Sept. 15, 2008— -- Wall Street had its worst day more than six years after hectic and historic weekend brought the quick demise of two of America's oldest and best-known investment banks.
Stocks dropped dramatically -- with the Dow closing down 504.48 points -- after 158-year-old brokerage firm Lehman Brothers filed for bankruptcy this morning and the other Wall Street stalwart, Merrill Lynch, was sold to Bank of America for $50 billion.
The Dow's fall of 4.42 percent today was the worst single day for the index since July of 2002. The other major indexes also had a miserable day with the NASDAQ falling 3.6 percent and the S&P 500 falling 4.69 percent.
But it could have been much worse. Given the turmoil in the financial world, today could have easily been a repeat of Black Monday, the day in October 1987 when the Dow lost 22.6 percent of its value. Government and Wall Street leaders worked through the weekend to try to avoid another crash.
Lehman Brothers didn't fare as well. After filing for bankruptcy, its stock lost virtually all of its remaining value, falling 94.3 percent today. Shares of the company which were trading around 65 just a year ago, closed today at 0.21.
Merrill Lynch's stock was up throughout the day but ended virtually unchanged.
The downfall of these two titans shows just how far and deep the financial crisis has spread and that nobody -- no matter how big and powerful he or she is -- is immune from the turmoil.
Focus on Wall Street has now shifted to American International Group, or AIG, the world's largest insurance company, which has now gone to the government for emergency funds as it struggles to stay alive.
Also, many analysts are worried about the health of Washington Mutual, the country's largest savings and loan. The company's stock has plummeted as investors worry that the bank has too many bad mortgages and loans on its books.
AIG's stock lost more than 60 percent of its value today and Washington Mutual saw its shares plummet 26.7 percent.
No Government Bailout
From the start of this weekend's discussions, the government made it clear that it was drawing a line in the sand about taxpayer-backed bailouts. In March, the Bush administration supported -- and gave financial backing to -- the sale of Bear Stearns to J.P.Morgan Chase. And last week it bailed out mortgage giants Fannie Mae and Freddie Mac.
But when it came to Lehman, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke were explicit at the start of the weekend: There is no political will for yet another government bailout.
Speaking at the White House this afternoon, Paulson said that it will be some time until we see the bottom of the financial crisis.
But he remained confident that the situation would improve "in months as opposed to years."
Paulson said he "never once" considered it appropriate to use taxpayer dollars to help save Lehman, which he considered a different situation than Bear Stearns.
"I don't ever take it lightly to put the taxpayer on the line to protect an institution," Paulson said.
Now, he said, the market has to "work off the past excesses."
President Bush that "in the short run, adjustments in the financial markets can be painful" but tried to calm the news today saying in the long run he is confident the markets are "flexible and resilient."
"I know Americans are concerned about the adjustments that are taking place in our financial markets," Bush said in the Rose Garden. "At the White House and throughout my administration we're focused on them, and we're working to reduce disruptions and minimize the impact of these financial market developments on the broader economy."