WASHINGTON (AP) -- President Bush said Wednesday that lawmakers risk a cascade of wiped-out retirement savings, rising home foreclosures, lost jobs and closed businesses if they fail to act on a massive financial rescue plan. "Our entire economy is in danger," he said.
"Without immediate action by Congress, American could slip into a financial panic and a distressing scenario would unfold," Bush said in a 12-minute prime-time address delivered from the White House East Room that he hoped would help rescue his tough-sell bailout package. "Ultimately, our country could experience a long and painful recession."
Said Bush: "We must not let this happen."
The unprecedented $700 billion bailout, which the Bush administration asked Congress last weekend to approve before it adjourns, is meeting with deep skepticism, especially from conservatives in Bush's own Republican Party who are revolting at the high price tag and massive private-sector intervention by government. Though there is general agreement that something must be done to address the spiraling economic problems, Bush has been forced to accept changes almost daily, based on demands from the right and left.
Seeking to explain himself to conservatives, Bush stressed he was reluctant to put taxpayer money on the line to help businesses that had made bad decisions and that the rescue is not aimed at saving individual companies. He tried to address some of the major complaints from Democrats by promising that CEOs of failed companies won't be rewarded, while warning he would draw the line at regulations he determined would hamper economic growth.
"With the situation becoming more precarious by the day, I faced a choice: to step in with dramatic government action or to stand back and allow the irresponsible actions by some to undermine the financial security of all," Bush said.
The president turned himself into an economics professor for much of the address, tracing the origins of the problem back a decade.
But while generally acknowledging risky and poorly thought-out financial decisions at many levels of society, Bush never assigned blame to any specific entity, such as his administration, the quasi-independent mortgage giants Fannie Mae and Freddie Mac or the Wall Street firms that built rising profits on increasingly speculative mortgage-backed securities. Instead, he spoke in terms of investment banks that "found themselves saddled with" the toxic assets the government is now proposing to buy and banks that "found themselves" with questionable balance sheets.
Intensive, personal lobbying of lawmakers is not usually Bush's style as president, unlike some predecessors. He does not often make calls or twist arms on behalf of a legislative priority.
But with the nation facing the biggest financial meltdown in decades, Bush took the unusual step of asking Democrat Barack Obama and Republican John McCain, one of whom will inherit the financial mess in four months, and key congressional leaders of both parties to a White House meeting on Thursday to work on a compromise.
Obama spokesman Bill Burton said the senator would attend the meeting scheduled for the afternoon, and senior McCain advisers said he would, too. The plans of the other invitees were unknown. The White House said that the idea for the joint meeting was McCain's and that aides went about setting it up after Bush and McCain spoke Wednesday afternoon.
In another move welcome at the White House, Obama and McCain issued a joint statement using their own dire language to urge lawmakers to act. The two candidates -- bitterly fighting each other for the White House but coming together over this issue -- said the situation offers a chance for politicians to prove Washington's worth.
"The plan that has been submitted to Congress by the Bush administration is flawed, but the effort to protect the American economy must not fail," they said. "This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe."
However, the Oval Office rivals were not putting politics aside entirely. McCain asked Obama to agree to delay their first debate, scheduled for Friday, while Obama said it should go ahead.
White House and administration officials have warned repeatedly in recent days of a coming "financial calamity."
But that has not closed the deal, which for many recalls previous warnings of grave threats from Bush -- such as before the Iraq war -- that did not materialize. So Bush's goal with his speech, his first prime-time address in 377 days, was to frame the debate in layman's terms to show the depths of the crisis, explain how it affects the people's daily lives and inspire the public to demand action from Washington.
He said that more banks could fail, the stock market could plummet and erase retirement accounts, businesses could find it hard to get credit and be forced to close, wiping out jobs for millions of Americans.
He ended on a positive note, predicting lawmakers would "rise to the occasion" and that the nation's economy will overcome "a moment of great challenge."
With so many crises hitting the United States at once, the presidential race has taken a back seat and so has Bush's involvement in politics. Bush canceled a campaign trip to Florida on Wednesday to deal with the problem, the third time in a week that he has scrapped his attendance at out-of-town fundraisers, either because of the market turmoil or Hurricane Ike.
The economic crisis also is almost certain to overshadow the rest of Bush's four months left in office and could hugely impact his legacy. It has been assumed that the long-term view of Bush's presidency was to be shaped largely by Iraq, Hurricane Katrina and the Sept. 11, 2001, attacks. Now, the dire economic problems and the aftermath of the government's attempted solution will certainly be added to that list.
Showing posts with label AIG. Show all posts
Showing posts with label AIG. Show all posts
Thursday, September 25, 2008
Wednesday, September 24, 2008
AIG signs "definitive" $85-bln deal with U.S. Fed
American International Group Inc said late on Tuesday it signed a "definitive" agreement for up to $85 billion in borrowings from the U.S. Federal Reserve, the main part of a rescue by the central bank that will see it take a 79.9 percent stake in the giant insurer.
AIG Chief Executive Edward Liddy said in a statement the facility was "the company's best alternative" in the current market environment.
Under the terms of the agreement, AIG has to pay back the loan from, among other things, asset sales and new debt or share issues. In the statement, AIG made it clear how onerous the terms of the two-year loan will be.
Not only will it pay 8.50 percentage points over 3-month LIBOR, putting the current rate at well over 11 percent, but it will also pay commitment fees.
There will be an initial gross commitment of 2 percent of the total loan facility, and subsequently a fee on undrawn amounts of 8.5 percent a year. The interest and the fees will be added to the balance outstanding, the company said.
"We are pleased to have finalized the terms of the facility, and are already developing a plan to sell assets, repay the facility and emerge as a smaller but profitable company," Liddy said in the statement.
It wasn't immediately clear whether the signing of the agreement will derail efforts by a large investor group that is working to thwart a government takeover of the company.
A lawyer for the investors -- which represent more than a third of all AIG stockholders and have the backing of former CEO Maurice "Hank" Greenberg -- said representatives of the group were to be briefed by the company on its financial position.
The rescue plan was unveiled Sept. 16 amid the most tumultuous week in financial markets in recent memory.
AIG Chief Executive Edward Liddy said in a statement the facility was "the company's best alternative" in the current market environment.
Under the terms of the agreement, AIG has to pay back the loan from, among other things, asset sales and new debt or share issues. In the statement, AIG made it clear how onerous the terms of the two-year loan will be.
Not only will it pay 8.50 percentage points over 3-month LIBOR, putting the current rate at well over 11 percent, but it will also pay commitment fees.
There will be an initial gross commitment of 2 percent of the total loan facility, and subsequently a fee on undrawn amounts of 8.5 percent a year. The interest and the fees will be added to the balance outstanding, the company said.
"We are pleased to have finalized the terms of the facility, and are already developing a plan to sell assets, repay the facility and emerge as a smaller but profitable company," Liddy said in the statement.
It wasn't immediately clear whether the signing of the agreement will derail efforts by a large investor group that is working to thwart a government takeover of the company.
A lawyer for the investors -- which represent more than a third of all AIG stockholders and have the backing of former CEO Maurice "Hank" Greenberg -- said representatives of the group were to be briefed by the company on its financial position.
The rescue plan was unveiled Sept. 16 amid the most tumultuous week in financial markets in recent memory.
FBI probes financial giants for fraud
Washington: The US Federal Bureau of Investigation is probing allegations of fraud by 26 Wall Street firms including several investment giants whose collapse sent world markets into turmoil, US media said on Tuesday.
The FBI has set its sights on investment titan Lehman Brothers, mortgage giants Fannie Mae and Freddie Mac and insurer AIG, in a wide-reaching inquiry that comes as lawmakers rush to agree a $700 billion government bailout of the troubled US financial sector.
The FBI probe aims to determine whether company executives had any responsibility for the institutions’ financial woes through “misinformation or material misinformation,” CNN said.
FBI Director Robert Mueller said last week that the bureau was probing 24 financial institutions, but gave no details other than to describe them as “large corporations” that may face allegations of misstated assets.
ABC News said the probe was “multifaceted and the net is much deeper than the major firms officials confirmed today,” adding that the probe had expanded from 14 major firms to 26 in less than a year.
“The FBI currently has 26 pending corporate fraud investigations involving subprime lenders,” FBI spokesman Richard Kolko told ABC.
“As we have seen, this number can fluctuate over time; however, we do not discuss which companies may or may not be the subject of an investigation.”
Lehman Brothers earlier this month became the latest victim of the US subprime mortgage crisis, which began with a wave of foreclosures by high-risk borrowers in the United States and now threatens the global financial system.
Details of the FBI investigation broke after lawmakers in Washington grappled for a second day with the hefty bailout proposal to absorb shaky mortgage-backed debt weighing on banks and other financial institutions.
The uncertainty prompted fresh turmoil on financial markets and the main global stock markets were hit hard.
Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson said the rescue plan was urgently need to avert a deeper economic crisis.
The FBI has set its sights on investment titan Lehman Brothers, mortgage giants Fannie Mae and Freddie Mac and insurer AIG, in a wide-reaching inquiry that comes as lawmakers rush to agree a $700 billion government bailout of the troubled US financial sector.
The FBI probe aims to determine whether company executives had any responsibility for the institutions’ financial woes through “misinformation or material misinformation,” CNN said.
FBI Director Robert Mueller said last week that the bureau was probing 24 financial institutions, but gave no details other than to describe them as “large corporations” that may face allegations of misstated assets.
ABC News said the probe was “multifaceted and the net is much deeper than the major firms officials confirmed today,” adding that the probe had expanded from 14 major firms to 26 in less than a year.
“The FBI currently has 26 pending corporate fraud investigations involving subprime lenders,” FBI spokesman Richard Kolko told ABC.
“As we have seen, this number can fluctuate over time; however, we do not discuss which companies may or may not be the subject of an investigation.”
Lehman Brothers earlier this month became the latest victim of the US subprime mortgage crisis, which began with a wave of foreclosures by high-risk borrowers in the United States and now threatens the global financial system.
Details of the FBI investigation broke after lawmakers in Washington grappled for a second day with the hefty bailout proposal to absorb shaky mortgage-backed debt weighing on banks and other financial institutions.
The uncertainty prompted fresh turmoil on financial markets and the main global stock markets were hit hard.
Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson said the rescue plan was urgently need to avert a deeper economic crisis.
Tuesday, September 23, 2008
Bailout debate mulls making Wall Street pay
NEW YORK (Reuters) - The planned $700 billion bailout to shore up the battered U.S. financial system looked set to drag into next week as Washington lawmakers haggled over how exactly they could make Wall Street pay for its rescue.
Stocks and the U.S. dollar tumbled on Monday as emerging details of the plan left many players skeptical that the rescue, which would give powers to the U.S. Treasury Department to buy up toxic mortgage-related debt from financial groups, would work.
"The big detail we want to know is how is the government going to buy these securities, and what they will pay, how that reverse auction will work," said Giri Cherukuri, head trader at OakBrook Investments LLC in Lisle, Illinois. "And the big question is, 'Will this bring us out of the woods?"'
A day after America's last two big investment banks, Goldman Sachs (NYSE:GS - News) and Morgan Stanley (NYSE:MS - News), ended Wall Street's swashbuckling era by securing Federal Reserve approval to become commercial banks, all eyes shifted to Washington.
U.S. lawmakers and Bush administration officials were hammering out details of a deal they hope will end the worst U.S. financial crisis since the Great Depression.
U.S. Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke start two-days of congressional hearings on Tuesday to hasten approval of the bailout.
With the economy the No. 1 issue in a U.S. presidential election that is about six weeks away, lawmakers want a plan in place quickly, fearing delay could send markets reeling again.
But with one-third of the U.S. Senate and the entire U.S. House of Representatives up for re-election on November 4, lawmakers will want to sound tough on such hot-button issues as the pay of reckless executives.
"We are not sending a blank check to Wall Street," House Speaker Nancy Pelosi said after holding bipartisan talks.
With so many ideas being floated in Washington on Monday, one congressional aide who asked not to be identified likened the scene to a "Turkish bazaar of public policy ideas."
The crisis has unsettled world markets, and Group of Seven finance ministers and central bank heads promised "heightened close cooperation" to safeguard the global economy.
The latest jitters came after the deal late Sunday scrapped the investment bank model synonymous with Wall Street, ensuring Goldman Sachs Group Inc and Morgan Stanley will avoid the fate of rivals that collapsed or were bought in the brutal meltdown of recent weeks.
Morgan Stanley went a step further, striking a deal with Japan's largest bank, Mitsubishi UFJ Financial Group Inc (Tokyo:8306.T - News), on Monday to spend as much as $8.5 billion for about one-fifth of the prestigious 73-year-old investment bank, sending Morgan's shares higher before closing down.
ANGER AT BAILOUT
After Monday's talks, U.S. Rep. Barney Frank, a top Democrat, said the U.S. government would take equity in the companies seeking a bailout. But the U.S. Treasury is against that idea, sources close to Treasury told Reuters.
The White House said it agreed to an oversight board to monitor the bailout, which Democrats had pushed for. And Frank said there was also agreement that the plan should minimize the number of Americans who will lose their homes to foreclosure.
But lawmakers and Treasury officials were at odds on the emotional issue of whether executives at the companies in need of rescue must agree to limits to their compensation.
With details still in dispute, Frank said the legislation could take until next week to complete.
Earlier, U.S. President George W. Bush said, "Failure to act would have broad consequences far beyond Wall Street."
But U.S. Rep. Henry Waxman, chairman of the House Committee on Oversight and Government Reform, voiced outrage at the notion of any bailout without a cap on executive pay.
"The (Bush) administration's plan ... would enrich the Wall Street executives whose reckless investments caused the financial crisis," the powerful California Democrat said. "The taxpayer is being asked to risk billions to protect the bonuses of investment bankers."
Even some Republicans came out against the bailout.
Alabama Sen. Richard Shelby, the top Republican on the Senate Banking Committee, said he feared the bailout was "neither workable nor comprehensive."
"It would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted," he said.
Sen. Chuck Hagel, a Nebraska Republican, told Reuters after a meeting of fellow Senate Banking Committee members, "I suspect there will be opposition. We're not there. We don't even have a product yet."
South Carolina Republican Sen. Jim DeMint called the Bush plan "completely unacceptable."
The uncertainty caused stocks to lose most of the gains seen on Friday, when word of the plan sparked Wall Street's best one-day gain since 1987. The S&P 500 index (^SPX - News) dropped 3.8 percent.
Buoyed by the dollar's near 2 percent decline, U.S. crude oil futures soared $16.37 to settle at $120.92, the biggest ever jump in a trading session. At one point, oil was up a stunning $25.45, or 24.3 percent.
In a crisis that has lurched from issue to issue since the U.S. economy first showed weakness and home prices began to tumble last year, prompting a credit crunch and the collapse of investment banking, some wondered where it would end.
"The thing that scares me is the breadth of it," said Robert MacMahon, managing director for restructuring at GE (NYSE:GE - News) Corporate Lending.
Democrats, who control both chambers of Congress, pushed for changes to the plan on concerns that it could expand the powers of the executive branch without adequate oversight -- a frequent Democratic criticism of the Bush administration.
GLOBAL CRISIS
The crisis is threatening global markets. Central banks from Europe to Japan sought to shore up banks by injecting money into the banking system. (ID:nLM163631). Even in the oil-rich Gulf region, the crisis was felt.
The United Arab Emirates Central Bank launched its first-ever emergency funding facility to help fund banks as global lending between institutions shriveled.
The Fed's agreement to convert the once high-flying Goldman and Morgan Stanley investment banks into more conventional depositary institutions was Washington's latest effort to restore calm to chaotic markets and avoid a deep recession.
Both Goldman and Morgan will now face a thicket of new regulations, which will bolster their resources but also curb the spectacular profit growth that made investment bankers among the highest paid in the nation.
The rescue came together after seismic shifts on Wall Street that saw Lehman Brothers Holdings Inc (Other OTC:LEHMQ.PK - News) file for bankruptcy, Merrill Lynch & Co Inc (NYSE:MER - News) agree to sell itself to Bank of America (NYSE:BAC - News), and the Fed stage an $85 billion rescue of American International Group Inc (NYSE:AIG - News).
AIG shares gained 23 percent on Monday on reports its investors were hatching a plan to prevent the insurer from falling into government ownership, by repaying the Fed's loan.
Goldman and Morgan Stanley were the last of the big five investment banks that shaped 20 years of Wall Street history after Bear Stearns collapsed earlier this year.
Stocks and the U.S. dollar tumbled on Monday as emerging details of the plan left many players skeptical that the rescue, which would give powers to the U.S. Treasury Department to buy up toxic mortgage-related debt from financial groups, would work.
"The big detail we want to know is how is the government going to buy these securities, and what they will pay, how that reverse auction will work," said Giri Cherukuri, head trader at OakBrook Investments LLC in Lisle, Illinois. "And the big question is, 'Will this bring us out of the woods?"'
A day after America's last two big investment banks, Goldman Sachs (NYSE:GS - News) and Morgan Stanley (NYSE:MS - News), ended Wall Street's swashbuckling era by securing Federal Reserve approval to become commercial banks, all eyes shifted to Washington.
U.S. lawmakers and Bush administration officials were hammering out details of a deal they hope will end the worst U.S. financial crisis since the Great Depression.
U.S. Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke start two-days of congressional hearings on Tuesday to hasten approval of the bailout.
With the economy the No. 1 issue in a U.S. presidential election that is about six weeks away, lawmakers want a plan in place quickly, fearing delay could send markets reeling again.
But with one-third of the U.S. Senate and the entire U.S. House of Representatives up for re-election on November 4, lawmakers will want to sound tough on such hot-button issues as the pay of reckless executives.
"We are not sending a blank check to Wall Street," House Speaker Nancy Pelosi said after holding bipartisan talks.
With so many ideas being floated in Washington on Monday, one congressional aide who asked not to be identified likened the scene to a "Turkish bazaar of public policy ideas."
The crisis has unsettled world markets, and Group of Seven finance ministers and central bank heads promised "heightened close cooperation" to safeguard the global economy.
The latest jitters came after the deal late Sunday scrapped the investment bank model synonymous with Wall Street, ensuring Goldman Sachs Group Inc and Morgan Stanley will avoid the fate of rivals that collapsed or were bought in the brutal meltdown of recent weeks.
Morgan Stanley went a step further, striking a deal with Japan's largest bank, Mitsubishi UFJ Financial Group Inc (Tokyo:8306.T - News), on Monday to spend as much as $8.5 billion for about one-fifth of the prestigious 73-year-old investment bank, sending Morgan's shares higher before closing down.
ANGER AT BAILOUT
After Monday's talks, U.S. Rep. Barney Frank, a top Democrat, said the U.S. government would take equity in the companies seeking a bailout. But the U.S. Treasury is against that idea, sources close to Treasury told Reuters.
The White House said it agreed to an oversight board to monitor the bailout, which Democrats had pushed for. And Frank said there was also agreement that the plan should minimize the number of Americans who will lose their homes to foreclosure.
But lawmakers and Treasury officials were at odds on the emotional issue of whether executives at the companies in need of rescue must agree to limits to their compensation.
With details still in dispute, Frank said the legislation could take until next week to complete.
Earlier, U.S. President George W. Bush said, "Failure to act would have broad consequences far beyond Wall Street."
But U.S. Rep. Henry Waxman, chairman of the House Committee on Oversight and Government Reform, voiced outrage at the notion of any bailout without a cap on executive pay.
"The (Bush) administration's plan ... would enrich the Wall Street executives whose reckless investments caused the financial crisis," the powerful California Democrat said. "The taxpayer is being asked to risk billions to protect the bonuses of investment bankers."
Even some Republicans came out against the bailout.
Alabama Sen. Richard Shelby, the top Republican on the Senate Banking Committee, said he feared the bailout was "neither workable nor comprehensive."
"It would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted," he said.
Sen. Chuck Hagel, a Nebraska Republican, told Reuters after a meeting of fellow Senate Banking Committee members, "I suspect there will be opposition. We're not there. We don't even have a product yet."
South Carolina Republican Sen. Jim DeMint called the Bush plan "completely unacceptable."
The uncertainty caused stocks to lose most of the gains seen on Friday, when word of the plan sparked Wall Street's best one-day gain since 1987. The S&P 500 index (^SPX - News) dropped 3.8 percent.
Buoyed by the dollar's near 2 percent decline, U.S. crude oil futures soared $16.37 to settle at $120.92, the biggest ever jump in a trading session. At one point, oil was up a stunning $25.45, or 24.3 percent.
In a crisis that has lurched from issue to issue since the U.S. economy first showed weakness and home prices began to tumble last year, prompting a credit crunch and the collapse of investment banking, some wondered where it would end.
"The thing that scares me is the breadth of it," said Robert MacMahon, managing director for restructuring at GE (NYSE:GE - News) Corporate Lending.
Democrats, who control both chambers of Congress, pushed for changes to the plan on concerns that it could expand the powers of the executive branch without adequate oversight -- a frequent Democratic criticism of the Bush administration.
GLOBAL CRISIS
The crisis is threatening global markets. Central banks from Europe to Japan sought to shore up banks by injecting money into the banking system. (ID:nLM163631). Even in the oil-rich Gulf region, the crisis was felt.
The United Arab Emirates Central Bank launched its first-ever emergency funding facility to help fund banks as global lending between institutions shriveled.
The Fed's agreement to convert the once high-flying Goldman and Morgan Stanley investment banks into more conventional depositary institutions was Washington's latest effort to restore calm to chaotic markets and avoid a deep recession.
Both Goldman and Morgan will now face a thicket of new regulations, which will bolster their resources but also curb the spectacular profit growth that made investment bankers among the highest paid in the nation.
The rescue came together after seismic shifts on Wall Street that saw Lehman Brothers Holdings Inc (Other OTC:LEHMQ.PK - News) file for bankruptcy, Merrill Lynch & Co Inc (NYSE:MER - News) agree to sell itself to Bank of America (NYSE:BAC - News), and the Fed stage an $85 billion rescue of American International Group Inc (NYSE:AIG - News).
AIG shares gained 23 percent on Monday on reports its investors were hatching a plan to prevent the insurer from falling into government ownership, by repaying the Fed's loan.
Goldman and Morgan Stanley were the last of the big five investment banks that shaped 20 years of Wall Street history after Bear Stearns collapsed earlier this year.
Wednesday, September 17, 2008
US Stocks sink over 3 percent on bank fears
NEW YORK (Reuters) - Stocks plunged more than 3 percent on Wednesday as a spike in inter-bank lending rates fanned fears about the health of global markets and the U.S. rescue of American International Group failed to reassure the market.
Anxious investors spent the morning wondering which company might be next to come under serious strain due to tight credit conditions, prompting them to dump financial shares across the board. The S&P 500 financial index (^GSPF - News) slid nearly 8 percent.
Morgan Stanley (NYSE:MS - News) shares tumbled 32.5 percent to $19.37 as investors worried whether it would survive as an independent investment bank in the current environment.
Shares of the other remaining U.S. investment bank, Goldman Sachs(NYSE:GS - News), plunged 21.5 percent to $104.39 after several brokerages cut their profit outlooks for the firm.
The S&P 500 sank 4.2 percent to 1,163.02, its lowest level since May 2005, while the Dow has shed 700 points since the start of the week.
"The fear is, 'Who is next?"' said John O'Brien, senior vice president at MKM Partners LLC in Cleveland. "It almost feels like people scour the books and say, 'Who is the next likely target that we can put a short on?' and that spreads continuous fear."
Strategists said the damage threatens to go beyond the financial services sector, hurting the corporate profit outlook and spreading panic among increasingly overstretched consumers.
"What does tomorrow bring? Will it start spilling over into consumers? Will there be runs on the banks? There's a million things going on," said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets.
"Hopefully, we'll see a capitulation soon when everybody throws in the towel," he added.
The Dow Jones industrial average (DJI:^DJI - News) was down 352.06 points, or 3.18 percent, at 10,706.96. The Standard & Poor's 500 Index (^SPX - News) was down 45.15 points, or 3.72 percent, at 1,168.44. The Nasdaq Composite Index (Nasdaq:^IXIC - News) was down 80.16 points, or 3.63 percent, at 2,127.74.
Also worrying investors was news on Tuesday that the Reserve Primary Fund, a money-market mutual fund whose assets have fallen 65 percent in recent weeks, fell below $1 a share in net asset value because of losses on debt issued by the now bankrupt Lehman Brothers Holdings (NYSE:LEH - News; NYSE:LEH - News).
"Every investor is now questioning each and every investment they have anywhere on the planet," said John Schloegel, vice president of investment strategies at Capital Cities Asset Management in Austin, Texas.
"It's leading them to sell anything that has any type of risk -- to sell first. It's an unusual situation we are in right now."
A break below important technical support for both the Dow and S&P 500 accelerated the market's slide, traders said.
The bank-to-bank cost of borrowing overnight dollars fell more than a percentage point on Wednesday, but the premium paid for the greenback and sterling over three months swelled, fanning fears that the supply of credit might be drying up in the global financial system.
The drop in Morgan Stanley's shares came despite the bank's posting quarterly results after the bell on Tuesday that beat Wall Street's estimates.
The government agreed on Tuesday to rescue AIG (NYSE:AIG - News) through an emergency $85 billion loan. The insurance company's shares were off almost 46 percent at $2.04 on the NYSE.
Banks frantically seeking dollar funds have been stonewalled by others increasingly reluctant to lend amid uncertainty and nervousness following the collapse of Lehman Brothers and the bailout of AIG.
Anxious investors spent the morning wondering which company might be next to come under serious strain due to tight credit conditions, prompting them to dump financial shares across the board. The S&P 500 financial index (^GSPF - News) slid nearly 8 percent.
Morgan Stanley (NYSE:MS - News) shares tumbled 32.5 percent to $19.37 as investors worried whether it would survive as an independent investment bank in the current environment.
Shares of the other remaining U.S. investment bank, Goldman Sachs(NYSE:GS - News), plunged 21.5 percent to $104.39 after several brokerages cut their profit outlooks for the firm.
The S&P 500 sank 4.2 percent to 1,163.02, its lowest level since May 2005, while the Dow has shed 700 points since the start of the week.
"The fear is, 'Who is next?"' said John O'Brien, senior vice president at MKM Partners LLC in Cleveland. "It almost feels like people scour the books and say, 'Who is the next likely target that we can put a short on?' and that spreads continuous fear."
Strategists said the damage threatens to go beyond the financial services sector, hurting the corporate profit outlook and spreading panic among increasingly overstretched consumers.
"What does tomorrow bring? Will it start spilling over into consumers? Will there be runs on the banks? There's a million things going on," said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets.
"Hopefully, we'll see a capitulation soon when everybody throws in the towel," he added.
The Dow Jones industrial average (DJI:^DJI - News) was down 352.06 points, or 3.18 percent, at 10,706.96. The Standard & Poor's 500 Index (^SPX - News) was down 45.15 points, or 3.72 percent, at 1,168.44. The Nasdaq Composite Index (Nasdaq:^IXIC - News) was down 80.16 points, or 3.63 percent, at 2,127.74.
Also worrying investors was news on Tuesday that the Reserve Primary Fund, a money-market mutual fund whose assets have fallen 65 percent in recent weeks, fell below $1 a share in net asset value because of losses on debt issued by the now bankrupt Lehman Brothers Holdings (NYSE:LEH - News; NYSE:LEH - News).
"Every investor is now questioning each and every investment they have anywhere on the planet," said John Schloegel, vice president of investment strategies at Capital Cities Asset Management in Austin, Texas.
"It's leading them to sell anything that has any type of risk -- to sell first. It's an unusual situation we are in right now."
A break below important technical support for both the Dow and S&P 500 accelerated the market's slide, traders said.
The bank-to-bank cost of borrowing overnight dollars fell more than a percentage point on Wednesday, but the premium paid for the greenback and sterling over three months swelled, fanning fears that the supply of credit might be drying up in the global financial system.
The drop in Morgan Stanley's shares came despite the bank's posting quarterly results after the bell on Tuesday that beat Wall Street's estimates.
The government agreed on Tuesday to rescue AIG (NYSE:AIG - News) through an emergency $85 billion loan. The insurance company's shares were off almost 46 percent at $2.04 on the NYSE.
Banks frantically seeking dollar funds have been stonewalled by others increasingly reluctant to lend amid uncertainty and nervousness following the collapse of Lehman Brothers and the bailout of AIG.
Oil prices rebound on AIG bailout, weaker dollar
Oil prices bounce higher after government bails out AIG, dollar gains vs euro
NEW YORK (AP) -- Oil prices rebounded Wednesday as a government rescue of American International Group Inc. soothed skittish investors who feared the insurer's collapse could have triggered a wholesale exodus from commodities.
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Light, sweet crude for October delivery rose $1.45 to $92.60 a barrel in early trading on the New York Mercantile Exchange.
Meanwhile at the pump, retail gas prices were virtually flat compared with the previous session as more Gulf Coast refineries began ramping up operations after the passage of Hurricane Ike. A gallon of regular inched up one-tenth of a penny to a new national average of $3.855, according to auto club AAA, the Oil Price Information Service and Wright Express.
Some recovery in crude was expected after the contract dropped $10 in the previous two sessions, bringing prices to their lowest level in seven months and down 8 percent for the year. At one point Tuesday, oil touched $90.51 a barrel, its lowest since Feb. 8, and down 39 percent from a record $147.27 on July 11.
Still, recent rallies often have been followed by sharp selloffs as oil market traders try to wring whatever money they can out of the quickly deflating oil bubble.
Wednesday's oil gain was energized by the bailout of AIG. The Federal Reserve on Tuesday agreed to pump $85 million in taxpayer money into the insurance giant in return for a 79.9 percent ownership stake. The lifeline was aimed at avoiding an AIG collapse due to massive losses tied to the subprime mortgage crisis and the credit crunch.
If AIG had been allowed to fail, investors feared the company would move to unwind positions in energy and other commodities to raise cash, setting in motion another big commodities liquidation. Oil's big two-day price drop this week was due in part to similar concerns that surfaced after Lehman Brothers Holdings Inc. filed for bankruptcy Monday.
"The fear was that if AIG was allowed to go down, we could be looking at a huge exit from financial instruments across the spectrum: equities, oil futures, everything," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.
A slightly weaker dollar also gave oil prices a boost. A falling greenback encourages investors to shift funds into commodities, which are often bought as safe-haven assets used to hedge against inflation or weakness in the U.S. currency.
With so much uncertainty surrounding the U.S. financial system and fears that slowing economic growth will undermine crude demand, Wednesday's jump in oil prices probably has not broken the recent downward trend.
Events that would usually boost prices -- such as OPEC cutting output by 520,000 barrels a day last week, or damage to oil installations on the Texas coast by Ike last weekend -- haven't done so.
"The OPEC cut didn't have any impact," said Peter McGuire, managing director at investment firm Commodity Warrants Australia in Sydney. "Then Ike didn't slow the market either."
Also Wednesday, the U.S. government reported a bigger-than-expected drop in crude supplies, reflecting the shutdown of virtually all Gulf Coast oil production because of Ike and Hurricane Gustav.
The Energy Information Administration said U.S. crude stocks fell by 6.3 million barrels for the week ending Sept. 12, much bigger than the 3.7 million barrel drop expected by analysts surveyed by energy research firm Platts expected.
Gasoline inventories fell by 3.3 million barrels to 184.6 million barrels. Analysts expected stockpiles of the motor fuel to fall by 3.6 million barrels.
Meanwhile, inventories of distillate fuel, which include diesel and heating oil, fell by 900,000 barrels to 129.6 million barrels for the week ended Sept. 12. Analysts expected distillate stocks to slip by 1.7 million barrels.
Violence continued Wednesday across Nigeria's restive Niger Delta oil region. Nigeria's main militant group said it destroyed an oil-pumping station and a pipeline that crosses southern Nigeria, extending a spate of violence into a fifth day. The Movement for the Emancipation of the Niger Delta also said it attacked an oil pumping station overnight, destroying the flow station run by the local unit of Royal Dutch Shell PLC after battling security forces protecting the site.
In other Nymex trading, heating oil futures fell about half a penny to $2.716 a gallon, while gasoline prices lost 2.3 cents to $2.3775 a gallon. Natural gas for October delivery added 38 cents to $7.939 per 1,000 cubic feet.
In London, November Brent crude rose $1.72 to $90.94 a barrel on the ICE Futures exchange.
Associated Press writers Louise Watt in London and Alex Kennedy contributed to this report from Singapore.
NEW YORK (AP) -- Oil prices rebounded Wednesday as a government rescue of American International Group Inc. soothed skittish investors who feared the insurer's collapse could have triggered a wholesale exodus from commodities.
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Light, sweet crude for October delivery rose $1.45 to $92.60 a barrel in early trading on the New York Mercantile Exchange.
Meanwhile at the pump, retail gas prices were virtually flat compared with the previous session as more Gulf Coast refineries began ramping up operations after the passage of Hurricane Ike. A gallon of regular inched up one-tenth of a penny to a new national average of $3.855, according to auto club AAA, the Oil Price Information Service and Wright Express.
Some recovery in crude was expected after the contract dropped $10 in the previous two sessions, bringing prices to their lowest level in seven months and down 8 percent for the year. At one point Tuesday, oil touched $90.51 a barrel, its lowest since Feb. 8, and down 39 percent from a record $147.27 on July 11.
Still, recent rallies often have been followed by sharp selloffs as oil market traders try to wring whatever money they can out of the quickly deflating oil bubble.
Wednesday's oil gain was energized by the bailout of AIG. The Federal Reserve on Tuesday agreed to pump $85 million in taxpayer money into the insurance giant in return for a 79.9 percent ownership stake. The lifeline was aimed at avoiding an AIG collapse due to massive losses tied to the subprime mortgage crisis and the credit crunch.
If AIG had been allowed to fail, investors feared the company would move to unwind positions in energy and other commodities to raise cash, setting in motion another big commodities liquidation. Oil's big two-day price drop this week was due in part to similar concerns that surfaced after Lehman Brothers Holdings Inc. filed for bankruptcy Monday.
"The fear was that if AIG was allowed to go down, we could be looking at a huge exit from financial instruments across the spectrum: equities, oil futures, everything," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.
A slightly weaker dollar also gave oil prices a boost. A falling greenback encourages investors to shift funds into commodities, which are often bought as safe-haven assets used to hedge against inflation or weakness in the U.S. currency.
With so much uncertainty surrounding the U.S. financial system and fears that slowing economic growth will undermine crude demand, Wednesday's jump in oil prices probably has not broken the recent downward trend.
Events that would usually boost prices -- such as OPEC cutting output by 520,000 barrels a day last week, or damage to oil installations on the Texas coast by Ike last weekend -- haven't done so.
"The OPEC cut didn't have any impact," said Peter McGuire, managing director at investment firm Commodity Warrants Australia in Sydney. "Then Ike didn't slow the market either."
Also Wednesday, the U.S. government reported a bigger-than-expected drop in crude supplies, reflecting the shutdown of virtually all Gulf Coast oil production because of Ike and Hurricane Gustav.
The Energy Information Administration said U.S. crude stocks fell by 6.3 million barrels for the week ending Sept. 12, much bigger than the 3.7 million barrel drop expected by analysts surveyed by energy research firm Platts expected.
Gasoline inventories fell by 3.3 million barrels to 184.6 million barrels. Analysts expected stockpiles of the motor fuel to fall by 3.6 million barrels.
Meanwhile, inventories of distillate fuel, which include diesel and heating oil, fell by 900,000 barrels to 129.6 million barrels for the week ended Sept. 12. Analysts expected distillate stocks to slip by 1.7 million barrels.
Violence continued Wednesday across Nigeria's restive Niger Delta oil region. Nigeria's main militant group said it destroyed an oil-pumping station and a pipeline that crosses southern Nigeria, extending a spate of violence into a fifth day. The Movement for the Emancipation of the Niger Delta also said it attacked an oil pumping station overnight, destroying the flow station run by the local unit of Royal Dutch Shell PLC after battling security forces protecting the site.
In other Nymex trading, heating oil futures fell about half a penny to $2.716 a gallon, while gasoline prices lost 2.3 cents to $2.3775 a gallon. Natural gas for October delivery added 38 cents to $7.939 per 1,000 cubic feet.
In London, November Brent crude rose $1.72 to $90.94 a barrel on the ICE Futures exchange.
Associated Press writers Louise Watt in London and Alex Kennedy contributed to this report from Singapore.
Stocks sink after government bailout of AIG
Wall Street tumbles again after government bails out AIG, Barclays buys Lehman businesses
NEW YORK (AP) -- Wall Street stumbled again Wednesday, with anxieties about the financial system still running high even after the government bailed out the insurer American International Group Inc. The Dow Jones industrial average dropped about 300 points.
The Federal Reserve is giving a two-year, $85 billion loan to AIG in exchange for a nearly 80 percent stake in the insurer, after it lost billions in the risky business of insuring against bond defaults. Wall Street had feared that the conglomerate, which has its tentacles in various financial services industries around the world, would follow the investment bank Lehman Brothers Holdings Inc. into bankruptcy.
"People are scared to death," said Bill Stone, chief investment strategist for PNC Wealth Management. "Who would have imagined that AIG would have gotten into this position?"
He said the fear gripping the market reflects investors' concerns that AIG wasn't able to find a lifeline in the private sector and that Wall Street is now fretting about what other institutions could falter.
The two independent Wall Street investment banks left standing -- Goldman Sachs Group Inc. and Morgan Stanley -- remain under scrutiny, as does Washington Mutual Inc., the country's largest thrift bank. Morgan Stanley revealed its quarterly earnings early late Tuesday, posting a better-than-expected 7 percent slide in fiscal third-quarter profit. It insisted that it is surviving the credit crisis that has ravaged many of its peers.
Lehman filed for bankruptcy protection on Monday, and by late Tuesday had sold its North American investment banking and trading operations to Barclays, Britain's third-largest bank, for the bargain price of $250 million. Over the weekend, Merrill Lynch, the world's largest brokerage, sold itself in a last-ditch effort to avoid failure to Bank of America Corp.
The troubles in the financial sector could exacerbate the problems facing the weak U.S. economy, given that individuals and businesses rely on the nation's money centers.
The Commerce Department reported Wednesday that new home construction fell by 6.2 percent in August to 895,000 units, the slowest building pace since January 1991. Slumping demand for houses, sinking home prices and mortgage defaults have been the catalysts behind Wall Street's turmoil -- and the risky mortgage-backed assets held by the nation's banks are not apt to regain in value until the housing market turns around.
The Dow fell 298.00, or 2.69 percent, to 10,761.02 a day after Wall Street regained some of Monday's nosedive, in which the blue chips fell 504 points. The index is down more than 5 percent on the week, and has fallen more than 23 percent since reaching a record close of 14,164.53 on Oct. 9 last year.
Broader stock indicators also plunged. The Standard & Poor's 500 index dropped 42.68, or 3.52 percent, to 1,170.92, while the Nasdaq composite index fell 76.11, or 3.45 percent, to 2,131.79.
The stock market is likely to see heavy back-and-forth movement as traders continue to assess the flood of news that has poured in over the past several days.
On Monday, the Dow lost 504 points, the largest tumble since its drop following the September 2001 terror attacks. On Tuesday, it rose 141 points, after the Fed decided to leave interest rates unchanged.
"It's still uncertain ground we're treading. We just have to move on a daily basis," said Jack A. Ablin, chief investment officer at Harris Private Bank.
The government took other measures Tuesday to help alleviate the turmoil in the markets. The Treasury said it will start selling bonds for the Fed to aid it with its lending efforts, while the Securities and Exchange Commission said it will strictly prohibit naked short-selling starting Thursday.
Short-selling is when traders borrow shares of a stock they expect to fall and sell them -- if the stock does indeed fall, the traders buy the cheaper shares to cover the borrowed ones and profit from the difference. Naked short-selling occurs when sellers don't actually borrow the shares before selling them; it's a practice some say is partially responsible for the huge drop in the shares of investment banks like Lehman, Merrill Lynch and Bear Stearns Cos., which JPMorgan Chase & Co. bought earlier this year.
Bond prices wavered Wednesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 3.39 percent from 3.43 percent late Tuesday. The dollar was lower against other major currencies, while gold prices rose.
Crude oil rebounded $2.27 to $93.42 a barrel on the New York Mercantile Exchange. Crude has dropped by about $10 a barrel over the past two days due to concerns that troubles in the financial sector will dampen the economy and cause big funds to unwind their commodities bets.
Declining issues outnumbered advancers by nearly 10 to 1 on the New York Stock Exchange, where volume came to 655.9 million shares.
Overseas, Japan's Nikkei stock average rose 1.2 percent after AIG's rescue, but Hong Kong's Hang Seng index lost 3.6 percent.
In afternoon trading in Europe, Britain's FTSE 100 fell 1.37 percent, Germany's DAX index fell 2.25 percent, and France's CAC-40 fell 2.27 percent.
NEW YORK (AP) -- Wall Street stumbled again Wednesday, with anxieties about the financial system still running high even after the government bailed out the insurer American International Group Inc. The Dow Jones industrial average dropped about 300 points.
The Federal Reserve is giving a two-year, $85 billion loan to AIG in exchange for a nearly 80 percent stake in the insurer, after it lost billions in the risky business of insuring against bond defaults. Wall Street had feared that the conglomerate, which has its tentacles in various financial services industries around the world, would follow the investment bank Lehman Brothers Holdings Inc. into bankruptcy.
"People are scared to death," said Bill Stone, chief investment strategist for PNC Wealth Management. "Who would have imagined that AIG would have gotten into this position?"
He said the fear gripping the market reflects investors' concerns that AIG wasn't able to find a lifeline in the private sector and that Wall Street is now fretting about what other institutions could falter.
The two independent Wall Street investment banks left standing -- Goldman Sachs Group Inc. and Morgan Stanley -- remain under scrutiny, as does Washington Mutual Inc., the country's largest thrift bank. Morgan Stanley revealed its quarterly earnings early late Tuesday, posting a better-than-expected 7 percent slide in fiscal third-quarter profit. It insisted that it is surviving the credit crisis that has ravaged many of its peers.
Lehman filed for bankruptcy protection on Monday, and by late Tuesday had sold its North American investment banking and trading operations to Barclays, Britain's third-largest bank, for the bargain price of $250 million. Over the weekend, Merrill Lynch, the world's largest brokerage, sold itself in a last-ditch effort to avoid failure to Bank of America Corp.
The troubles in the financial sector could exacerbate the problems facing the weak U.S. economy, given that individuals and businesses rely on the nation's money centers.
The Commerce Department reported Wednesday that new home construction fell by 6.2 percent in August to 895,000 units, the slowest building pace since January 1991. Slumping demand for houses, sinking home prices and mortgage defaults have been the catalysts behind Wall Street's turmoil -- and the risky mortgage-backed assets held by the nation's banks are not apt to regain in value until the housing market turns around.
The Dow fell 298.00, or 2.69 percent, to 10,761.02 a day after Wall Street regained some of Monday's nosedive, in which the blue chips fell 504 points. The index is down more than 5 percent on the week, and has fallen more than 23 percent since reaching a record close of 14,164.53 on Oct. 9 last year.
Broader stock indicators also plunged. The Standard & Poor's 500 index dropped 42.68, or 3.52 percent, to 1,170.92, while the Nasdaq composite index fell 76.11, or 3.45 percent, to 2,131.79.
The stock market is likely to see heavy back-and-forth movement as traders continue to assess the flood of news that has poured in over the past several days.
On Monday, the Dow lost 504 points, the largest tumble since its drop following the September 2001 terror attacks. On Tuesday, it rose 141 points, after the Fed decided to leave interest rates unchanged.
"It's still uncertain ground we're treading. We just have to move on a daily basis," said Jack A. Ablin, chief investment officer at Harris Private Bank.
The government took other measures Tuesday to help alleviate the turmoil in the markets. The Treasury said it will start selling bonds for the Fed to aid it with its lending efforts, while the Securities and Exchange Commission said it will strictly prohibit naked short-selling starting Thursday.
Short-selling is when traders borrow shares of a stock they expect to fall and sell them -- if the stock does indeed fall, the traders buy the cheaper shares to cover the borrowed ones and profit from the difference. Naked short-selling occurs when sellers don't actually borrow the shares before selling them; it's a practice some say is partially responsible for the huge drop in the shares of investment banks like Lehman, Merrill Lynch and Bear Stearns Cos., which JPMorgan Chase & Co. bought earlier this year.
Bond prices wavered Wednesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 3.39 percent from 3.43 percent late Tuesday. The dollar was lower against other major currencies, while gold prices rose.
Crude oil rebounded $2.27 to $93.42 a barrel on the New York Mercantile Exchange. Crude has dropped by about $10 a barrel over the past two days due to concerns that troubles in the financial sector will dampen the economy and cause big funds to unwind their commodities bets.
Declining issues outnumbered advancers by nearly 10 to 1 on the New York Stock Exchange, where volume came to 655.9 million shares.
Overseas, Japan's Nikkei stock average rose 1.2 percent after AIG's rescue, but Hong Kong's Hang Seng index lost 3.6 percent.
In afternoon trading in Europe, Britain's FTSE 100 fell 1.37 percent, Germany's DAX index fell 2.25 percent, and France's CAC-40 fell 2.27 percent.
US government announces $85 bn loan to save AIG
WASHINGTON: The US government has agreed to provide an $85 billion emergency loan to rescue the huge insurer AIG, the The Federal Reserve said on Tuesday. The Fed said the US Treasury Department was in full support of the decision.
The Fed determined that a "disorderly failure" of AIG could undermine already fragile financial markets.
The government will receive an 79.9 percent equity stake in AIG, the Fed said
The deal would avoid the biggest corporate bankruptcy ever and follows a government bailout of mortgage lenders Freddie Mac and Fannie Mae just over a week ago.
Earlier, US stocks clawed back from their biggest one-day drop in seven years, soothed by speculation about a government rescue of AIG, a likely sale of Lehman Brothers' investment bank to Britain's Barclays, and a better-than-expected quarterly profit from Goldman Sachs.
The Fed determined that a "disorderly failure" of AIG could undermine already fragile financial markets.
The government will receive an 79.9 percent equity stake in AIG, the Fed said
The deal would avoid the biggest corporate bankruptcy ever and follows a government bailout of mortgage lenders Freddie Mac and Fannie Mae just over a week ago.
Earlier, US stocks clawed back from their biggest one-day drop in seven years, soothed by speculation about a government rescue of AIG, a likely sale of Lehman Brothers' investment bank to Britain's Barclays, and a better-than-expected quarterly profit from Goldman Sachs.
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