Word: banking
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After the 1929 collapse, which at its worst left a quarter of the workforce jobless, the U.S. instituted safeguards to ensure liquidity, confidence and trust in the U.S. financial system. There were four pillars: insuring the bank deposits of everyday Americans, allowing access to government funds in case of a panic, providing a regime for the orderly failure of badly run companies and limiting how much credit could be leveraged off a particular asset...
...while, it seemed as if the market lemons were on the rebound. Never mind that aluminum producer Alcoa missed earnings estimates after hours yesterday with a 52% drop in profit. Or that Bank of America was down again, 3.7% at one point, on continued worries over its need to recapitalize. Other financials, which had been battered hard on Tuesday, like J.P. MorganChase & Co. and Citigroup, seemed to be heading up significantly, as was bellwether General Electric, which had seen its shares hit hard the last few months over its exposure to the credit crunch. By day's end, however...
...action was carefully coordinated for maximum effect. First came an early-morning announcement by the British government that it had crafted a $90 billion rescue package for its banks. Then five central banks from around the world, including the two big ones - the U.S. Federal Reserve and the European Central Bank - announced a cut in interest rates. Jean-Claude Trichet, president of the European Central Bank, described the cuts as an "important mark of confidence" that showed an "intimate cooperation" among monetary authorities around the world. Under normal circumstances, such measures would have bucked up moods and stock prices...
...Instead, the big concerted action of Oct. 8 passed with barely a shrug from Wall Street. Stock markets worldwide continued to roil, and banks everywhere remained in the firing line. "Confidence has completely crashed, and it will take a while to rebuild it," says Craig Wright, chief economist at the Royal Bank of Canada, who is nonetheless hopeful that these and other measures will eventually start to work. "But it's hard to hear positives in a thunderstorm of gloom...
...else. Overall, the IMF expects world economic growth to slow to 3% in 2009, from 5% in 2007, and it warns, "The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s." Wright of the Royal Bank of Canada predicts, "The U.S. will go into a shallow recession, unfortunately followed by a shallow recovery...