning's article:

NEW YORK — Mighty investment banks were laid low. Stocks put in their worst performance in seven years. About $700 billion was washed away on Wall Street.
The crisis set in motion more than a year ago by a series of bad mortgage bets produced its most devastating day yet Monday, leaving investors to wonder whether anywhere was safe for their money.
Capping a tumultuous 24 hours that redrew the American financial system, Lehman Brothers filed the largest bankruptcy in American history, and a second storied bank, Merrill Lynch, fled into the arms of Bank of America.
The Dow Jones industrial average lost more than 500 points, more than 4 percent, its steepest point drop since the day the stock market reopened after the Sept. 11, 2001, attacks.
About $700 billion evaporated from retirement plans, government pension funds and other investment portfolios.
It was by far the most stomach-churning single day since a financial crisis began to bubble up from billions of dollars in rotten mortgage loans that have crippled the balance sheets of one bank after another and landed mortgage giants Fannie Mae and Freddie Mac under the control of the federal government.
Read this morning's full Deseret News article here.

Wall Street traders seem to be taking the crisis somewhat in stride this morning. Although the Dow has been down as much as 86 points this morning, it's in positive territory (up 24 pts.) as of the time of this posting. While it's still too early in the day to determine whether yesterday's trading action signalled a complete erosion of confidence in the financials sector, there's another GIANT problem looming on the near horizon:

An AIG Accident Could Dwarf Lehman's

AIG is one of the largest insurance companies in the world, with significant exposure in the areas of mortgage insurance, bond (derivatives) insurance and other forms of insurance involving the financials sector. The collapse of AIG could leave a wide array of banks, pension funds and other financial institutions and investors essentially "naked" to the effects of a collapsing financial market.

Those readers who regularly follow developments in the financial markets already know we are witnessing the unfolding of events which are highly reminiscent of events preceding the great depression. Those readers who don't have these financial developments on their radar screens probably ought to take off their blinders and at least have a look.

The events transpiring during the last few days (and in the days immediately to come) will be viewed as "historic."

Will government officials, financial institutions and the FED have the wherewithal to deflate the financial bubble in a tolerable and orderly fashion; or is the U.S. economy ineluctably headed for doom?

Update 9/16/08 11:04 a.m. MT: More chirpy economic news:

Goldman Sachs net plunges 70 percent


1 comment:

Ross said...

Oh well, at least the fundamentals of our economy are strong.

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