(CBS/AP) It has been another extraordinary and traumatic day on Wall Street, with the Dow Jones industrials plunging as much as 800 points before closing with a loss of about 350.
The catalyst for the frantic selling was investors' growing realization that the credit crisis is likely to take a heavy toll around the world. And while the Bush administration is starting to implement its $700 billion financial rescue plan, that and steps taken by other governments won't be enough to stop the global spread of credit troubles.
The Dow set a new record for a one-day point drop and also fell below 10,000 for the first time since 2004. But it recovered somewhat in erratic trading as bargain hunting set in. The blue chips closed with a loss of about 350 at the 9,971 level.
The catalyst for the selling was the growing realization that the Bush administration's $700 billion rescue plan and steps taken by other governments won't work quickly to unfreeze the credit markets. Global banks, hobbled by wrong-way bets on mortgage securities, remain starved for cash as credit has dried up.
President Bush said the economy is going to be "just fine" in the long run but that the taxpayer-supported economic rescue plan will take time to work.
Bush said: "I believe that in the long run, this economy is going to be just fine." He said it will take the Treasury Department some time to enact a $700 billion plan to buy up troubled assets from financial firms so that credit will start flowing again to consumers.
That sent stocks spiraling downward in the U.S., Europe and Asia, and drove investors to sink money into the relative safety of U.S. government debt. Fears about a global recession also caused oil to drop below $90 a barrel; and the benchmark index that gauges fear in the market jumped to the highest level in its 18-year history.
"The fact is people are scared and the only thing they're doing is selling," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "Investors are cleaning out portfolios and getting rid of everything because nothing seems to be working."
The selling was so extreme that only 67 stocks rose on the NYSE - and 3,155 dropped. That's a telling sign considering the stock market is considered a leading economic indicator, with investors tending to buy and sell based on where they believe the economy will be in six to nine months.
Monday's steep decline on Wall Street indicates that investors are becoming more convinced that the country is leading a prolonged economic crisis that is spreading to other nations. Over the weekend, governments across Europe rushed to prop up failing banks, while the governments of Germany, Ireland and Greece also said they would guarantee bank deposits.
"If you look at what's going on in the market place, we were down 7 percent last week, we're down 6 percent today - it is a scary time," Art Hogan, chief market analyst at Jefferies and Company, told CBS News. "It's a scary time for investors, it's a scary time for market participants, it's a difficult global economy that we're trying to deal with."
Chris Rupkey of the Bank of Tokyo-Mitsubishi UFJ told CBS News that the Lehman Brothers bankruptcy three weeks ago was a shock to the system, the result of which is, "Borrowers and lenders are more distrustful of one another."
As the U.S. tries to repair its battered banking system, the German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG. And France's BNP Paribas agreed to acquire a 75 percent stake in Fortis's Belgium bank after a government rescue failed.
As the dust settled after last week's bailout, a clearer picture of why the U.S. banking system malfunctioned has come into focus.
With its clients clamoring for safe investments with above average return, the big Wall Street investment houses bought up millions of the least dependable mortgages, chopped them up into tiny bits and pieces, and repackaged them as exotic investment securities that hardly anyone could understand, 60 Minutes' Steve Kroft reports.
The Fed also took fresh steps to help ease 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.
Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., said government intervention certainly might help. However, he believes investors are sensing that what's happening in the economy is a shift in the extent to which consumers and businesses take on debt, a change that will take years to play out.
"This is a global deleveraging of many economies," he said. "It might appear that you're going into the abyss where the economy grinds to a halt and the financial system goes into complete disarray. But, what the market is really reading here is that this is a global phenomenon, and when you delever like this, it is a process that takes a very long period of time measured in years, not quarters."
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