Market’s fall was nothing like that of Black Monday | Business | Chron.com – Houston Chronicle

Posted by: clickry on: September 30, 2008

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Even before the opening bell, Monday looked ugly.

But by the time that bell sounded again on the New York Stock Exchange, seven and a half frantic hours later, $1.2 trillion had vanished from the U.S. stock market.

What had started 24 hours earlier, with a modest sell-off in stock markets in Asia, had turned into one of Wall Street’s darkest days. The Dow Jones industrial average tumbled 777.68 points, just shy of 7 percent, to 10,365.45, its lowest close in nearly three years. The decline also surpasses the record for the biggest decline during a trading day — 721.56 at one point on Sept. 17, 2001, when the market reopened after 9/11.

But in percentage terms, it was only the 17th-biggest decline for the Dow, far less severe than the 20-plus percent drops seen on Black Monday in 1987 and before the Great Depression.

A huge drop in oil prices was another sign of the economic chaos that investors fear. Light, sweet crude fell $10.52 to settle at $96.36 on the New York Mercantile Exchange as investors feared energy demand would continue to slide amid further economic weakness. And gold, where investors flock in search of a relatively secure investment, rose $23.20 to $911.70.

Across Wall Street, no one could quite believe what was happening on the floor — the floor of the House of Representatives, not the stock exchange.

As lawmakers began to vote on a $700 billion rescue for financial institutions, the trading desk at Voyageur Asset Management in Chicago went silent. Money managers gaped at a television screen carrying news that seemed unthinkable: The bill was not going to pass.

Frustration, and then panic, coursed through the markets. Investors feared the decision in Washington would imperil the financial industry, as well as the broader economy.

‘World was unraveling’

“You just felt like the world was unraveling,” Ryan Larson, the firm’s senior equity trader, said. “People started to sell and they sold hard. It didn’t matter what you had — you sold.”

At the Federal Reserve and other central banks, policymakers were also anxious. Even before the vote on Capitol Hill, central bankers tried to jump-start the credit markets by offering hundreds of billions of dollars in loans to banks around the world.

But the neither the stock nor the credit markets appeared to respond. Just 24 hours earlier, few imagined Monday would play out this way.

On Sunday afternoon, Treasury Secretary Henry Paulson and the House Speaker Nancy Pelosi announced that they had agreed on the terms of a bailout.

While congressional aides and lawmakers worked on the details, however, the credit crisis that began more than a year ago in the American mortgage market was setting off new alarms around the globe.

Trouble in Europe and Asia

Late Sunday, Belgium, the Netherlands and Luxembourg agreed to invest $16.2 billion to rescue a big bank, Fortis. A few hours later, the German government and a group of banks pledged $43 billion to save Hypo Real Estate, a commercial property lender. Then the British treasury seized lender Bradford & Bingley and sold the bulk of it to a Spanish bank.

In Tokyo, where stocks had opened higher in early trading on Monday, worries quickly set in. Markets across Asia began to sell off.

As the drama unfolded in Asia, a major American bank was in trouble. Regulators in Washington were rushing to broker the sale of Wachovia Corp., the nation’s fourth-largest commercial bank. At about 4 a.m., Citigroup learned that Wachovia was theirs.

As investors in New York were getting up, the credit markets were again flashing red as banks reported higher borrowing costs.

When trading opened Monday morning on the New York Stock Exchange, stocks immediately fell 1 percent.

Noting the stress in the money markets, the Fed announced that it would increase to $620 billion its program to lend money through foreign central banks, up from $290 billion. The central bank also said it would double the amount it lends domestically through an auction program to $300 billion.

But when it became clear that the bailout legislation was in trouble, the selling picked up in the stock market.

At his home office in Great Neck, N.Y., investment strategist Edward Yardeni received a series of terse e-mail messages from clients and friends. “Is this the end of the world?” one asked. Another sent a simple plea: “Stop the world, I want to get off.”

Yardeni and other analysts said the action in Washington left many investors discouraged and feeling powerless.

“You can come into the office and spend a lot of time researching companies, trying to understand them. You’ve got a portfolio that you think should do well,” he said. “And none of that matters.”

Broader stock indicators also plummeted. The Standard & Poor’s 500 index declined 106.85, or nearly 9 percent, to 1,106.42. It was the S&P’s largest-ever point drop and its biggest percentage loss since the week after the October 1987 crash.

The Nasdaq composite index fell 199.61, more than 9 percent, to 1,983.73, its third-worst percentage decline.

‘Much work to do’

“How could this have happened? Is there such a disconnect on Capitol Hill? This becomes a problem because Wall Street is very uncomfortable with uncertainty,” said Gordon Charlop, managing director with Rosenblatt Securities.

Paulson, looking exhausted, spoke at the White House.

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