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A SHORT-NOTICE SPEECH by US president Barack Obama did little to halt one of the worst days in Wall Street’s history today, as the S&P debt downgrade sent American investors fleeing and dumping shares in enormous volumes.
When trading closed in New York at 9pm Irish time, the Dow Jones’ Industrial Average stood at 10,810.76 – losing 633.85 points, or 5.5 per cent, in its six-and-a-half-hour session. The drop is the sixth-largest in the Dow’s 115-year history.
The remarkable fall was led by the collapse in the value of Bank of America, one of the index’s 30 constituents. The aftermath of the debt downgrade, and the news that insurance conglomerate AIG is suing it for $10bn, sent the bank’s shares down by 20 per cent – wiping $16.55bn off its value.
The day was even worse for other indexes. The S&P 500 – considered by many to be a better, broader indication of the health of the US market – lost 6.66 per cent of its value. The tech-heavy NASDAQ composite index lost 6.9 per cent.
There were some bright spots, however: in the first day of trading after Standard & Poor’s took the unprecedented step of removing the US’s coveted AAA rating for its government bonds, the price of government borrowing actually fell significantly.
As of 9pm Irish time, the cost to the US government of a 10-year loan had fallen by 0.21 per cent, to 2.346 per cent – though the bulk of this drop had been recorded early, and before President Obama had taken to the airwaves to describe the US as “an AAA country” irrespective of the S&P downgrade.
Obama cited the advice of 80-year-old billionaire Warren Buffett who had remarked he would happily apply a AAAA rating to the US’s bonds if one had existed.
Earlier, Standard & Poor’s had followed up its downgrade of the US sovereign by cutting its credit ratings for government-backed mortgage agencies Fannie Mae and Freddie Mac, reflecting the pair’s reliance on the US government.
The savage day on Wall Street compounded an already-miserable session in Europe. By its close, the FTSE 100 index in London had created a new record of its own: by losing 178 points (3.4 per cent) it shed a triple-digit number for the fourth day in a row, an ignominious feat never achieved before.
The CAC 40 in Paris shed 4.7 per cent, while in Frankfurt the DAX lost over 5 per cent.
In Dublin, the ISEQ index of Irish shares shed 4.4 per cent, with five shares losing over 10 per cent: Independent News & Media, Dragon Oil, First Derivative, Merrion Pharmaceutical and Petroceltic International, which fell by over 21 per cent.
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Reality check – the economy is already at breaking point, as are a huge number of the citizens who live in this ‘wonderful’ society/economy or whatever it’s called.
Don’t know about anyone else, but I’m stretched to the limit already. More cuts will be the straw that breaks the camels back, will also be majorly counterproductive, what we need is some confidence in the economy so people will begin to spend again, don’t see that anytime so though!!!!
I doubt the government will listen to the warning.
How many front loaded budgets will this have been, and isn’t that just another posh way of saying, ‘ Lets screw the f*****s again !
Well if this is coming from Austin Hughes I’d seek a second opinion. This so called economist appeared on a prime time debate with David McWilliams in 2003 using figures and forecasts to explain why the housing bubble was going to continue. McWilliams explained how the banks were in over their heads, guess who was right.
If it was 2003 that he predicted the bubble was going to continue, he was right. It continued until 2007.
4 years is a long time in these sort of predictions.
McWilliams was a broken-clock economist.
By 2003 it was already a bubble. A long period of very low ECB rates combined with ever more reckless lending by the banks just meant it had until 2007 to grow to gigantic proportions before it eventually burst.
Yet again I am going to say that you cannot tax your way out of a recession & no amount of austerity cuts, front loaded budgets or whatever the government wants to call it is goin to do this country any good. Or any of the other bailed out countries. The sooner the euro goes the better. We are barely able to pay the interest on the billions of loans. Debt forgiveness is the only answer.
Ann, you are spot on!
I think people are so worried about what the future holds that, even if they are in the enviable position of having a bit of extra cash, they are tucking it away and are in no hurry to spend. I think every purchase is pondered over and there’s a lot less impulse buying. I’d imagine that this trend will be even more prevalent after the next budget which will cause an ever greater downward spiral.
“it may be more sage for the government to under-promise, and then over-deliver, on its targeted cuts for the December budget.” A lovely way to say the Government should LIE.
The government can’t see what is happening to the ordinary Joe soap ie me and you. There is No money for property tax, water rates, septic tank charges etc. WHERE are we to get it from? Take home is cut way back and will be hit again. Hospitals are at breaking point (I know!!). Schools can’t absorb any more cuts either. There are incidents of overcrowding in schools and I know of a class of 20 fourth years who have no one to teach them at one point during the day due to cutbacks.
have your say