Banking

Wall Street's response to Bush's recovery plan triggers global stock plummet

On Friday, Jan. 18, 2008, President Bush announced an economic stimulus plan to pump as much as $150 billion into the U.S. economy by way of tax cuts and government spending in an effort to avoid a recession. However, that news didn’t have a positive affect on Wall Street.

On Friday, Jan. 18, 2008, President Bush announced an economic stimulus plan to pump as much as $150 billion into the U.S. economy by way of tax cuts and government spending in an effort to avoid a recession. However, that news didn’t have a positive affect on Wall Street.

From the Wall Street Journal:

The stock market tumbled yesterday after Fed Chairman Ben Bernanke addressed Congress, and Bush’s words this morning weren’t received much better by investors. Just after the president spoke, the Dow Jones industrial average, which had been up sharply earlier in the morning, was down nearly 65 points.

The result has been that world wide markets are down sharply. Global eyes are turning to Wall Street to see what the next move will be.

Trading took a downward trend the following Monday, as global markets reacted to Friday’s trading. Wall Street was closed in observance of the Martin Luther King Jr. holiday. Without the input of Wall Street, speculation impacted every country.

From ABC News:

"I think the word you use to describe this is a crash," said Adrian Mowat, chief Asia strategist for JP Morgan. "The market has fallen very sharply. One market fall triggers another fall."

Japan's Nikkei average closed down at 5.7 percent, its largest percentage drop in nearly a decade.

Hong Kong's Hang Seng plunged to 8.65 percent. Even insulated markets that normally buck the trend, such as in China and India, did not come out unscathed.

In Mumbai, trading was temporarily halted when the stock markets plunged more than 10 percent in the first few minutes after the opening bell.

In response, the Federal Reserve has cut its benchmark interest rate by three-quarters of a percentage point.

From the New York Times:

In a statement, the Fed said: “The committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households.”

“Moreover,” the statement continued, “incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.”

If nothing else, this confirms that the United States has a significant global impact.

From BBC:

The last two such emergency cuts were on 17 September 2001, shortly after the attacks of 11 September, and on 3 January 2001, in the wake of the dotcom bust.

The last time the Fed cut rates as much as three-quarters of a percentage point was in August 1982, almost 26 years ago.

So, what are the most likely impacts to IT? Start-ups will be hindered, salaries will fall, IPOs will likely stay private. A lot will depend on if the Fed's emergency action starts to shore global markets. It appears that London has stabilized somewhat, but the Fed's announcement missed the Asian markets. That means that Asia was impacted by a second day of hysteria trading. How do you think that this will affect you?

41 comments
sboverie
sboverie

I have been watching the markets and I find it very ironic that earlier this month the investors were betting that the Fed would lower the lending rate; then once the Fed did so they all paniced. The real problem is that the economy is not science, it is emotion. A downturn can be created by a highly placed person saying that there may be a problem. The US had economic problems that were caused by speculation that led to a money run on banks as people pulled their money out. Rumors can have both negative and positive reactions in the market. This is realm of self fulfilling prophecy. The stimulus package being discussed is fairly classic Keynesian theory; in bad times the government can go into debt to help keep the economy going. The problem is that Keynesian theory was ignored in times of plenty and we failed to "stock up". The appearances are that this economic downturn is closely linked globally. Acting locally will not work. What may happen is rolling recessions hitting different parts of industry and countries at different times. Having lived through several really bad recessions (we have not had such bad recessions since early 90's), my advice is to be wary. Reduce expenditures but don't freeze spending and do not use credit. Of course, if everyone follows this advice it would cause a recession or make one worse.

JohnMcGrew
JohnMcGrew

The market is "freaked out" for two reasons; a whole slate of candidates (from both parties) proposing all kinds of fascist/socialist/communist agendas that investors know will not be good for them, and the ill-informed and politically motivated mass media (who actually believe there's something the politicians can do about it) amplifying the hype surrounding it all. The "stimulus" package is really nothing more than a vote-buying scheme in an election year. It's been done before and has failed every time. In the end, I'm not going to be fooled into believing anything other than that the $1,600 check they're going to send me in a few months will be costing me at least $3,200 in higher taxes by next year. (And that's not counting the "hidden tax" that we'll all end up paying through inflation) Unless you're one of the "unfortunates" who don't make enough money to pay income taxes (but will likely get a check anyway) this is going to be little more than a loan from Uncle Sam at a bit over 100% interest. No thanks! And Ben Bernanke's little freak-out this week just proved what we've all been suspecting for a long time; he's no Alan Greenspan. It's another gift to the Wall-Streeters at the expense of the rest of us. Thank you gang! I really wasn?t worried about any of this until you decided to try to fix it!

apotheon
apotheon

That's a truly lucid and accurate, if slightly angry, description of the situation. Your comments below about healthcare are on the money as well. edit: Then again, anger is a completely understandable and appropriate reaction, all things considered. Of course, qalab is right -- Ron Paul is the one Presidential candidate who doesn't fit your description. He also has a real chance at this, assuming there isn't such blatant and egregious vote-fixing that the whole system is fscked beyond help anyway. If that's the case -- if Paul really doesn't have a chance at this point, in other words -- pretty much the only way to save the village is to burn it, and rebuild from the ashes. Personally, I'm inclined to think that if Paul doesn't win the election (even if he had a genuine chance at it because the votes weren't fixed), the only way to solve the problem in the long run may be to dissolve the Union, leaving a series of 50 separate small nations with a mutual nonaggression, mutual free movement, and mutual free trade (in the true sense of "free trade", not like this NAMBLA^H^H^H^HFTA crap) treaty. Alan Greenspan wasn't perfect by any means, but I have to agree that Bernanke is a dipstick, inserted backwards.

Neon Samurai
Neon Samurai

A female president or a president of colour. Without inflaming or offending; I'm actually curious to hear what other's think. My wife thinks it'll be a female president due to the good 'ole boys who are still not ready for one of "them" running the show. I'm really just an outside observer so my opinion doesn't count for much without doing a whole lot more political reading but I'm curious to hear what other's think.

Neon Samurai
Neon Samurai

Fox News just tends to be the poster-boy news themed entertainment outlets. Remember back to the golf war; mostly stock footage shots that went along with that the talking head was saying. All of it layed into a lovely powerpoint background and presented in an entertainment format like MTV. Where the purpose of the broadcast is entertainment that happens to have a news theme too it though it could be game shows or any other theme and it'd be as accurate. That includes any of the media outlets where entertaining the audience has far superceded providing factual information and accurate analysis. It's the news version of getting self help tips from doctor phil though it's meant to be humourous too.

Inkling
Inkling

I love Jon Stewart! First, let me be clear: Fox News and it's parent corporation, News Corp, are the devil. It's a proven fact that Rupert Murdoch is the devil. While he may have had conservative tendencies, his son will soon be taking over and his son is about as liberal as they come. Having said that, Fox is no worse than any of the other media conglomerates. Neither are the viewers of Fox News any less informed than the rest of the automatons.

Inkling
Inkling

Just curious: Is that a shot at what are perceived as conservative voters? Or a shot at any and all voters that get all of their information from the main stream media (ABC, CBS, NBC included)?

Neon Samurai
Neon Samurai

It's a good analysis of the current situation. It also shows why I continue to hate "least of the evils" politics but also why this vote is more interesting to watch as an outside observer. My wife's meaning about the Good Ol' Boys was more about the potential of a nut job attending the inogural speach but I'm glad too see that point also considered purely from a voting standpoint. We'll have to see how the vote turns out in the end. I still say, hopefully the Fox News voters will be in the minority or at least have some better information sources to base opinions on.

Inkling
Inkling

I would only add that most of the, "Are we ready for 'xxx' in the White House?" is simply our media being sensational. The vast majority of Americans don't care about gender or race. If you want an accurate snapshot of how Americans think in regards to the subject, just look at the most recent vote that matters most to the current generation of apathetic Americans: a black female won American Idol.

apotheon
apotheon

I think that Clinton's gender and Obama's skin color would hurt whoever of them got the nomination, if it was one of them. How much is difficult to determine, but I suspect a nontrivial number of Democrat voters would stay at home, and a nontrivial number of Republican voters would come out of their homes just to keep either one of them out of office. Many of them may not even realize that's why they're behaving the way they are. That's not to say there aren't other reasons to dislike them. I've never voted for a Democrat candidate in my life, and considering the policies and sliminess of the Democratic front-runners, I'm not about to start now. Whether or not the damage gender and color can do for these candidates is enough to kill their chances at the White House depends in part on who's running on the Republican ticket. I think either one of them up against Ron Paul should kiss their aspirations goodbye. He'd soundly beat either one, I'm pretty sure. Any of the other Republican choices, however, would have a much tougher row to hoe, in large part because the US public hates Republicans in general right now. Ron Paul wouldn't exactly get a free pass on that score, but he'd come really close to it, because he's so much [b]not[/b] what people expect from a Republican these days. I think that, pitting the general public dislike of non-Paul Republicans at this time against the gender or race of Clinton or Obama, we'd see a very, very close race. Even if the vote wasn't close, that would have to be due to some kind of significant turn-around in public opinion toward the end of the campaign trail as the race enters its final frantic days -- and the race would be a close one up to that point. As for the "good ol' boys" . . . I don't think it's that cut and dried. I don't so much think her campaign would suffer because people would vote against Clinton because of a conscious desire to keep women out of the White House, or that the same would happen to Obama because a black man in the White House would scare people. Sure, some people would vote that way -- but they're probably relatively few among voters. The real damage would come about because of more subtle influences, like the fact that people would develop conscious opinions of each of Obama and Clinton that are unconsciously influenced by race and gender stereotypes. Most of the people who would be swayed against either of them would probably seem entirely open-minded about the matter, but just seem to really intensely dislike them, or feel vaguely unsettled somehow and shift their support elsewhere, or something like that. It'll probably be pretty difficult to figure out who has been influenced by race and gender issues in this Presidential race, and who just genuinely dislikes their positions without any such influences, in part because they themselves often won't know (even if they think they do).

jmgarvin
jmgarvin

Plus, Americans don't really like Empires. We're tired of the Clintons and the Bushs, we want to see a fresh last name in the white house. Had the Dems picked a better female, she might have had a chance, but Hillary is digging her own grave with the lies and the out right "elect me because I have 35 years of 'experience'" garbage isn't flying anymore.

qalab
qalab

Ron Paul.

JohnMcGrew
JohnMcGrew

...we'll never get that until the majority figure out that the government isn't responsible for their prosperity.

JohnMcGrew
JohnMcGrew

...I always have to ask, "Then why do so many come here when they really need something?" BTW: My wife and I pay about $400/mo. We get no co-pays or other benefits when below our deductable. But we are covered 100% above that. The money we don't spend out of the money we put in the HSA account each year we get to keep tax sheltered. And like too many Americans, we are not enslaved to any employer because we need their coverage. The total irony about the "health care" debate is that most people want a system that makes them either a slave to their employers or to the government. I pity the fools.

JohnMcGrew
JohnMcGrew

...aka "loser pays"; Clearing the courts of speculative lawsuits and the "lottery" aspect of it all, leaving only cases that have merit. I think everyone would be amazed as to how weathlier we'd all be.

Neon Samurai
Neon Samurai

Cheers for the details. I'm going to have to give Apoth's a detailed read over later when I have more time but thanks both for the information.

Neon Samurai
Neon Samurai

It was one of those two minute passing topics between myself and an insurance industry family member. Cheers for clarifying. Now off to see if I got scured over healthcare a few comments below. :)

apotheon
apotheon

Actually, "tort" refers to a category of civil law where suits are brought to redress grievances. In other words, it refers to stuff like suing your doctor for malpractice. Damages caps are a commonly cited mechanism of so-called "tort reform", the idea being that the tort system should be reformed to prevent many of the unintended consequences of the current system -- and that capping damages should be useful in this regard. While caps on damages awards in tort law would address some of the issues, however, it would likely create other new issues. The problem with most tort reform proposals is that they ignore the actual source of the problems: irresistible external influences on the market. I refer, of course, to government interference in economic markets, and to the piecemeal, reactionary approach to liability legislation.

apotheon
apotheon

Every healthcare system has people "slipping through the cracks", including Canada's. In Canada's case, it is often for life-threatening illnesses and conditions that destroy quality of life, but aren't covered by the "universal" healthcare system. There's also the problem of reduced quality of healthcare in the middling to high end range, as competition from low quality government care guts some of the middle-upper level care. When government gets into a market, it tends to destroy much of the beneficial market competition from private sector providers. This also accounts for the fact that one of Canada's primary exports these days is healthcare professionals -- though that's less of a problem now than it was a few years ago, in part because many of the best already left and in part because Canada's allowing a little more competition in the private healthcare market than it did not too long ago. From what I understand, though, general practitioners that are worth more than the gov. healthcare version of minimum wage are still pretty much screwed economically. In the US, meanwhile, those who "slip through the cracks" tend to be in the lower middle class -- they're the people hovering between "too rich for free healthcare" and "too poor for good healthcare". This is because of the fact that the US really does have something approaching "universal" healthcare, no matter what the Democrats say when advocating for more government spending -- but only at the low end. The limited low-end government healthcare coverage is destroying much of the low-end private healthcare coverage, however -- as a result of much the same anticompetitive effects of government involvement in a market as what's going on in Canada. The two are kinda converging on the middle, reaching sort of an equilibrium point between the public demand for "free stuff" and the disastrous economic pressures of the incredibly high cost of single-payer healthcare systems were government is the single payer. We're seeing healthcare costs skyrocketing here in the US for the same reason letting private healthcare pick up some slack in Canada has allowed prices to drop, as US politicians are pouring ungodly amounts of money into trying to corner the healthcare market for the government (thus jmgarvin's problems with increased healthcare insurance costs). So, to return to my thesis statement at the beginning of this post: Every healthcare system has people who "slip through the cracks". Which people slip through the cracks depends on how much, and what kind of, healthcare gets subsidized by the state -- and to what extent. The other effect of differing levels and styles of government healthcare provision is purely economic, and there are three main points on the spectrum (with, of course, effectively infinite gradients between them): 1. Pure free market capitalism has the lowest sustainable healthcare cost and the highest typical healthcare quality. 2. Mixed systems like we have in the US and Canada, to varying (but converging) degrees, have the highest sustainable healthcare cost and wildly varying quality at all economic levels -- though typically never as good as in category one or as bad as in category three. 3. Pure socialized, truly universal healthcare is simply not sustainable. Even if everything but healthcare and taxation is pure free market capitalism, pure socialized medicine alone would ultimately collapse -- and if an honest attempt is made to prop it up forever, ultimately that means the entire economy would collapse. Furthermore, quality of healthcare is about as low as it can get under such a system -- and a lot of people would be dying in hospitals of conditions that could be easily treatable with more private industry involvement in healthcare before the collapse. The reasons for this are economic, of course. When you subsidize something, you get more of it, including the need for healthcare -- and the resources for providing healthcare are not infinite. Period. Those resources are at their greatest in a free market system, however.

jmgarvin
jmgarvin

"Is it that there is a minimal healthcare coverage that those who can't afford health insurance can apply for or is healthcare only for those who can pay?" We have things like Medicaid and Medicare (plus many states supplement the federal programs) to take care of those in need. Many hospitals will deal with you for free. Homeless, illegals, and the very poor are usually seen for free at clinics and will either receive their care and medicine for free or for an extremely reduced rate. As it stands, the tax payers pick up the slack. A prime example of the "uninsured" boondoggle is that many aren't insured because they DO NOT WANT TO BE. When I was young, single, and healthy, why should I pay for health insurance (I know it's stupid NOW, but when you're 25 and dumb it makes perfect sense). Let me break it down for you. My health care for the wife and I costs about $500/month (that used to be about $2852834975982735 Canadian...now I think it's around $3 Canadian). I pay $20 for a doctor visit and 10% of all my health care beyond that. So if I have a $100,000 operation, it'll cost me out of pocket $10k. Heath care costs have gone up over FIVE TIMES what they were just four years ago...so something has got to give, and it isn't Universal Healthcare. So that's were we stand.

Neon Samurai
Neon Samurai

I don't remember if it was the Tort reform or not but someone mentioned it too me the other day as being one of the few things you really have to respect the Bush administration for; putting a cap on insurance payouts for health malpractice. As it is now, the insurance payouts are just stupid high because it's whatever the claimant can squeeze the health insuror for. Setting a monitary cap for payouts for applicable injuries should go a long way to reducing the rates your paying for insurance and hopefully cut out most of the BS claims that are keeping your courts backed. I have little good to say about the way the current administration represents the american people but the capping of claims is something I can respect.

Neon Samurai
Neon Samurai

Granted, I don't know how the healthcare system works south of the meridian so there's lots of room for correction. Is it that there is a minimal healthcare coverage that those who can't afford health insurance can apply for or is healthcare only for those who can pay? If it's the first option then at least those who need too see a doctor have that option even if they can't present benjamins too the emergency room nurse. If it's the later and those who can't pay our out of luck then that's a whole other issue. In the case of the first, that is basically the canandian health care system; everybody gets a basic level of coverage with the option to pay for premium coverage above that. I'm all for the Gov keeping it's fingers out of most things but healthcare is one of those basic human rights areas that should be provided. I do understand how captialism is supposed to premote the best possible health care at the lowest cost. I just think that health is an area where captialism fails to deliver (ie. pharmasutical companies producing treatments rather than cures and testing unethically in places like africa).

Tig2
Tig2

Tort Reform. Till we walk that path, we won't get to a solution.

jmgarvin
jmgarvin

Make is stop. Our health care is jacked up enough as it is.

JohnMcGrew
JohnMcGrew

The biggest ticket item coming down the pike at the moment. After that, we're doomed.

jmgarvin
jmgarvin

You mean to tell me the government doesn't owe me a job, house, food, and a nice car!!?? Man, you are such a jerk!

Locrian_Lyric
Locrian_Lyric

"Would you like fries with that order"? here we go again folks....

Tig2
Tig2

I survived the post 9/11 job market, but barely. I fear the impact of another ride like that. The Fed will meet as usual on 1/29. I think that the intention at that meeting was to have reduced the rate. What do you think will happen, given today's news?

jmgarvin
jmgarvin

Then, we'll bail out, at the tax payer expense, the deathgage lenders and the morons that took out ARMs and interest only loans. Bah, the reality is that we're over extended, our President is not trusted, and there are too many people getting fat off the War in Iraq.

jmgarvin
jmgarvin

The reality is that the global economy is truly a blessing and a curse. Those that were benefiting off the American back are now suffering for the same reason. Misery loves company, and we've got plenty. On the bright side, the stock market in no way reflects reality anymore.

yellow911
yellow911

i am a small investor and although i have lost, personally, $24,000 "on paper" in the last several days, i do not intend to sell a single share. i am fortunate that i have no short positions and i feel for those that do. however, it is true that if you are an investor going for the big bucks, in the short term, you must expect some volatility in your positions, and ultimately, at SOME time, market "corrections" (love that terminology). yes, truly, there will be pain for many and most likely some employment angst. learn from this, my friends, when it is over ( as it will eventually)...be a tad less greedy, and a bit more prudent with your trading. i am an older, retired person and i have seen these "corrections" before. some of us learn from history, some don't....guess who survives, ultimately ?.....good luck to you and i trust things will go well for you all.

boxfiddler
boxfiddler

reality is survival. Survival requires food, water, shelter. Anything more is 'extra'. (Seneca said something to this effect but finding that quote is not on the list for tonight.) Stock/share certificates in this and that are not exactly reality-friendly, though in the extreme are great substitutes for toilet paper and kindling as is paper money. Yeah, yeah blast me if you must. edit: accidental click

yellow911
yellow911

you are, of course, absolutely correct in quoting seneca. food, water and shelter IS "survival", and should it arise that that is all that is available to me in the wash-up, then i shall gratefully and graciously accept them. HOWEVER....i would be more than pleased if things should not come to that, of course. in the back of my mind is the feeling that a stock market "correction" is far more painful to the very rich than to me, and given that the very rich don't appear to like financial pain, as a general rule, and given that they have the combined wherewithal to cause the pain to cease, then they surely will...thus saving the small-fry, such as myself into the bargain...i am sure the old money families and the " giant-mega-global" corporations, upon feeling the heat of financial melt-down will rush, helter-skelter to their mahogany decorated boardrooms and do something about it!....after all....nothing motivates the extremely wealthy and powerful like self interest...i have been basing my, (albeit miniscule and somewhat amateur) investing decisions on that very fact for some years and i have yet to see a case where altruism has come before self-interest, pertaining to the corporates. if, however, i am proven wrong, then so be it...i will live out my declining years in a tent by the seaside and be damned grateful for all the "good times" i have known. good luck, or bon chance, as the french so delightfully say....(edited once to correct a contextual error)...

alex.ramirez
alex.ramirez

I consider myself to be an optimist and a realist. We have to face the facts, when I purchase anything these days from fruits and vegetables to clothes and gas. My money doesn???t stretch as far as, well, lets say, just last year! I mean our economy I believe has increased over 5% within the last year. And yes I do believe that it will affect the job market as a whole, look back at 9/11 and what happened to jobs then. I personally was laid of then from a small IT consultant firm, it was not fun at all but then again things do happen for a reason. Because I???ve got to say, I am much happier in my current position then I was then. Not to say that you have to be laid off to be happier/better off, but in the end it???s worth all the while. I hope that things get better, like when Bill Clinton was actually nominated president.

Tig2
Tig2

So, what are the most likely impacts to IT? Start-ups will be hindered, salaries will fall, IPOs will likely stay private. A lot will depend on if the Fed?s emergency action starts to shore global markets. It appears that London has stabilized somewhat, but the Fed?s announcement missed the Asian markets. That means that Asia was impacted by a second day of hysteria trading. How do you think that this will affect you?

boxfiddler
boxfiddler

given the way that the American economy is manipulated by those who serve the interest of the extremely comfortable to wealthy, and the rate at which the Fed prints money that has nothing of value to back it, we should tank any day/decade now. I need to be in the boonies with some acreage, a few head of cattle, chickens and a serious garden plot. Outside of that, I think that every sector is due to suffer cutbacks very shortly. I also think that a whole lot more early retirement packages are soon to be offered which will of course hurt industries as they lose their most knowledgeable personnel. Another round of cuts in post-retirement benefits is probably on the horizon as well. The middle-class will further dwindle as the rich get richer and the poor get poorer.

apotheon
apotheon

"[i]I need to be in the boonies with some acreage, a few head of cattle, chickens and a serious garden plot.[/i]" You forgot the arsenal of weapons necessary to defend all that from the mobs of mutants and zombies that will arise in the wake of the economic apocalypse. As of about March this year, I'll probably be able to provide two handguns and bodies able to use them for the defense of your hypothetical post-apocalyptic mutual defense enclave. I'm kidding, of course. Mostly.

jmgarvin
jmgarvin

No Fallout 2 fans? Fine, but I volunteer my years of practice for just such an occasion. What's that? WoW has prepared me for hat?

RFink
RFink

Panics are good. Fear trumps greed everytime. Look at an S&P 500 chart between 9/21/2001 and 12/31/2001, that was a great time to invest. This too will pass and the smart investor will make a killing.

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