Monday, September 15, 2008

Dow Jones index plummets 500 points

The index closes down 4.4%, the biggest one-day percentage loss since 2002. The travails of Lehman, Merrill Lynch and AIG send investors rushing to Treasury bonds as a safe haven.
By Tom Petruno and Martin Zimmerman, Los Angeles Times Staff Writers
2:19 PM PDT, September 15, 2008
Stocks plunged and investors rushed for the safety of Treasury bonds today amid a dramatically altered financial landscape that raised new fears about the struggling economy.

The Dow Jones industrial average ended the day down 504.48 points, or 4.4%, to 10,917.51. It was the worst one-day percentage drop since the blue-chip index slid 4.6%, on July 19, 2002.

The point decline was the biggest since the Dow tumbled 685 points, or 7.1%, on Sept. 17, 2001 -- the day markets reopened after the terrorist attacks.

The selling accelerated despite efforts by Treasury Secretary Henry M. Paulson Jr. to calm investors. He told reporters in Washington that the American people could remain confident in the "soundness and resilience in the American financial system."

But, Paulson added, "until we stem the housing correction . . . we will continue to have turmoil in the financial markets."

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The bankruptcy of investment bank Lehman Bros. Holdings Inc., Merrill Lynch & Co.'s surprise sale to Bank of America Corp. and fear that insurance giant American International Group could be mortally wounded all left many Wall Street players in shock -- and looking for places to hide, said Dan McMahon, veteran trader at Raymond James & Associates in New York.

"People are still wanting to take a lot of risk off the table," he said.

That was evident in the huge appetite for Treasury bonds today, which drove yields on the securities sharply lower.

The yield on the 10-year Treasury note sank to 3.43%, down from 3.72% on Friday and the lowest since early April. That should help pull mortgage rates lower, giving an assist to the housing market.

But as financial institutions hoarded cash, the banking system's key short-term interest rate rocketed as high as 6% early in the day, from 2%. The Federal Reserve responded by pumping $70 billion into the system to pull the rate back down and keep money flowing.

Amid deep uncertainty about the financial system, big investors "just don't want to part with their cash very easily," said Brian Edmonds, head of interest rates at bond dealer Cantor Fitzgerald in New York.

Overnight, stock markets in Asia and in Europe had plummeted as foreign investors reacted to the unprecedented shake-up in the U.S. financial system -- the latest fallout from the housing market debacle.

Most European stock market indexes fell between 3.5% and 4%. Stocks tumbled 6.2% in Russia and 4.1% in Taiwan.

On Wall Street, investors focused on the potential for the bankruptcy of Lehman to result in a fire sale of the company's soured mortgage investments, which would put more downward pressure on real estate-related securities. That could cause more troubles for banks and brokerages already reeling from asset write-downs and desperate to raise capital.

"That's the major concern out there," said Art Hogan, market analyst at Jefferies & Co. in Boston.

Lehman's inability to find an investor to help bolster its balance sheet triggered the firm's collapse.

Paulson, speaking at a White House briefing, said he "never once" considered that it would be appropriate to put taxpayer money at risk to resolve the problems at Lehman Bros.

Earlier in the day, President Bush said he sympathized with investors and employees of failing financial institutions. But he said federal policymakers would focus their attention on "the health of the financial system as a whole."

"We are working to reduce disruptions and minimize the impact of these financial market developments on the broader economy," Bush said. "The policymakers will focus on the health of the financial system as a whole."

Paulson denied rumors that the federal government was offering a bridge loan to another ailing financial giant, insurer American International Group Inc.

AIG, which has also been slammed by mortgage losses, was struggling to line up needed short-term capital. The state of New York, which regulates the company, gave it permission to borrow $20 billion from a subsidiary.

"What's going on in New York has got nothing to do with a bridge loan to AIG," Paulson said.

AIG shares plunged $7.48, or 61%, to end at $4.76.

Bank of America was down $7.19, or 21%, to $26.55 as Wall Street reacted nervously to the bank's plan to buy Merrill Lynch for tens of billions of dollars in stock.

The biggest unknown: The potential economic effects of the latest financial system turmoil. If businesses and consumers retrench further, recession could become unavoidable.

Some analysts predicted that Federal Reserve policymakers would react to that threat by cutting their benchmark interest rate from the current 2% when officials gather on Tuesday for a regularly scheduled meeting.

Others said the Fed probably would stand pat for the moment, but would make clear that it's ready to move.

"They're going to indicate that they're going to do whatever they need to do," said Tom Tucci, head of Treasury bond trading at RBC Capital Markets in New York.

Times staff writer Johanna Neuman in Washington contributed to this report.

FILE ** In this file photo dated March 3, 1967, members of the rock band Pink Floyd, Roger Waters, left, Nick Mason, second from left, Syd Barrett, second from right, and Richard Wright, right, leap from the steps of EMI House in London. A spokesman for rock group Pink Floyd said Monday, Sept. 15, 2008 that founding member Richard Wright has died after a battle with cancer. He was 65. (AP Photo, File)

NEW YORK, Sept. 15 (UPI) -- Pink Floyd founding member and keyboardist Rick Wright has died of cancer at the age of 65, his family said Monday.

"The family of Richard Wright, founder member of Pink Floyd, announce with great sadness that Richard died today after a short struggle with cancer," Wright's spokesman told Rolling Stone magazine. "The family have asked that their privacy is respected at this difficult time."

Wright was one of the rock band's original members, along with the late Syd Barrett, Roger Waters and Nick Mason.

The London-born musician played with the group until a falling out with Waters after "The Wall" in 1979. Wright later rejoined the band when David Gilmour took over after Waters departed in the early 1980s.

Wright also played with the band when it reunited in 2005 for the Live 8 concert in London and had recently performed with David Gilmour on his solo tour, Rolling Stone said.

NME.com noted Wright worked on all but one of the band's 14 studio releases, including "The Dark Side Of The Moon" in 1973.

"He was such a lovely, gentle, genuine man and will be missed terribly by so many who loved him," the BBC said Gilmour wrote on his Web site. "And that's a lot of people. Did he not get the loudest, longest round of applause at the end of every show in 2006?"

Wright is survived by his wife Millie and three children, NME.com said.

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