Morning Brief: Nightmare on Wall Street
Top Story Spencer Platt/Getty Images Wall Street suffered its worst day since just after the 9/11 attacks Monday as markets reacted to the Lehman Brothers bankruptcy and the possibility that insurance giant AIG and others might also fail. By days’ end, the Dow Jones industrial average had fallen 504.48 points, losing 4.4 percent of its ...
Wall Street suffered its worst day since just after the 9/11 attacks Monday as markets reacted to the Lehman Brothers bankruptcy and the possibility that insurance giant AIG and others might also fail.
By days’ end, the Dow Jones industrial average had fallen 504.48 points, losing 4.4 percent of its value. London’s FTSE fell 3.9 percent Monday, and today, stock markets in Japan, Hong Kong, China, and South Korea dropped between 5 and 7 percent in early trading. The cost of overnight borrowing in dollars, meanwhile, is soaring.
Credit agencies downgraded AIG Monday, exacerbating a cash crunch at the insurance company. AIG has appealed to the Federal Reserve and the state of New York for help, having lost 92 percent of its value this year. “Wall Street isn’t remotely prepared for the inestimable damage the financial system would suffer if AIG collapsed,” opines money manager Michael Lewitt. “The company is such a big player in insuring risk for institutions around the world that its failure could undermine the global financial system,” the Wall Street Journal observes.
What happens now? “At some point, the federal government will blink again, and taxpayers will probably end up paying at least another couple hundred billion dollars before this extraordinary mess ends,” Harvard economist Kenneth Rogoff predicts. “Plenty of potential land mines remain,” the WSJ warns. NYU economist Nouriel Roubini foresees a further 20 percent drop in the stock market.
On Monday, the Fed pumped $70 billion into the banking system, and today, all eyes will be on the Fed’s Open Market Committee as it meets to set interest rates. A decision is expected by 2:15 p.m. ET.
John McCain and Barack Obama have different approaches to Wall Street.
Here are the candidates’ positions on science.
Former Secretary of State Colin Powell says an Obama win would be “electrifying,” but hasn’t made up his mind on whom to endorse.
Receding storm waters are leaving behind a huge, toxic mess in Texas.
Explosions killed three people in Morelia, Mexico, as they celebrated the country’s independence day.
South American leaders are backing Bolivian President Evo Morales.
Chinese officials arrested two brothers for allegedly mixing melamine into a popular milk powder. So far, two babies have died from the formula, and another 1,253 have gotten sick.
Pakistan’s military bombed targets in Bajaur, a tribal agency near the Afghan border, and sent in troops to clear the area.
Middle East and Africa
Iran has improved its uranium enrichment capacity, the IAEA said Monday.
Gen. Ray Odierno has taken over as the top U.S. commander in Iraq.
The French military took action against Somali pirates, freeing two sailors.
It’s official: Ukraine’s government has collapsed.
Georgia is citing newly released intelligence intercepts as proof that Russia planned the war.
The European Union is taking up the charged issue of Roma poverty.
Palestinian Authority President Mahmoud Abbas meets with Israeli PM Ehud Olmert, who is to be replaced tomorrow in intraparty elections.
Lebanon’s feuding political factions meet today for a dialogue.
U.S. President George W. Bush is visiting Texas to inspect storm damage.
Blake Hounshell is a former managing editor of Foreign Policy.
More from Foreign Policy
Chinese Hospitals Are Housing Another Deadly Outbreak
Authorities are covering up the spread of antibiotic-resistant pneumonia.
Henry Kissinger, Colossus on the World Stage
The late statesman was a master of realpolitik—whom some regarded as a war criminal.
The West’s False Choice in Ukraine
The crossroads is not between war and compromise, but between victory and defeat.
Washington wants to get tough on China, and the leaders of the House China Committee are in the driver’s seat.