Anyone with money in the U.S. stock market has a debt of gratitude due and payable today to Dr. Martin Luther King, Jr., and to the much-criticized members of Congress who supported making his birthday a national holiday that closed banks, schools, government offices and stock markets.
For the second time in 14 years, Monday's holiday honoring the assassinated civil rights leader spared Americans what could have been hundreds of billions of dollars in losses.
The U.S. is not out of the woods yet, by any means. Near midnight Monday evening, Dow Jones futures were trading down nearly 492 points, possibly portending one of the worst one-day losses in stock market history. There is no indication of an official reaction yet from the White House or the Federal Reserve.
The Story So Far...
-- MarketWatch, 12:20AM ET, Jan. 22, 2008
Given further inaction by the principal policy-makers for the U.S. economy, and the crash reflected in the second-day decline of world markets Monday night, Tuesday morning could see tens of billions of dollars in shareholders' equity vaporize at the opening bell.
[Update, 1/22/08, 12:17PM ET -- U.S. markets fell steeply at the opening bell as the Dow Jones Industrial Average slid nearly 500 points, but the announcement of a 0.75 percent cut in the federal funds rate - the rate the Federal Reserve charges major banks - spurred a 440-point rebound. At one point the DJIA was down just 60 points, buoying European markets that were still open, while German markets declined an additional 3 percent; France's CAC and the British FTSE indices closed substantially up after wild swings during the day. Among other things, the rate cut will allow many to refinance their homes, and led a recovery in the gold and silver markets; copper continued to fall as was down more than $2. Meanwhile, a midday downturn saw a 200-point decline that subsequently eased, leaving the Dow slightly below the 12,000 level, off roughly 130 points at 12:12PM ET.]
In Australia alone overnight, investors lost more than $60 billion, but similar losses hit Japan's Nikkei, China's Shanghai-based CSI 300, Hong Kong's Hang Seng Index, Korea's KOSPI and other major indices throughout the world. It was the worst day for the ASX since a 1989 "mini-crash," Bloomberg News reported.
"About $490bn was wiped off the market value of Europe’s FTSE Eurofirst 300 index and $148bn from the FTSE 100 index in London, which suffered its biggest points slide since it was formed in 1983. Germany’s Xetra Dax slumped 7.2 per cent to 6,790.19 and France’s CAC-40 fell 6.8 per cent to 4,744.45, its worst one-day percentage point fall since September 11 2001," the staid, London-based Financial Times said.
But the Martin Luther King Day bank holiday staved off the worst on what is already known as the world's "Black Monday."
The Story So Far...
-- Keith Bradsher, The New York Times, 4:40AM ET, Jan. 22, 2008
In 1994, the powerful Northridge Earthquake that struck on Monday, Jan. 17 at 4:19 in the morning spared thousands who might otherwise have been at work during the quake and the powerful tremors that followed throughout the day. It killed 57 people and injured 9,000.
Even at that early hour, the freeways in the northern part of Los Angeles County are normally jammed with people heading south ; one LAPD traffic officer was killed when he plunged off a broken Antelope Valley Freeway overpass as he rushed to work on his motorcycle.
Officials estimated at the time that more than a thousand lives could have been lost had Los Angeles been at work as normal, and liability claims would have dwarfed the $12.5 billion loss insurance companies suffered that day amid overall losses of $20 billion, experts say.
On Monday, the holiday spared Americans a global stock market panic after massive and frightening drops in stock market indices in England, France, Germany, India, Hong Kong and Brazil.
Even though U.S. markets were closed, Dow Jones futures suffered their worst drop since 2002 as global investors saw the worst one-day plunge since Sept. 11, 2001, and around midnight Monday were set to open some 500 points lower than Friday's close, a decline of more than 4 percent.
The "Panic of '08," as online pundit Matt Drudge's Website termed it, was averted for long enough to allow investors to adjust their holdings before Tuesday's opening and prepare themselves for fallout from the global crash. Investors outside the United States did not have that luxury.
"It's the worst I've ever seen," Swedish asset manager Johan Stein told Bloomberg News. "The financial system is in terrible shape, and no one knows where this will end." Stein helps manage $14 billion in assets for Nordea Asset Management in Stockholm.
The Financial Times reported in early online editions Tuesday that Credit Suisse warned in a research note to bank customers on Monday, "What we are seeing now has the hallmarks of both a financial shock and the beginning of a [US] recession, or at least of growth grinding to a halt.”
The global plunge followed the worst weekly decline in U.S. markets since 2002, climaxed by a substantial sell-off on Friday after President George W. Bush's "stimulus" package failed to allay fears the economy is stuck in a swift downward plunge that will bankrupt millions of people and thousands of companies as unemployment also falls and inflation is on the rise.
The main culprit in the global decline has been the price of oil, which reached its lowest price in a month today, ironically. Rather than fleeing to hard metals as they often do, investors also bailed out of gold, silver and copper, whose prices have been soaring to record levels over the past year as a hedge against inflation and credit woes, and moved instead to government bonds.
Fears that insurers like ACA Capital Holdings and Ambac, the second-largest re-insurer of bond debt, would suffer drastic losses also fueled the global panic, while U.S. markets had a 24-hour exemption that may permit the Federal Reserve to slash interest rates and invoke other controls that may stem a cataclysmic U.S. market slide. As much as $1 trillion is at risk today.
It remains to be seen, however, whether the foreign nations that hold much of America's debt will accept further reductions in interest rates or call in trillions of dollars of U.S. debt the Bush Administration has piled up during the Iraq war and as it failed to act until last Friday against the year-old sub-prime mortgage crisis.
China, in particular, is likely to be resistant to further rate cuts that may devalue the dollar against the Chinese yuan, with cheaper dollars and heightened price sensitivity creating reduced demand and possibly cutting deeply into China's vast income from goods exported to the United States.
Never before in American history has the U.S. economy been put so much at risk by its exposure to foreign nations and companies that control so much American debt, and never before has so much of that debt been so close to default.
Only a day has spared many Americans from bankruptcy, and it is ironic in the extreme that so many states, counties, cities and towns. along with ordinary people, opposed the creation of Monday's holiday. For the second time, it has proved immensely fortunate for all of them.
Tuesday holds no such promise.
AR Editor-in-Chief Joe Shea has written on U.S. banks, securities and Asian banking for the Village Voice, LA Weekly and other publications.