Can it get any worse? Yesterday the Dow fell 445 points or 5.6% with the broad market hitting its lowest point since 1997. Over $8.3 trillion worth of stock market wealth has now been eradicated in the last 13 months. After receiving billions of dollars from the government financial stocks such as Citigroup, JP Morgan Chase and Bank of America were pounded by investors on fears that they do not have adequate capital reserves. Citigroup shares dropped more than 50% this week to $4.71. As of this morning they are having emergency meetings trying to find a merger or buyout partner. Citigroup announced another 52,000 layoffs bringing their grand total to 75,000 for this year.
This is a response to real fear in the marketplace but is this fear really warranted? This writer does not think so. Right now the market is confused by the sudden shift of Treasury Secretary Paulson from buying troubled assets with the $700 billion bailout package to instead deciding to participate in direct investments in the banks. This basically translates into the banks being saddled with all of their bad loans, therefore causing panic in investors about the banks abilities to sustain themselves. Most of the larger investment banks have recently opted to become bank holding companies so they now have access to borrow cash directly from the Fed.
Democrats have taken a big risk by turning down the $25 billion request from the big three automakers. They will reconvene on December 9, 2008 to determine the fate of the automakers. In their defense the Democratic Party did act prudently by requiring the big three to provide a business plan and use of proceeds for the $25 billion. It appears the free lunch is over.
My hope is that all of the turmoil on Wall Street will shake out by Christmas. This holiday season we will most likely witness an abundance of previous affluent shoppers entering the doors of Wal-Mart versus Bloomingdales.
Did you like this article?
's
