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Dow Tumbles 508: Blame Bernanke, But Not for Lack of Effort
Posted Oct 07, 2008 04:23pm EDT by Aaron Task in Investing, Newsmakers, Recession, Banking
Optimism that Monday's intraday rebound marked some kind of meaningful bottom took a serious blow Tuesday as the Dow tumbled over 500 points, or 5.1%, to 9447. The S&P fell 5.7% to 996.23, its first close below 1000 since 2003, while the Nasdaq tumbled 5.8% to 1755.
After hovering around break-even for much of the day, stocks started selling off after a 1:15 p.m. EDT speech by Fed Chairman Ben Bernanke, and careened lower in the close.
"The outlook for economic growth has worsened and that the downside risks to growth have increased," Bernanke said, giving strong hints that Fed rate cuts may be forthcoming.
Perhaps traders were disappointed the Chairman merely hinted at a rate cut, rather than delivering. But anyone hoping government plans to buy commercial paper (confirmed Tuesday) or strong hints at a coming rate cut would restore investor confidence just hasn't been paying very close attention.
The reality is "the Federal Reserve, the Treasury, and other agencies are committed to restoring market stability and are working assiduously to ensure that the financial system is able to perform its critical economic functions," as Bernanke put it, ticking off a laundry list of multi-agency initiatives, including:
- New facility to purchase commercial paper directly from eligible issuers.
- Paying interest on bank reserves.
- Providing a temporary guarantee program for assets in money market mutual funds.
- "Substantially broadening" the collateral accepted by the Fed's Primary Dealer Credit Facility (PDCF) and Term Securities Lending Facility (TSLF). ("As of last Wednesday [these programs] were providing more than $800 billion of liquidity to the financial system," Bernanke said.)
- Significantly expanded reciprocal currency arrangements (so-called swap agreements) with foreign central banks.
- Provided emergency credit to AIG.
- Authorized the FDIC to use its funds to facilitate the sale of Wachovia's banking operations without loss to creditors. (Regardless of the outcome of the Citi-Wells standoff, "all depositors and creditors of Wachovia are fully protected, and depositors and other customers will experience no interruption in banking services," he said.)
The problem isn't a lack of effort on the government's part - far from it. The problem is that the efforts, to date, have failed to alleviate the crisis, which is roiling financial markets worldwide and showing no signs of abating.
Blue Skies - Tuesday October 07, 2008 05:12PM EDT
Obama will save the markets. Obama has a twenty nine point comprehensive plan to convince those who don't think he has a comprehensive plan that indeed he hopes we stand together and believe in his comprehensive plan to save the markets. Obama has HOPE that we can STAND TOGETHER and save the markets. Obama will save the markets and set this economy straight!
Dan - Tuesday October 07, 2008 05:13PM EDT
No matter what the goverment does, the market insiders will do their thing, and will be exposed for being the crooks that they are, and always have been. May they die a horrible death!
TC - Tuesday October 07, 2008 05:14PM EDT
Rogelio, Bring back Greenspan? For a criminal trial, maybe. It was his "cheap money" policies that were responsible for the current mess.
Steve - Tuesday October 07, 2008 05:16PM EDT
Our hard earned money has evaporated along with our faith and trust in these government officials. The result (among other things): lack of confidence in the stock market. It will take time for them to earn back our confidence.
Lee - Tuesday October 07, 2008 05:17PM EDT
``I see in the near future a crisis approaching that unnerves me and cause me to tremble for the safety of my country....corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country wil lendeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed.`` -- Abraham Lincoln, 1864 - Whig; Republican
lisalipps - Tuesday October 07, 2008 05:17PM EDT
Thank God for the 700 billion dollar bailout. It seems to be working to restore confidence in the markets. IMAO
robert - Tuesday October 07, 2008 05:17PM EDT
mikemayzak,what do you mean heading?...YOU MEAN IN!!!!!!!!!
Yahoo! Finance User - Tuesday October 07, 2008 05:19PM EDT
WHAT IN THE HELL JUST HAPPEND IN AFTER HOURS?!!!!! It went from -582 to +574!!!! Thats almost 1160 points!!! Now its back at - 18 again!!! And look at the NASDAC!!! +99!!! W.T.H.?!!!
jomer e - Tuesday October 07, 2008 05:19PM EDT
money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money!!!!!
hank - Tuesday October 07, 2008 05:19PM EDT
WHEN EVERYONE SAYS "SELL" THATS WHEN ITS TIME TO BUY!!!! or maybe wait about a week ....
CrockersMum - Tuesday October 07, 2008 05:20PM EDT
How does one get to be the Fed Chair and Secretary of the Treasury? And how does one get to keep that job when they suck at it? These guys are wrong more often then the weathermen around here. If I was that bad at my job I would have been fired long ago!
Yahoo! Finance User - Tuesday October 07, 2008 05:22PM EDT
GOOD.................... THE POOR PEOPLE ARE THE ONES WHO NEED THE MONEY...NOT THE RICH.
John - Tuesday October 07, 2008 05:23PM EDT
JUST LET OBAMA IN-HE WILL FIX IT!! HECK OLE JOE BIDEN CAN FIX IT-WAIT HE'S ALLREADY BEEN THERE FOR 35 YEARS-AIN'T FIXED IT YET.BUT,OBAMA CAN SEE-HE AIN'T BEEN THERE THAT LONG-IN WASHINGTON-SO HE'S NOT A INSIDER YET-RIGHT? I GUESS A COMMUNITY ORGANIZER KINDA OF GUY CAN PULL THAT OFF-BUT WAIT HE'S GOT A GREAT LOOKING FAMILY-THAT SHOULD COUNT RIGHT-HE'S ONLY GOT THE ONE 1.75MIL HOUSE-THATS COOL.YEP,OBAMA CAN FIX IT-LET HIM IN NOW-WE NEED HIM NOW-YEA NOW RIGHT?HE CAN KIND OF FIX IT OVER NIGHT RIGHT-I MEAN WHEN OLE BILLY BOB CLINTON WAS IN THERE WE ALL MADE MONEY-RIGHT?ITS ALL ABOUT MAKING MONEY-RIGHT.SO LETS PUT OBAMA IN -GET THAT OLD DOW UP TO 15-16K-HELL YEA WE'LL ALL BE CLICK'N THEN-INTEREST RATES LOW--OH AND BY THE WAY-I'LL HAVE ICE CREAM ON MY PECAN PIE AS WELL-PRESIDENT OBAMA!
CrockersMum - Tuesday October 07, 2008 05:25PM EDT
pittsman123 - I like your enthusiasm for your candidate (especially since I am a life-long Democrat), but what resources do you have to back up those statements that Obama will fix all? He may have a 29-point plan, but McCain has a statement from over 300 professional economists (including Nobel Prize winners) that say his plan is the right direction for these troubled times. Check out the release on July 7, 2008 if you want to see what the "experts" say.
charlier - Tuesday October 07, 2008 05:25PM EDT
THEY SCREWED THIS UP!! Instead of bailing out these investment banking firms, what they should have done is FROZE the payments to the original amount instead of the balloon payment. These would have prevented all the foreclosures and kept people on paying. Sure the return on those mortgage backed securities would be lower and the value of their homes would be lower than what they mortgage was but SO WHAT?
Tom - Tuesday October 07, 2008 05:25PM EDT
All this circus acts are only to delay the inevitable. The bail-out effort was misdirected thus it has no effect in shoring up the support in the market. Instead of rescuing these failed institutions, the money should have been given back to the Americans where it will do the most goods.
robert - Tuesday October 07, 2008 05:25PM EDT
Anything worse then what's been going on,would be like shooting someone thats dead already!!
Yahoo! Finance User - Tuesday October 07, 2008 05:30PM EDT
they used to call it a goldilocks economy and taxi drivers were pitching stocks (That was the crazy extreme of the 14000's)... now everybody is buying canned beans and stocking their shelves. (At 9000) Sounds like a near low to me. Your best to keep a level head and have some in the market cause you'll be angrier you missed the fast move up then the slow move down. Smart people are trickle'n back in.
Ken - Tuesday October 07, 2008 05:31PM EDT
What has really caused this mess (maybe catastrophe) is wild speculation. Baby boomers speculating all their retirement monies that the stock market will always go up. Banks speculating that risky loans to questionable clients will be made good. The government speculating that "all will be made well" by throwing huge amounts of money at the problem. We're in this crunch for the long haul. I'm sure glad I bought into government securities last March. All financial moves made at this time by ordinary people should be very cautious. I not planning to buy back in until the DOW hits 8,000.
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hank - Tuesday October 07, 2008 05:12PM EDT
Oh dry up. This too shall pass. We survived the post 9/11 crash, the tech bubble burst, the Asian market crash, the S&L fiasco, etc. Sure every panic is somehow different than the one before, but the one thing in common is that everyone panics and then life goes on. Be glad its not a real disaster like the influenza epidemic or the holocaust or a tsunami for crissakes