Worldwide Markets Are Tanking

According to the Wall Street Journal the FTSE 100 is down 3.92%, the Nikkei is down 4.71%. The DAX closed down 2.74% as of 7:55 Central time.

The current feature story in the Wall Street Journal special coverage section runs under the headline AIG, Lehman Shock Hits World Markets:

The U.S. stock market suffered its worst daily point plunge since the Sept. 11, 2001, terrorist attacks. Financial markets were rattled by the rushed sale Sunday of Merrill Lynch & Co. and the bankruptcy-court filing of Lehman Brothers Holdings Inc., which scrambled Monday to sell its most-prized businesses before too many employees and customers walk out the door……….

In stock markets from Sydney to London to New York, the news was greeted with immediate selling. For much of the day, the major U.S. market indexes were down 2%, which, while a good-sized decline, was smaller than many had thought would be the case. But in the final hour of trading, a wave of selling hit, driven by concerns about the fate of AIG. The Dow Jones Industrial Average ended down 504.48 points on Monday, off 4.4%, at its daily low of 10917.51, down 18% on the year. Of the Dow industrials’ 30 components, all but one — Coca-Cola Co. — fell, led by a 60.8% plunge in AIG.

Monday’s action was the latest fallout in a widening financial crisis that began a year ago with the fall of American housing prices and is now reordering the U.S. financial system. Steps unveiled by the Federal Reserve to expand its emergency lending arsenal did little to snap the sense of gloom.

A host of potential landmines remain. Banks are increasingly hoarding cash, curbing lending at a time when the economy is slowing. They are also starting to dump assets to raise capital. A mass sale of assets by the likes of AIG and Lehman could flood the market, reducing their value and leading to additional losses for financial institutions. A slowing economy could also put new stresses on auto and credit card lenders, as defaults would likely rise.

Investors, worried about the exposure of various corporations to the credit crisis, are abandoning a host of stocks, from regional banks to big conglomerates. General Electric Co.’s stock fell 8% to a 5 1/2-year low as investors worried about the value of assets held by GE Capital, which accounts for most of its borrowing and more than one-third of its profits……..

While policy makers drew a line in the sand, market watchers say Washington may have little choice but to eventually pony up more government funds as the credit crisis deepens and more firms run into trouble.

“I’m surprised that they chose to draw the line now, when the dominoes are getting bigger and closer together,” said Tom Gallagher, an analyst at ISI Group. Washington, he says, will ultimately have to come to Wall Street’s aid.

Policy makers could also find themselves in the uncomfortable position of essentially picking winners and losers, critics say. While Washington stepped in to help Bear Stearns Cos. and Fannie Mae and Freddie Mac, it opted not to save Lehman — raising questions about whether Washington should to determine who survives and who doesn’t……..

The Bush administration has so far taken a largely ad-hoc approach to solving the financial turmoil — addressing problems as they arise instead of trying to get ahead of them. Many market observers say that’s not going to be enough to stem the current troubles, especially as asset prices fall and financial institutions run into capital shortages.

Lehman’s $639 billion in assets makes it far and away the largest U.S. bankruptcy ever. After filing for bankruptcy protection early Monday, Lehman raced to sell off pieces of the fallen investment bank before an exodus of employees and customers causes their value to erode.