Dow Down 300 Points Based On SubPrime Worries

by Darren

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Nobody wants to be holding a lot of paper on subprime mortgages these days, and the stampede out is starting to scare people bad. Moves to increase liquidity only served to heighten nerves.

The announcement by BNP Paribas raised the specter of a widening impact of U.S. credit market problems. The idea that anyone _ institutions, investors, companies, individuals _ can’t get money when they need it unnerved a stock market that has suffered through weeks of volatility triggered by concerns about tight credit and bad subprime mortgages.

Traders move around the floor of the New York Stock Exchange in the minutes before the closing bell, Tuesday, Aug. 7, 2007. Wall Street overcame disappointment in the Federal Reserve’s failure to move toward an easing of interest rates Tuesday, and stocks made a late-day surge as the decision was seen as a sign the economy wasn’t threatened by turmoil in the credit markets.

Traders move around the floor of the New York Stock Exchange in the minutes before the closing bell, Tuesday, Aug. 7, 2007. Wall Street overcame disappointment in the Federal Reserve’s failure to move toward an easing of interest rates Tuesday, and stocks made a late-day surge as the decision was seen as a sign the economy wasn’t threatened by turmoil in the credit markets.

A move by the European Central Bank to provide more cash to money markets intensified Wall Street’s angst. Although the bank’s loan of more than $130 billion in overnight funds to banks at a low rate of 4 percent was intended to calm investors, Wall Street saw it as confirmation of the credit markets’ problems. It was the ECB’s biggest injection ever.

The Fed also unleashed $24 billion in reserves to maintain liquidity. Adding further fuel to the fire is the fact that retail numbers for July were also weak. Consumers really are spending less.

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