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By TIM PARADIS, AP Business Writer

NEW YORK - The failure of the bailout package in Congress literally dropped jaws on Wall Street and triggered a historic selloff — including a terrifying decline of nearly 500 points in mere minutes as the vote took place, the closest thing to panic the stock market has seen in years.

Trader David O'Day rubs his eyes as he works on the floor of the New York Stock Exchange, Monday Sept. 29, 2008. The Dow Jones industrial average fell more than 300 points, while demand for safe-haven buying in government debt remained high ahead of the vote. (AP Photo/Richard Drew)
AP Photo: Trader David O'Day rubs his eyes as he works on the floor of the New...

 

The Dow Jones industrial average lost 777 points Monday, its biggest single-day fall ever, easily beating the 684 points it lost on the first day of trading after the Sept. 11, 2001, terrorist attacks.

As uncertainty gripped investors, the credit markets, which provide the day-to-day lending that powers business in the United States, froze up even further.

At the New York Stock Exchange, traders watched with faces tense and mouths agape as TV screens showed the House vote rejecting the Bush administration's $700 billion plan to buy up bad debt and shore up the financial industry.

Activity on the trading floor became frenetic as the "sell" orders blew in. The selling was so intense that just 162 stocks on the Big Board rose, while 3,073 dropped.

The Dow Jones Wilshire 5000 Composite Index recorded a paper loss of $1 trillion across the market for the day, a first.

The Dow industrials, which were down 210 points at 1:30 p.m. EDT, nose-dived as traders on Wall Street and investors across the country saw "no" votes piling up on live TV feeds of the House vote.

By 1:42 p.m., the decline was 292 points. Then the bottom fell out. Within five minutes, the index was down about 700 points as it became clear the bill was doomed.

"How could this have happened? Is there such a disconnect on Capitol Hill? This becomes a problem because Wall Street is very uncomfortable with uncertainty," said Gordon Charlop, managing director with Rosenblatt Securities.

"The bailout not going through sends a signal that Congress isn't willing to do their part," he added.

While investors didn't believe that the plan was a cure-all and it could take months for its effects to be felt, most market watchers believed it was at least a start toward setting the economy right and unlocking credit.

"Clearly something needs to be done, and the market dropping 400 points in 10 minutes is telling you that," said Chris Johnson, president of Johnson Research Group. "This isn't a market for the timid."

Before trading even began came word that Wachovia Corp., one of the biggest banks to struggle from rising mortgage losses, was being rescued in a buyout by Citigroup Inc.

That followed the recent forced sale of Merrill Lynch & Co. and the failure of three other huge banking companies — Bear Stearns Cos., Washington Mutual Inc. and Lehman Brothers Holdings Inc., all of them felled by bad mortgage investments.

And it raised the question: Which banks are next, and how many? The Federal Deposit Insurance Corp. lists more than 110 banks in trouble in the second quarter, and the number has probably grown since.

Wall Street is contending with all of it against the backdrop of a credit market — where bonds and loans are bought and sold — that is barely functioning because of fears that anyone lending money will never be paid back.

More evidence could be found Monday in the Treasury's three-month bill, where investors were stashing money, willing to accept the tiniest of returns simply to be sure that their principal would survive. The yield on the three-month bill was 0.15 percent, down from 0.87 percent and approaching zero, a level reached last week when fear was also running high.

Analysts said the government needs to find a way to help restore confidence in the markets.

"It's probably fair to say that we are not going to see any significant stability in the credit markets or the stock market until we see some sort of rescue package passed," said Fred Dickson, director of retail research for D.A. Davidson & Co.

The bailout bill failed 228-205 in the House, and Democratic leaders said the House would reconvene Thursday in hopes of a quick vote on a revised bill.

"We need to put something back together that works," Treasury Secretary Henry Paulson said. "We need it as soon as possible."

The Dow fell 777.68 points, just shy of 7 percent, to 10,365.45, its lowest close in nearly three years. The decline also surpasses the record for the biggest decline during a trading day — 721.56 at one point on Sept. 17, 2001, when the market reopened after 9/11.

In percentage terms, it was only the 17th-biggest decline for the Dow, far less severe than the 20-plus-percent drops seen on Black Monday in 1987 and before the Great Depression.

Broader stock indicators also plummeted. The Standard & Poor's 500 index declined 106.85, or nearly 9 percent, to 1,106.42. It was the S&P's largest-ever point drop and its biggest percentage loss since the week after the October 1987 crash.

The Nasdaq composite index fell 199.61, more than 9 percent, to 1,983.73, its third-worst percentage decline. The Russell 2000 index of smaller companies fell 47.07, or 6.7 percent, to 657.72.

A huge drop in oil prices was another sign of the economic chaos that investors fear. Light, sweet crude fell $10.52 to settle at $96.36 on the New York Mercantile Exchange as investors feared energy demand would continue to slide amid further economic weakness. And gold, where investors flock when they need a relatively secure investment, rose $23.20 to $911.70 on the Nymex.

Marc Pado, U.S. market strategist at Cantor Fitzgerald, said investors are worried about the spread of troubles beyond banks in the U.S. to Europe and other markets.

"Things are dying and breaking apart," he said.

The federal Office of Thrift Supervision, one of the government's banking regulators, indicated that the market was overreacting to the House vote and that its fears about the financial system are misplaced.

"There is an irrational financial panic taking place today, and we support and applaud the continuing efforts of Secretary Paulson and congressional leadership to restore liquidity and public confidence," John Reich, Director of the federal Office of Thrift Supervision, said in a statement.

The plan would have placed caps on pay packages of top executives that accepted help from the government, and included assurances the government would ultimately be reimbursed by the companies for any losses.

The Treasury would have been permitted to spend $250 billion to buy banks' risky assets, giving them a much-needed cash infusion. There also would be another $100 billion for use at the president's discretion and a final $350 billion if Congress signs off.

But Wall Street found further reason for worry overseas. Three European governments agreed to a $16.4 billion bailout for Fortis NV, Belgium's largest retail bank, and the British government said it was nationalizing mortgage lender Bradford & Bingley, which has a $91 billion mortgage and loan portfolio. It was the latest sign that the credit crisis has spread beyond the U.S.

___

Business Writers Joe Bel Bruno in New York and Christopher S. Rugaber in Washington contributed to this report.

 



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Home arrow Blog arrow Obama Calls for New Strategy to 'Dismantle' Al Qaeda in Afghanistan and Pakistan
Obama Calls for New Strategy to 'Dismantle' Al Qaeda in Afghanistan and Pakistan PDF Print E-mail
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Friday, 27 March 2009

President Obama says he is ordering 4,000 additional U.S. troops to help train Afghan security forces and is calling on Congress to approve $1.5 billion a year in aid for Pakistan over the next five years.

 

President Obama, declaring that coalition forces must "disrupt, dismantle and defeat" Al Qaeda, called on Friday for thousands of additional U.S. troops and billions of dollars in aid to fight terrorists in Afghanistan and Pakistan.

The president, announcing what he called a "comprehensive new strategy" for the region following a two-month review, outlined an approach to the war that places far more emphasis than before on Pakistan. 

Obama said he was ordering 4,000 additional U.S. troops to help train Afghan security forces and was calling on Congress to approve $1.5 billion a year in aid for Pakistan over the next five years. 

The increases are aimed at making the security forces, governments and infrastructure of both countries more self-sufficient and stable, as well as capable of taking on Al Qaeda and the Taliban. 

Obama warned that the terrorists who plotted the Sept. 11 attacks still reside in both countries, and that intelligence estimates show Al Qaeda is "actively planning" new attacks on the U.S. from safe havens in Pakistan. 

"The situation is increasingly perilous," Obama said. "The safety of people around the world is at stake." 

Obama said Afghanistan and Pakistan are "inextricably linked" and that extremist elements in both countries must be confronted at once to stabilize the region. 

"Al Qaeda and its extremist allies are a cancer that risks killing Pakistan from within," the president said. 

Obama bluntly outlined what he saw as the threat Al Qaeda continues to pose to the rest of the world, mentioning "9/11" several times and using the word "terrorists" about a dozen times in the speech.

The 4,000 Army trainers are in addition to the contingent of 17,000 Marines and Army personnel Obama already announced he would deploy for combat and training operations in Afghanistan. Those deployments will start this spring and continue through the summer. The Army trainers will focus their efforts on expanding the ranks and professionalism of the Afghanistan National Army (ANA). 

"This strategy is a strategy, it's not a straight-jacket. It's designed to be flexible. We will reassess as we go along," one senior official said during a White House briefing in advance of the president's speech. 

Separately, the administration has won an as-yet-unannounced commitment of new forces from France to train the Afghan police forces. Officials said they expected France to announce its moves soon, possibly at NATO meetings next week. 

"Ultimately the Afghan national forces need to take the lead in securing their country," one official said. 

The Obama administration has set a goal of 134,000 fully trained Afghan Army forces and 82,000 fully trained police forces by the end of 2011. Currently, the Afghan Army has a force of about 75,000, and the number of fully trained Afghan police is less than 40,000. 

Obama will also send "hundreds" of civilian State Department and personnel from other U.S. agencies to improve Afghanistan's ability to govern itself -- a tacit acknowledgement that President Hamid Karzai has so far failed to win Obama's full confidence. 

Obama said Friday that Afghanistan, despite its elected government, is still undermined by corruption and a persistent drug trade. He called for lawyers, engineers, agriculture specialists and other professionals to help the country "seek the promise of a better future." 

The administration also intends to focus new efforts on Pakistan, principally involving regular diplomatic engagement led by special envoy Richard Holbrooke. The U.S. intends to conduct bilateral talks with Pakistan every six-to-eight weeks and U.S.-Pakistan-Afghanistan meetings once every three months. 

"That's a fundamental shift," one senior official said, describing the new strategy as one that considers the fight against Al Qaeda and the Taliban a two-nation conflict that requires intensive military and diplomatic efforts. "We recognize Pakistan has a complex, complicated relationship with some of these terrorists groups. Some of these terrorists groups have grown up within the Pakistani system, but many of them have now become Frankensteins which threaten the freedom of Pakistan." 

The new strategy will also seek to increase U.S. economic aid to Pakistan's new civilian government. As the president calls for billions in additional funding, Obama will also seek to "increase Pakistan's capabilities against insurgents, terrorists and militants." As an example, one official said, Obama will try to increase Pakistan's "air mobility capability to control their western border." 

Increasing Pakistani air power in the West could alleviate the need for U.S. forces to use drones to target Al Qaeda operatives. That could reduce domestic political pressure on the Pakistani government to protest such U.S. air-strikes. Even with these new initiatives, senior officials admitted they are still not completely sure that some elements of Pakistan's military or intelligence services are not aligned with or sympathetic toward Al Qaeda or the Taliban. 

The additional Army trainers, when added to the 17,000 already scheduled, will boost U.S. forces by 21,000 this year. That's on top of the roughly 9,000 additional forces former President Bush deployed in late 2008. 

That fits with the request submitted by Army Gen. David McKiernan, the U.S. commander in Afghanistan, for a force increase this year, Obama officials said. But it falls short of McKiernan's overall request for 35,000 additional troops in by the end of 2010. 

Officials said Obama will decide at a later date whether to meet McKiernan's full troop request.

FOX News' Major Garrett contributed to this report.



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