In New York Wednesday, grim reports from big retailers and changes in the Treasury Department's financial bailout plans put the kaibosh on market sentiment.
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The Dow Jones Industrial Average fell 3.1%, or 265.23 points, at 8428.73, hit by drops in 29 of its 30 components. General Motors, which had fallen to a 65-year low on Tuesday, rose 8% on expectations of a public rescue.
The S&P 500 fell 3.45% and the Nasdaq Composite slid 3.45%.
Best Buy shares dropped nearly 8% after the company said "rapid, seismic changes in consumer behavior" prompted a cut in its fiscal 2009 outlook. Macy's reported a third-quarter loss as revenue sdropped and same-store sales continued to decline, though profit margins edged higher. Its shares dipped 3.6%.
US Secretary Hank Paulson said today that he plans to use the second half of the $700 billion financial bailout program to help relieve pressures on consumer credit, scrapping an effort to purchase toxic mortgage assets from banks.
``Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards,''Paulson said today in a speech at the Treasury in Washington. ``This is creating a heavy burden on the American people and reducing the number of jobs in our economy.''
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The US Treasury and Federal Reserve officials are exploring a new ``facility'' to bolster the market for securities backed by assets, Paulson said. Officials are considering using a portion of the bailout money to ``encourage private investors to come back to this troubled market,'' he said. Paulson's remarks
The Treasury, the FDIC (Federal Deposit Insurance Corporation) and the Federal Reserve released a statement this morning urging banks to lend to creditworthy borrowers.
It is essential that banking organizations provide credit in a manner consistent with prudent lending practices and continue to ensure that they consider new lending opportunities on the basis of realistic asset valuations and a balanced assessment of borrowers’ repayment capacities. However, if underwriting standards tighten excessively or banking organizations retreat from making sound credit decisions, the current market conditions may be exacerbated, leading to slower growth and potential damage to the economy as well as the long-term interests and profitability of individual banking organizations. Banking organizations should strive to maintain healthy credit relationships with businesses, consumers, and other creditworthy borrowers to enhance their own financial well-being as well as to promote a sound economy. The agencies have directed supervisory staffs to be mindful of the procyclical effects of an excessive tightening of credit availability and to encourage banking organizations to practice economically viable and appropriate lending activities.
On mortgages on foreclosures, the statement says:Given escalating mortgage foreclosures, the agencies urge all lenders and servicers to adopt systematic, proactive, and streamlined mortgage loan modification protocols and to review troubled loans using these protocols. Lenders and servicers should first determine whether a loan modification would enhance the net present value of the loan before proceeding to foreclosure, and they should ensure that loans currently in foreclosure have been subject to such analysis. Such practices are not only consistent with sound risk management but are also in the long-term interests of lenders and servicers, as well as borrowers.
Systematic efforts to address delinquent mortgages should seek to achieve modifications that result in mortgages that borrowers will be able to sustain over the remaining maturity of their loan. Supervisors will fully support banking organizations as they work to implement effective and sound loan modification programs. Banking organizations that experience challenges in implementing loss mitigation efforts on their mortgage portfolios or in making new loans to borrowers should work with their primary supervisors to address specific situations.
Federal Reserve Vice Chairman Donald Kohn on Wednesday left the door open to further steps by officials to support financial markets and the economy.
Central banks have already taken “forceful and innovative measures” to rebuild confidence including rate cuts and expanded liquidity facilities, Kohn said in prepared remarks to a conference in Luxembourg.
“Although we have seen signs of improvement, financial market functioning remains impaired in many ways, and we will need to continue to consider whether additional steps are needed to re-open credit flows and support the economy,”Kohn said.
In Europe, the Dow Jones 600 fell 3.2%.
National benchmarks dropped in 17 of the 18 Western European markets. The FTSE 100 dipped 1.5%; Germany's DAX slid 3% and France's CAC 40 declined 3.1%.
In Dublin, the ISEQ fell 2.85%.
IL&P fell over 8% after issuing a trading statement today.
INM fell 12% and AIB dropped 8%.
Europe -benchmarks
Oil
On the New York Mercantile Exchange, oil for December delivery fell to $56.83 down $2.50 from Tuesday's close. In London, Brent crude is trading at $53.19 a barrel down $2.92 cents from Tuesday.
The price in New York fell for the first time since March 2007 on speculation the Paris-based International Energy Agency will lower its 2009 oil-demand forecast as slowing economic growth reduces fuel consumption.
Finfacts Report: World Energy Outlook 2008: Even with demand static over next 22 years, 4 new Saudi Arabias needed to make up decline in existing oil fields
Currencies
The euro is trading at $1.2555 and £0.8366.
Sterling fell after the Bank of England warned of a severe recession in 2009.
The dollar traded at a record low $1.6038 per euro on July 15th.
For live currency updates, check the right-hand column of the Finfacts home page
