How Will the Markets Respond?

Oct. 12, 2008 — -- As leaders of the world's biggest economies dole out assurances, without offering much in the way of specifics, that they will take any necessary action to restore confidence in global markets, Wall Street appears to be facing further turbulence coming off one of its worst week ever.

"There is probably a lot of optimism based on this past Friday. So the markets may reflect the disappointment of the G7 not coming out with some profound, coherent, exact, precise program," said Wall Street Journal Washington D.C. bureau chief John Bussey. "They are for making sure there is enough capital in the system freeing up money markets; assuring that bank deposits are safe; getting banks lending to each other again and lending to individuals. My suspicion is that as the week wears on, the markets will metabolize that and be a little more encouraged."

President Bush continued his efforts this weekend to get the global community behind an economic rescue plan during the meeting the Group of Seven industrialized nations and the annual session of the International Monetary Fund and World Bank.

White House spokesman Tony Fratto said Bush acknowledged the economic problem began in the United States, but told participants, "We're all in this together."

"We've done so much damage to both the economy and to the financial system that this may drag on for a couple of years with subnormal growth," UBS Securities floor trading director Art Cashin said on "This Week" today.

Cashin said the bulk of the problem can be attributed to Lehman Brothers' collapse.

"In hindsight it's pretty clear that it was a drastic error to let Lehman go under, it spilled over into the money markets after that, when the money markets froze up they stop buying commercial paper which is the lifeline for much of American business," he said. "The stock market is merely the sideshow in this circus, it is the financial system that's there to use a different metaphor we're just the thermometer it's the patient it's the banking system that's got to get put back together and it's got to get put back together fast."