Wall Street and global financial markets took a dive this week, fueled largely by concerns over a slowing U.S. economy. Economics correspondent Paul Solman explains the wild week on Wall Street, and explores the larger causes behind the turmoil.
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That wild trip down Wall Street and similar places this week. Jeffrey Brown begins with this report.
When the closing bell rang this afternoon at the New York Stock Exchange, the Dow Jones Industrial Average had ended the day not that far from where it had begun the week.
But what a week it was, of markets in seeming panic at several points, policymakers and regulators trying to stem the fall, and a huge case of fraud thrown in for good measure.
It began Monday, when U.S. markets were closed for the King holiday weekend. Overseas, international markets plunged, some as much as 7 percent. Fears of their continuing vulnerability to the slowing U.S. economy were cited.
In turn, the Dow Jones Futures Index in the U.S. dropped more than 500 points, signaling trouble to come.
Tuesday morning, before trading opened, and in advance of its regular meeting, the Federal Reserve made a surprise and nearly unprecedented move: cutting the key federal funds rate by 0.75 percent, dropping the rate to 3.5 percent.
When U.S. markets opened an hour later, though, the Dow went into a nosedive, dropping 450 points in a few minutes.
ALEC YOUNG, Equity Analyst, Standard and Poor's: It's going to take more than rate cuts. Rate cuts are just positive steps to maybe stimulate the economy down the road.
But as a tumultuous Tuesday wore on, the Dow managed to climb back into something of a symbolic victory, ending the day down, but only 128 points.
Wednesday turned out to be the wildest day of a manic week. Markets in Asia seemed to stabilize, but their European counterparts tanked, as the central bank on the continent said it would not mirror the Fed and cut interest rates.
In the first hour of trading in New York, the Dow followed suit, dropping 300 points. But two pieces of news during the day were said to have pushed it in another direction. Word leaked from Washington that a deal on a stimulus package between the Bush administration and House leaders was close.
And there were reports that New York state insurance regulators were taking steps to prop up two major bond insurers, MBIA and Ambac. The insurers have been hit with enormous losses on mortgage-related financial securities.
For its part, the Dow not only made up its losses, but kept going, closing nearly 300 points up, a 600-point swing from early trading.
On Thursday, there was more news for the markets to deal with, as word came from Europe of the largest financial fraud in history. Societe Generale, one of France's most respected banks, revealed that a rogue trader had lost $7 billion in bad trades and risked tens of billions more.
Back in Washington…
REP. NANCY PELOSI (D-CA), Speaker of the House: Today, the leadership of the House of Representatives, on a bipartisan basis, is responding to the weakening economy and the urgent economic needs of the American people.
… Speaker Nancy Pelosi, Republican Leader John Boehner, and Treasury Secretary Paulson announced a $150 billion stimulus plan that will give tax rebates to more than 100 million Americans, allow further business tax cuts, and help out troubled homeowners facing foreclosure.
A short time later, the president praised the deal and sought to soothe the nation's nerves.
GEORGE W. BUSH, President of the United States: I know Americans are concerned about our economic future. Our economy is structurally sound, but it is dealing with short-term disruptions in the housing market and the impact of higher energy prices.
The Dow closed up yesterday 106 points. But today, early gains were washed away, and the average fell 171 points, as investors seemed to rein in their optimism about avoiding a U.S. economic slowdown.
So what was going on this week? Our own economics correspondent, Paul Solman, joins me now.