Monday, October 6, 2008

Wall Street Often Hitting the Ground Several Times

On Monday, Wall Street often hitting the ground several times as fears grew that the financial crisis will cascade through economies globally despite rescue efforts by the U.S. and other governments. The credit market remained under pressure, and investors put their money into government bonds. The Dow Jones industrials skidded more than 200 points.

It seems that the Bush administration's $700 billion bailout will not work quickly to unfreeze the credit markets, and that many banks are still struggling to gain access to cash. Over the weekend, governments across Europe rushed to prop up failing banks. The France's BNP Paribas agreed to acquire a 75 percent stake in Fortis's Belgium bank after a government rescue failed, while the German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG.

The governments of Ireland, Germany and Greece also said they would guarantee bank deposits. Moreover, the Fed also took fresh steps to help ease seized-up credit markets. The central bank said Monday it will begin paying interest on commercial banks' reserves and will expand its loan program to squeezed banks.

In the first hour of trading, the Dow Jones industrial average dropped 231.13, or 2.24%, to 10,094.25. In addition, broader indexes also tumbled. The Russell 2000 index of smaller companies fell 15.63, or 2.52%, to 603.77. The Standard & Poor's 500 index shed 28.21, or 2.57%, to 1,071.02; and the Nasdaq composite index fell 49.39, or 2.54%, to 1,898.00.

The nervous was again obvious in the credit markets. The yield on the three-month Treasury bill slipped to 0.37% from 0.50% late Friday. Demand for bills remains high because of their safety; investors are willing to sacrifice in the low return investments just to make sure that their money in a secure portfolio. Moreover, the Investors also moved into longer-term Treasury bonds. The yield on the 10-year note dropped to 3.52% from 3.60% late Friday.

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