Everett, Wash.
Published: Friday, October 10, 2008

A year later, Dow Jones down 5,585 points

After closing at a record high of 14,198 a year ago, the Dow Jones sinks below 9,000, a five-year low.

Associated Press

 WASHINGTON -- Calm gave way to fear in financial markets Thursday, turning a relatively steady day into a rout that pushed the Dow Jones industrials below 9,000 for the first time in five years.

Investors, who had begun the day somewhat optimistic that the government was taking extraordinary steps to contain the financial crisis, turned gloomy under an onslaught of worries about the economy and corporations.

On the anniversary of its closing high, the Dow shed more than 7 percent, or almost 700 points, to 8,579.19. The Dow has lost 5,585 points, or 39 percent, since closing at 14,198 a year ago.

Shares of General Motors Corp., one of the 30 stocks that make up the Dow, tumbled 28 percent to their lowest since 1950.

Credit also remained clogged. The London Interbank Offered Rate -- a key benchmark for the loans banks make to each other so that they can lend to businesses and people -- rose, signaling that banks remain hesitant to extend credit out of fear they won't be paid back.

Wall Street had begun the day higher on news that the Bush administration is considering taking part ownership in a number of U.S. banks.

The aim of such a move would be to thaw the lending freeze that threatens to push the world's economy into recession. It comes after rampant fear about the global economy sent investors scurrying on Tuesday for safety in U.S. government securities despite an orchestrated round of rate cuts by the world's central banks.

The markets looked set to extend their six-day rout another day, though, as they grappled with worries that tight lending would throw the global economy into a recession.

In an effort to show that governments around the world were focusing intently on ways to resolve the crisis, the administration announced that President Bush would meet with finance officials from the Group of Seven major industrial countries at the White House on Saturday.

Treasury Secretary Henry Paulson told reporters that Treasury was moving quickly to implement the $700 billion rescue effort and he specifically mentioned reviewing ways to bolster the capital of banks.

"We will use all the tools we've been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size," Paulson said at a Wednesday news conference.

His statements came on the heels of Britain's move to pour cash into troubled banks in exchange for stakes in them -- a partial nationalization.

Asked whether he would try something like the British plan, Paulson said: "We have a broad range of authorities and tools. ... We've emphasized the purchase of liquid assets, but we have a broad range of authorities. And I'm confident we have the authorities we need to work with going forward."
© 2009The Daily Herald Co., Everett, WA