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Dow Jones Stock Market 777 Point 7% Crash

Stock-Markets / Financial Crash Sep 29, 2008 - 03:28 PM GMT

By: Nadeem_Walayat

Stock-Markets Best Financial Markets Analysis ArticleIn a classic example of the market knows best, stocks opened sharply lower by some 350 points in the first hour ahead of the Congress Bailout vote some hours later in the day which left many mainstream commentators confused as the over-riding expectations were that stock markets 'would' rally ahead of and in anticipation of the YES vote on Bush, Paulson and Bernanke's proposed $700 billion bailout down payment on the buy up of the financial sectors holdings of toxic mortgage backed securities.


The House of Representatives rejected the governments $700 billion bailout plan that the Bush administration had renamed as the $700 billion rescue plan in an attempt to garner more votes. The actual vote of 228 NO against 205 YES shocked the proponents of the bill and sent the Stock markets into a FREE FALL which saw a 500 point drop within less than 20 minutes, a plunge from 10,950 to 10,450, volatility gripped the markets during the rest of the session with the expectations of a sell off into the close of 10,365 at the days low which sent the Dow Jones Industrial Averages into its WORST DAILY POINTS DECLINE of 777 points or 7%, beating the 721 point plunge on Sept 12th following the Sept 11th terrorist attack. However the percentage drop is still a far cry from the 22% Crash of October 19th 1987.

Chart courtesy of Bigcharts.com

World stock markets saw more than $1 trillion scrapped from their market capitalisation's today as the $700 billion failed to get the Thumbs up from the House of Representatives, who in the face of public anger at bailing out wall street fat cats were fearful of losing their seats at the November election.

Nancy Pelosi will probably get much of the blame given her highly partisan speech which would have influenced at least some of the republicans to reject the bill.

"When was the last time someone asked you for $700bn? It is a number that is staggering, but tells us only the costs of the Bush administration's failed economic policies — policies built on budgetary recklessness, on an anything-goes mentality, with no regulation, no supervision, and no discipline in the system."

"Democrats believe in the free market, which can and does create jobs, wealth, and capital, but left to its own devices it has created chaos."

"Democrats insisted that legislation responding to this crisis must protect the American people and Main Street from the meltdown on Wall Street. The American people did not decide to dangerously weaken our regulatory and oversight policies. They did not make unwise and risky financial deals. They did not jeopardise the economic security of the nation. And they must not pay the cost of this emergency recovery and stabilisation bill."

"Today we will act to avert this crisis, but informed by our experience of the past eight years with the failed economic leadership … We choose a different path. In the new year, with a new Congress and a new president, we will break free with a failed past and take America in a new direction to a better future."

A wave of bankruptcies have been hitting the financial sector in recent weeks as my weekend article highlighted as well as sought to explain the oft asked question as to why the banks are going bankrupt - Bradford & Bingley Nationalised Another UK Bank Wiped Out by Tulip Backed Securities .

  • Friday WaMu went bust, seized by US regulators.
  • Sunday the FSA stepped in to nationalise UK's Bradford and Bingley at a cost of £40 billion, with anticipated loss to the tax payer of £20 billion ($35 billion).
  • Monday, Wachovia on the brink of going bust is pushed into the arms of Citicorp.
  • European bank Fortis was nationalised at a cost of $17 billion by the governments of Belgium, the Netherlands and Luxembourg.
  • Germany rescues Hypo Real Estate for a huge $ 50 billion.
  • Iceland's Government rescues and effectively nationalises their third largest bank Glitnir HF for approx $1 billion.

The worlds central banks responded by pumping an estimated $600 billion into the worlds credit markets as short-term liquidity, but more on that in a later article.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Attention Editors and Publishers! - You have permission to republish THIS article. Republished articles must include attribution to the author and links back to the http://www.marketoracle.co.uk . Please send an email to republish@marketoracle.co.uk, to include a link to the published article.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

William
29 Sep 08, 22:18
Bailout Temporary defeat

This defeat of the so-called bailout plan is temporary. The plan will be tweaked and another vote. You seriously do not think that the Wall Streeters who gave us this disaster will take a hit when they can sock it to America AGAIN.


Andrew
29 Sep 08, 22:33
New deal

An interesting but not totally unexpected outcome - now the real deals can start - no more golden handshakes, no more bonuses, and no more inventive financial tools. House ownership will again (eventually) become affordable to those with average jobs and social housing for the rest. Capitalism has failed 20 years after its old 'prop' Communism - the US now has to contend with two wars, The Euro, China and a bust financial system. Spiritually you can make it but the next ten years will be tough for some. But if the rest of the world no longer considers you worthwhile saving we'll let you go under - Good Luck.


Paolo
29 Sep 08, 22:40
Wall Street

Seems to me the tides have turned and the people have to ride the wave.

Wall Street and their lobby and their media will be coming back strong. They will be extorting and pressuring each congressperson. They will be buying them as well.

There were a lot of people on the streets, and they are on the blogs and the websites like www.nowallstreetbailout.com.

If Americans keep up the pressure, you can bring down the beast.. You really can. KEEP UP THE PRESSURE. on the congress and on the blogs. Email all your friends and relatives.

Speak frankly and let the truth snowball. It kicked some ass today.


Jack Jersawitz
29 Sep 08, 22:49
Bailout was no cure

There is no cure. No "bail-out" will solve their problem. Printing worthless money will only make the situation worse and the revolutionary working class tide that much stronger

Truth of the matter looking at the economic collapse as being a product of the sub-prime mortgage deals is a mistake. Sub-prime is being used and blamed to hide the truth of the matter.

The reality is that sub-prime is just one expression of the classic mode of failure of capitalist economics, i.e., over production of commodities in a market already saturated.

In this case the commodity is money itself. An expression of that fact is that in recent years, rather than value a company on the basis of production and sale of commodities, cars, radios, shoes, televisions, etc., profit and loss related to production and sales, companies have been valued on the basis of return of money value of its stock.

In order to keep that going laws limiting the use of borrowed money to purchase stock have been eliminated. As well interest rates were driven down in order to prop up commodity purchase not least of which was money commodities.

In that vein, risky sub-prime mortgages, the increase of sub-prime directly related to the drying up of a saturated housing market for qualified buyers, were only the beginning of the process of developing derivatives, the bundling of sub-prime derivatives into securities being only one form of derivative.

The natural drive to continue proffitting in a market consisting of the money commodity is no different then continuing to try and profit from production of automobiles in a market for automobiles that is already saturated.

Given all those circumstances the lowering of interest rates gave rise to increased house values as the market expanded based on cheap money and the constant hit by home owners on the increased value (But really an illusory value as we are now seeing as house prices start to collapse) and the increase in indebtedness thus generated.

Again! This is the classic periodic collapse, as opposed to the seven year business cycle, caused by over production (Cheap money) for market. Right on time, every 60 or 70 years, if you figure from the end of the great depression of the 20's and 30's, i.e., the beginning of the Second World War, just about 69 years.

This developing collapse will leave no choices other than barbarism and war or Socialist Revolution.

http://www.wrp.org.uk

Jack Jersawitz


Der Rot Baron
29 Sep 08, 22:54
$1.2 trillion loss

The market lost $1.2 trillion in one day of the fabricated meta-meta-meta-meta paper wealth. Can anyone not see that the market is now "discounting" the default of the US government? Remove the boundaries between government and corporations, and if one goes down, so goes the other. Over 20% of our "on paper" GDP is the "financials". And over 20% of our government expenditures go to interest on the national debt. I guess Congress can reinflate the credit and housing bubbles, so the national debt will become relatively smaller? Texas law says you can shoot adulters legally if they have their shoes off. So I guess, since its right before an election, government and private "industry" have gotten caught in the bedroom together with their shoes off. Someone is afraid that aggrieved will shoot to kill. All the little piggies in Congress have been slopping at the same trough, no matter what party they were in. And, the debt is headed for being half of our entire economy. Should have called the Article V amendment convention long ago, and backed Congress down a few notches. Too late now. Discounting the default of the government itself.


Ko
29 Sep 08, 22:58
Party lines

Interesting to see how the votes did not fall along party lines. Some have been noting for a long time that many on both sides share the same ideology and corruption.

Of the Yes vote: Fortunes stand to be cut. Perhaps the ones affected should recuse themselves from voting? Others may be being literally blackmailed or otherwise threatened. At appropriate times, skeletons get dragged out. I keep wondering about the timing of Spitzer's downfall. Some believe the government should rule our lives. Some believe the financial "cream" should rule our lives. Some believe corporations should rule our lives. A yes vote gives each of these camps the chance to prevail.

Of those who voted against: These Republicans actually want to see less power given to the government. These Democrats want to see government power directed to propping up the poor instead of the rich. Very different ideologies resulting in a No vote but a No vote gives each of these camps the chance to prevail.

As a start, the corrupted need to be uncovered and removed.


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