Monday, October 6, 2008
NEW YORK - Wall Street tumbled Monday, joining a selloff around the world, as fears grew that the financial crisis will cascade through economies globally despite bailout efforts by the U.S. and other governments. The credit market remained under strain, and investors piled into government bonds. The Dow Jones industrials skidded more than 200 points.
The markets have come to the sobering realization that the Bush administration's $700 billion rescue plan won't work quickly to unfreeze the credit markets, and that many banks are still having difficulty gaining access to cash.
Over the weekend, governments across Europe rushed to prop up failing banks. The German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG, while France's BNP Paribas agreed to acquire a 75 percent stake in Fortis's Belgium bank after a government rescue failed.
The governments of Germany, Ireland and Greece also said they would guarantee bank deposits.
The Federal Reserve also took fresh steps to help ease seized-up credit markets. The central bank said Monday it will begin paying interest on commercial banks' reserves and will expand its loan program to squeezed banks.
"These programs are going to be effective I believe," said Rob Lutts, chief investment officer at Cabot Money Management. "Shorter term we're in a very challenging environment that's going to take a while."
In the first hour of trading, the Dow Jones industrial average fell 231.13, or 2.24 percent, to 10,094.25.
Broader indexes also tumbled. The Standard & Poor's 500 index shed 28.21, or 2.57 percent, to 1,071.02; and the Nasdaq composite index fell 49.39, or 2.54 percent, to 1,898.00. The Russell 2000 index of smaller companies dropped 15.63, or 2.52 percent, to 603.77.
The anxiety was again obvious in the credit markets. The yield on the three-month Treasury bill slipped to 0.37 percent from 0.50 percent late Friday. Demand for bills remains high because of their safety; investors are willing to take extremely low returns just to have their money in a secure place.
Investors also moved into longer-term Treasury bonds. The yield on the 10-year note fell to 3.52 percent from 3.60 percent late Friday.
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