Wall Street in Shock as Two Giants Fail

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Wall Street took its worse dive since 9/11, as investors reacted to a stunning upheaval Monday:  two financial mega-giants failed and fell -- hard.

By closing, the Dow Jones suffered its worst showing since the aftermath of the Sept. 11, 2001, attacks, dropping more than 504 points.

What to make of the mess on Wall Street? Should the average investor be concerned? Watch CBN News Financial Analyst Drew Parkhill, following this report.

Investors found out Monday that Lehman Brothers had filed for Chapter 11 bankruptcy over the weekend. Several attempts to save the 158-year-old company failed as a result of the ongoing credit crisis after $60 billion in real estate holdings went bad.

Merrill Lynch and Co., Inc., the other failed Wall Street giant, was bought by Bank of America for $50 billion in stock. Then, more unsettling news as Wall Street learned that the world's largest insurance company, American International Group, Inc., is currently in the midst of restructuring.

These companies are the latest to join investment banker Bear Sterns, which closed down earlier this year, and mortgage giants Fannie Mae and Freddie Mac, which were both bought out by the government last week.

Former fed chairman Alan Greenspan called this Wall Street meltdown "a once-in-a-century event."

What to Think for the Average Investor?

To the average investor, the upheaval may give some pause. But CBN News Financial Analyst Drew Parkhill said the next several days will help determine just how much the market has been hurt.

"It's hurting the overall stock market at least in the short term," Parkhill said. "The question will be how long and how well the market will hold up."

"For today at least, investors will probably take a hit, but many analysts believe it could be worse," he said. "The next few days could be important.

$70 Billion in Loans

In an unprecedented move, a worldwide consortium of banks has pooled together $70 billion in loans to help ailing financial companies. The Federal Reserve is also taking steps to make it easier for companies to get emergency loans from the government.

President Bush says he sympathizes with investors and employees of failed companies, but signaled that the government will not continue to help financial companies. The President said federal policymakers will focus their attention on "the health of the financial system as a whole."

"We are working to reduce disruptions and minimize the impact of these financial market developments on the broader economy," Bush said Monday.

Presidential Candidates Respond

The presidential candidates also weighed in on the Wall Street upheaval.

Republican presidential candidate John McCain said he still believes the fundamentals of the nation's economy are strong, even stocks tumbled on the news of the two failed financial giants.

He said the problems are "a failure of government," pointing out that "the Democrats have been in control of Congress for the last two years - both houses, so I think there's plenty of blame to go around."

Democratic presidential nominee Barack Obama shot back, saying the crisis affecting Wall Street was "the most serious financial crisis since the Great Depression" and blamed it on failed Republican policies.

"This country can't afford another four years of this failed philosophy," Obama said as his campaign hit the Western states.

More Banks Failing on the Horizon?

CBN News' Parkhill says that it is very likely more bank failures are in the near future. But he said the average investor should not be too concerned yet.

"If you have money in a bank insured by the federal government , you'll be okay, as long as you aren't over the $100,000 insurance limit," he said.

For now, analysts believe the Federal Reserve will keep interest rates steady at 2 percent. If they do cut rates, some experts say that it could signal the Fed is worried that "another shoe will drop."

"But if we see evidence of a very weak economy, they may cut again to help the overall economy, not the financial system," Parkhill said. "Whatever they do, they have to explain their actions carefully, to keep investors as reassured as possible in an uncertain climate like this.

Sources: CBN News, The Associated Press

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