Receiving Wide Coverage ...
Dow Down: The lead story in all three papers was the Dow Jones Industrial Average falling 635 points, or 5.55 percent, to 10,810 yesterday, the worst day since December 2008. An address from President Obama, the Journal said, failed to inspire the markets as the Dow lost 20 points during his 11-minute speech. Wall Street Journal, New York Times, Washington Post
Bank Stocks' Bad Day: Bank stocks dropped 11% Monday, the largest single-day plunge since April 2009, leading the papers to question banks' health. Bank of America's stock fell 20% while Citigroup dropped 16% and Morgan Stanley lost 14%, according to the Journal. The Times noted that U.S. banks are likely to have their worst period of revenue growth since 1938. Wall Street Journal, New York Times
B of A Woes: The Times said a variety of factors played into the largest U.S. bank's nosedive: AIG's suit against B of A for mortgage-backed securities misrepresentation; CLSA analyst Mike Mayo downgrade of the stock; and hedge fund founder David Tepper dumping more than 40% of his stake in the Charlotte company. Tepper has been one of B of A's most-outspoken supporters. The Journal's "Heard on the Street" column, meanwhile, looked at CEO Brian Moynihan and his constant declarations that the bank doesn't need more equity, saying "he may have squandered an opportunity to bulk up the balance sheet." That lost opportunity may hurt B of A's stockholders, which may cost Moynihan his job. Wall Street Journal, New York Times
Wall Street Journal
The paper offers three reasons why this crisis differs from the 2008 meltdown: this is a top-down crisis with governments unable to get economies growing losing the trust of the business community; the 2008 crisis stemmed from people borrowing too much, while today people are keeping their cash and avoiding adding debt; and the first crisis resulted from liquidity issues, which could be solved by government aid, while the current predicament is caused by "a chronic lack of confidence by financial actors in one another and their governments' ability to kick-start economic growth."
New York Times
An interview with former Treasury Secretary Henry Paulson to get his thoughts on the recent financial tumult yielded this from columnist Andrew Ross Sorkin: "The downgrade is almost a sideshow compared with the real reason that stocks started falling Monday morning, before panic set in and the momentum of the market took over: the intractable problems in the European Union." Sorkin went on to say that "without any one individual in charge in Europe, there is virtually no possibility for someone to emerge the way that Mr. Paulson did during the panic of 2008 with a lifeline like the Troubled Asset Relief Program. ... Say what you want about TARP — it was clearly unpopular — but in retrospect, it is hard to argue that it did not keep the economy from going off a cliff."
Former Federal Reserve official Joseph E. Gagnon said the Fed should reconsider its stance of taking a wait-and-see approach to the economy, and particularly should place its focus on high unemployment rates.
Columnist Floyd Norris observes that more than a third of stocks in the KBW bank indexes for the U.S. and Europe have lost more than a third of their value in six months.
Insurance deal-maker Paul Brown has bolted Bank of America for JPMorgan Chase.
The tougher capital and liquidity rules set forth by Basel III have their merits, but not during the current economic strife, according to Financial Times banking editor Patrick Jenkins. So, he proposes a holiday from the rules for a year or two. "Without pay rules that stymie flexibility, we might see bonuses trimmed rather than jobs lost. And without an edict to hold sovereign debt, we might see banks trusting more in high-quality corporate bonds as a liquid asset - with the handy side-effect that one of the spokes of the vicious circle linking banks and their sovereign governments would be broken."
Where's the upside? For consumers it could be the lowest interest rates yet this year: 4.39% for a 30-year fixed-rate mortgage. The story quotes Brad Cohen, a senior mortgage lender for Bethesda-based Eagle Bank commenting on yesterday's flurry of activity "I don't want to even get up to go to the bathroom."
Columnist Erza Klein said he agrees with the downgrade, but says the $2 trillion mistake in the deficit math of the original S&P report that was deleted from the final version demonstrates the weakness of the ratings agency. "You cannot coherently merge the first and second versions of S&P's explanation of the downgrade. That should tell you something about how rigorous its framework is."
Eugene Robinson, the Post's "Opinionated Writer," pointed blame at Republican's in Congress for the downgrade.