I never forget the interview with JP Morgan in N.Y.
Dow Jones Falls in Early Trading
By Howard Schneider and Ariana Eunjung Cha Washington Post Staff WritersMonday, September 15, 2008; 10:57 AM
U.S. stocks plunged this morning as investors took stock of a weekend that saw the failure of one major Wall Street firm and the surprise take over of another, a shakeup whose repercussions were felt on markets throughout the world.
The Dow Jones industrial average was down 320 points in early trading, a decline of about 2.8 percent, while the Nasdaq and S&P 500 were hit by similar declines.
The sell off on Wall Street follows the weekend bankruptcy of Lehman Brothers, the takeover of Merrill Lynch by Bank of America, and rising concern about the fate of AIG, a major insurer that was scrambling on Monday to raise fresh capital.
Global stocks also plunged on the news, and central bankers tried to calm the situation amid deepening uncertainty about the resilience of the global financial system and the strength of the world economy. In a sign of weakening demand, crude oil prices fell below $100 a barrel, to around $97, China's central bank announced it was cutting a key interest rate to uphold growth, and U.S. industrial production fell faster than expected in August.
Major European markets were all down by more than 4 percent at midday, with the Paris CAC 40 down 5.13 percent at one point. While major Asian exchanges were closed for a holiday, exchanges in India, Singapore, Taiwan and Australia fell anywhere from 2 percent to more than 5 percent.
Wall Street futures pointed to opening losses of about 360 points, or more than 3 percent.
In Europe and Asia, central bankers issued a barrage of similarly worded statements, saying that they stood ready to act to stabilize financial markets. According to Associated Press reports, both the Bank of England and the European Central Bank also pumped tens of billions of dollars into the monetary system. With credit tight and the implications of the Lehman bankruptcy uncertain, demand for cash among banks and financial institutions was running high.
"We have to be extraordinarily alert," ECB President Jean-Claude Trichet said in Frankfurt, the Bloomberg news service reported. "It's an ongoing market correction," Trichet said, that will continue to experience "episodes of a high level of volatility."
The Swiss National Bank, AP reported, said it would provide cash to banks in "a generous and flexible manner."
The European Central Bank said it provided $42 billion to banks in short-term loans while the Bank of England injected about $7 billion.
The Reserve Bank of Australia moved to instill confidence in its markets by providing its banking system $2.1 billion in cash, an amount well above the estimated need. The central banks of Japan, Thailand and Sri Lanka also said they were closely monitoring the situation.
"They are showing they are willing to use every weapon at their disposal," said Henk Potts, an equity strategist at Barclays Wealth. He said that that there will be "increased pressure on the Bank of England to provide a boost to the economy and confidence by cutting interest rates" -- an analysis mirrored in the U.S. by predictions that the Federal Reserve may cut rates when it meets on Tuesday.
Potts said that the ripple effects of the Lehman bankruptcy and other events will be "an exacerbation of the credit crunch. One would expect banks to be even more risk adverse, making it harder and more expensive to borrow money. That will have negative implications for home owners, consumers, businesses, the whole economy."
Banking stocks took the hardest hit on the FTSE 100, with Barclays Plc, which withdrew from talks to buy Lehman Brothers yesterday, tumbled 19 percent.
Traders and analysts were debating today whether the failure of Lehman, the fourth largest U.S. investment bank, will mark the low point of the ongoing financial crisis. Lehman has weathered more than a century's worth of wars and financial shocks but sank under the weight of its investments in securities linked to U.S. home mortgages.
Potts said today's sell-off was "disappointing, but not disastrous . . . Ironically, it can be seen as a positive because authorities thought the financial system could cope with a demise as big as Lehman Brothers."
"The big question here is, have we seen all the bad news or are there other skeletons in the closet?" said Moh Siong Sim, an Asia regional economist with Citibank in Singapore. Sim said it seems clear "the market is still not convinced that the situation has stabilized."
South Korea's top financial regulator was convening an emergency meeting for tomorrow to continue monitoring the fallout.
Rhee Chang-yong, vice president of the Financial Services Commission, said that it appeared the direct impact of Lehman Brothers' bankruptcy on local firms in South Korea would be limited, but that there was worry about the broader impact on the financial system.
"There will be indirect impact from the Lehman debacle if its bankruptcy filing shakes the global financial markets," Rhee said, according to the Yonhap News Agency.
Asian reaction was tempered by the fact that the largest stock markets in the region --Japan, South Korea, Hong Kong and China -- were closed Monday for the mid-Autumn holiday.
Cha reported from Shanghai. Staff writer Karla Adam contributed to this report from London.
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