Specialist Gregg Maloney, right, directs trading at his post on the floor of the New York Stock Exchange Tuesday morning Jan. 22, 2008. Wall Street plunged at the opening of trading Tuesday, propelling the Dow Jones industrials down about 300 points after an interest rate cut by the Federal Reserve failed to assuage investors fearing a recession in the United States. (AP Photo/Richard Drew)
WASHINGTON – A barrage of poor earnings Wednesday from major corporations revived worries of a global recession and showed the depth of the financial crisis the Bush administration is trying to tackle.
World leaders will gather in Washington on Nov. 15 to discuss the global economic crisis. A senior administration official said Wednesday that the forum will be the first in a series of international meetings to discuss what economists predict could be a long and deep downturn.
Wachovia Corp., which is being bought by Wells Fargo for about $14 billion in stock, said it lost $23.89 billion in the third quarter. It earned $1.62 billion in the same quarter a year ago. Airplane maker Boeing reported its earnings slumped 38 percent as a strike halted production of commercial jets.
Merck & Co. said it will slash 7,200 jobs as part of a new restructuring program. The drugmaker's third-quarter profit plunged 28 percent, partly due to flat sales.
Tech companies are taking a hit, too, as the economy slows and spending by consumers and businesses drops. Yahoo is slashing 1,500 jobs while it braces for a deep downturn likely to extend well into 2009.
"We are going into what is very clearly a recession mode," Blake Jorgensen, Yahoo's chief financial officer, said in a Tuesday interview.
Even with the aggressive steps the government has already taken, Treasury Secretary Henry Paulson says it will take time before things get turned around.
"Clearly, we're going to have a number of difficult months ahead of us in terms of the real economy," Paulson said Tuesday in an interview on "The Charlie Rose Show."
Wall Street tumbled again Wednesday. The major indexes fell more than 1 percent, including the Dow Jones industrial average, which fell 350 points.
Asian markets veered sharply lower Wednesday, with Tokyo's Nikkei index tumbling 6.79 percent. Hong Kong's Hang Seng was down 6.2 percent, while South Korea's main index shed 5.1 percent.
The major European indexes — Britain's FTSE 100, Germany's DAX and the CAC-40 in France — all slipped about 4 percent.
A week after Paulson announced the administration would spend $250 billion to buy stakes in U.S. banks, the Federal Reserve stepped up Tuesday with a new program to help money market mutual funds that have been squeezed by worried investors demanding to cash out their holdings.
The Fed said it would provide up to $540 billion in financing though a program run by JPMorgan Chase & Co. to purchase from mutual funds certificates of deposit, bank notes and commercial paper. The program, to be called the Money Market Investor Funding Facility, is designed to revive the market for commercial paper, short-term loans that are critical for keeping businesses running.
"If these money markets are not working properly, then the economy is significantly threatened because this is where businesses get their short-term financing for their day-to-day operations," said Mark Zandi, chief economist at Moody's Economy.com.
Money market funds hold about one-third of all commercial paper and Fed officials said that about $500 billion had flowed out of prime money market funds since August as investors became increasingly worried about their ability to redeem shares. On Sept. 18, the Treasury Department announced that it was tapping a $50 billion Treasury fund to provide guarantees for the assets in the money market accounts.
The Fed has already announced that starting next Monday it will begin making direct purchases of commercial paper in a further effort to bolster this market.
In other government actions to deal with the unfolding crisis, the Treasury Department announced that it had selected two major accounting firms to help manage the government's $700 billion financial-system rescue program passed by Congress on Oct. 3.
The program to buy distressed assets from banks is expected to spend $100 billion initially, while Paulson announced last week that another $250 billion would be committed to buying stock in banks as a way of shoring up their capital reserves so that they will resume more normal lending operations.
Paulson said in his television interview that banks might use part of the money they receive from the government to make acquisitions of weaker banks.
"There will be some situations where it is best for the economy and for the banking system for there to be a consolidation," he said.
That element of the program could prove controversial if strong banks employ the money they receive from the government not to make new loans but to swallow up rivals.
When the $700 billion bailout program was going through Congress, Paulson never mentioned the possibility that the money could be used to provide capital to banks, stressing instead that the other part of the program, having the government use the money to purchase distressed mortgage-related assets from the banks.
Paulson said that the emphasis in the program was changed in reaction to rapidly moving events as the situation in credit markets "became even more dire." He said that before changing emphasis he got input from a number of people including billionaire investor Warren Buffett.
The initiatives seem to be having a positive effect. Yields on Treasury bills and the interest rates banks charge to other banks have both fallen back to late-September levels, but analysts said financial markets will see more turbulence before the credit crisis is over.
Meanwhile, members of Congress are moving forward with efforts to overhaul the regulatory system with what could be the most sweeping changes since the 1930s, another period when Congress revamped how the financial system was regulated in response to the 1929 stock market crash and a wave of bank failures.
House Financial Services Committee Chairman Barney Frank, who held hearings Tuesday on what changes should be made, said that what Congress produces next year will be "as important a set of economic decisions I think this country will be making since the Depression."
Democrats in Congress are also pushing efforts to assemble a second economic stimulus program that could total $150 billion or more. The White House has yet to endorse the idea, but has said President Bush was at least willing to consider a second stimulus measure.