Stocks Plummet in Wake of AIG Takeover

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The New York Sun

American stocks tumbled as bank lending seized up in the wake of the government’s takeover of American International Group Inc., raising concern that more of the nation’s biggest financial companies will fail.

The Standard & Poor’s 500 Index lost 4.7%, extending its decline from an October record to 26% and erasing half its gain from the five-year bull market that began in 2002.

Goldman Sachs Group Inc. and Morgan Stanley, the only remaining independent brokerages on Wall Street, plunged the most ever. General Electric Co., the world’s third-biggest company, fell 6.7% and U.S. Steel Corp. slid 11%. Yields on three-month Treasury bills sank to the lowest since World War II as investors sought the relative safety of government debt, and a measure of corporate borrowing costs surged above the level seen during the crash of 1987.

“It’s ugly,” a Boston-based money manager for Fiduciary Trust Co., which oversees $10 billion in stocks and bonds, Michael Mullaney, said. “It’s about the worst I’ve seen it in 25 years. You have to have free-flowing credit to lubricate the system. That’s not happening right now.”

The S&P 500 lost 57.20 points to 1,156.39, the lowest since May 2005 and nearly matching the biggest percentage drop since the terrorist attacks of September 11, 2001. The Dow Jones Industrial Average decreased 449.36, or 4.1%, to 10,609.66. The Nasdaq Composite Index sank 109.05, or 4.9%, to 2,098.85, a two-year low. Almost 14 stocks fell for each that rose on the New York Stock Exchange.

About $3.6 trillion of market value has been erased from global stocks this week, triggered by the largest-ever bankruptcy filing by Lehman Brothers Holdings Inc., once the fourth-largest American securities firm. Russia halted stock trading for a second day and poured $44 billion into its three biggest banks in a bid to halt the worst financial crisis in a decade.

Gold and silver surged as investors turned to precious metals as a store of value. Newmont Mining Corp., the largest American gold producer, rose 9.4% to $43.25 for the second-biggest gain in the S&P 500.

Investors paid up for protection from further losses. The Chicago Board Options Exchange Volatility Index jumped 20% to 36.22, the highest closing level since October 2002. The VIX measures the cost of using options as insurance against declines in the S&P 500.

Morgan Stanley slid $6.95, or a record 24%, to a 10-year low of $21.75 after Oppenheimer & Co. analyst Meredith Whitney and Merrill Lynch & Co.’s Guy Moszkowski reduced their fourth-quarter profit estimates, citing higher funding costs. The lowered forecasts come a day after Morgan Stanley’s profit beat estimates.

“We believe Morgan Stanley, along with its peers, will battle a protracted period of negative operating leverage,” Ms. Whitney wrote in a note to clients.


The New York Sun

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