All major stock indexes took a fall today, with the Dow Jones Industrial Average losing 362.14 points, or 2.6 percent.
The Wall Street sell-off came two days after the Federal Reserve announced a 25 basis point (.25 percent) decrease in the target federal funds rate, lowering the rate to 4.5 percent.
In making the cut, the Federal Open Market Committee advised that inflation concerns were looming and this rate cut was the last one the market should anticipate receiving this year.
The Commerce Department also reported a seasonally adjusted 3.9 percent growth in the nation’s Gross Domestic Product, or GDP, a higher-than-anticipated figure, which further stimulated market concerns that inflation risks are intensifying.
The sell-off was prompted after analysts downgraded Citicorp over concerns the company holds some $350 billion in CDOs, or collateralized debt obligations.
CDOs are securities formed when financial institutions sell loans to institutional buyers. Since the bursting of the housing bubble, foreclosures in the housing market have eroded the underlying economic value of trillions of dollars of CDO instruments sold to banks and pension funds worldwide.
Citicorp was the worst performer in the Dow, losing fully 7 percent of its value.
At this point, analysts are uncertain how many billions of dollars of near-worthless CDOs institutions such as Citicorp hold on the balance sheet and in off-balance sheet funds.
Fallout from the global collapse of the credit markets also has shaken Merrill Lynch & Co., where over the weekend the board voted to fire CEO Stanley O’Neal, again on huge losses taken in CDOs.
As the stock market was being rocked with losses, the Federal Reserve quietly pumped a $41 billion cash infusion into the temporary reserves of U.S. financial institutions, the largest cash infusion since 9/11.
As WND previously reported, the Fed is in a dilemma.
The lower interest rates being demanded by Wall Street to prop up a plummeting stock market have an adverse effect in pressuring the dollar downward in world currency markets.
The dollar closed today at a new low of 76.67 on the U.S. Dollar Index, reflecting a continuing low of $1.44 to the euro.
Gold, which closed above 800 earlier this week, remained high yesterday at $790 an ounce, while oil remained high, closing at $93.65 a barrel.
The market sell-off triggered investor concerns that the bursting of the housing bubble could impact consumer spending, stimulating fears the U.S. is entering a recession.
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