Dow ends under 12,000 in volatile trading

The Dow Jones Industrial Average closed sharply down 128.11 points yesterday, closing at 11,971.19, the first time the market has closed under 12,000 since Nov. 3, 2006.

In an emergency move before the New York Stock Exchange opened, the Federal Reserve acted to prevent a market meltdown by lowering its target rate for federal funds by 0.75 percentage points.

The Fed hoped its surprise announcement would ease investor fears of recession and prevent Monday's global stock sell-off from spreading to the United States, as stock markets opened Tuesday for the first time this week following the Martin Luther King holiday.

In the first moments after opening yesterday, the Dow Jones Industrial Average plummeted more than 460 points, recovering to narrow losses midday in a volatile session that ended with yet another triple-digit loss.

In the worst year's opening in history, the Dow is now down 15.5 percent from the historic market peak recorded less than four months ago, on Oct. 9, 2007, when it closed at an all-time high of 14,164.53.

Investors on Wall Street ended the day nervous, resolved to follow overnight markets in Asia and Europe to see if panic selling has subsided.

Yesterday, the Dow futures ended down 155 points, suggesting that stock markets most likely would open down once again today.

Wall Street traders at the close of the market were already jawboning for another .25 percentage point rate cut on Jan. 31, when the Federal Open Market Committee holds its next scheduled meeting.

Still, a series of rate cuts since the mortgage and credit crisis began late last year have not worked to revive stock markets globally, suggesting the crisis is truly an asset crisis, not a liquidity crisis.

Lowering rates will pump more liquidity into the market and lowering rates may take some pressure off certain homeowners who may be more likely to face foreclosures as a result of increases in adjustable mortgages monthly payments should interest rates remain high.

Still, major banks such as Citibank and brokerage firms including Merrill Lynch, Bear Stearns and Morgan Stanley have sought foreign capital investors, suggesting the crisis is an asset crisis, not a liquidity crisis.

In other words, mortgage foreclosures have caused Collateralized Loan Obligations, or CLOs, held in bank asset portfolios to experience losses that have negatively impacted bank reserves.

The global problem may not be a problem of too little money available to lend at relatively cheap rates.

Instead, the current problem more likely results from the fraudulent and otherwise underperforming securitized loan obligations that Wall Street created and sold to financial institutions for their asset portfolios when former Federal Reserve Chairman Alan Greenspan held rates at historically low levels following 9/11.

Beginning in January 2001, the Fed under Greenspan cut rates 13 times, taking the discount rate, the overnight bank lending rate, from 6.5 percent to 1 percent in June 2003, a 46-year low.

Greenspan held the discount rate at 1 percent for one year, until June 2004, a phenomenon many have credited with creating the housing bubble that has now burst, resulting in the CLO asset crisis we have been experiencing with interest rate increases in the first months of current Fed chairman Ben Bernanke's term.

Returning to a 1 percent discount rate environment is now virtually unimaginable, especially after the U.S. Labor Department announced consumer prices rose by 4.1 percent in 2007, the fastest pace in 17 years, with increases spurred by higher gasoline and food prices.

As the Fed eases rates, the likelihood is that the dollar will continue its downward spiral.

The dollar ended lower yesterday against most major currencies, reflecting the concern of world currency markets that lower U.S. rates would make dollar holdings less attractive across the globe.

Editor's note: The November issue of WND's monthly Whistleblower magazine, titled "HOW GLOBALISM IS DESTROYING THE U.S. ECONOMY" – focuses exclusively on the future of the U.S. economy, and answers key questions like: "If inflation is so low, how come food and energy cost so much?" "What is the 'housing bubble,' and why did it burst?" "What's really going on with the stock market?" "Is America heading into a recession?" "Will the dollar collapse in 2008?" and "What will happen to the price of gold?"

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