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Investors have spent the year fleeing the scourge of leverage - the accumulation of assets via massive amounts of debt. A collapse of market confidence contributed to the failure of heavily indebted firms like Lehman Brothers and Washington Mutual, and forced the nationalization of AIG (AIG, Fortune 500) and others. Panic sales of companies that depend on borrowing in the locked-up short-term credit markets have only accelerated this week, with Morgan Stanley (MS, Fortune 500) off 25% two days in a row.
But it could be worse, believe it or not ?!?! While the stock market's October dive has decimated brokerage statements and retirement accounts around the world, the selling so far has spared the currency of the biggest debtor of all, the U.S. government.
President Bush remarks cap a week in which fear gripped the financial markets worldwide. The Dow Jones industrial average had its worst week ever, falling just over 1,874 points, or 18%. Wall Street lost roughly $2.4 trillion in market value during the week, according to losses in the Dow Jones Wilshire 5000, the broadest measure of the market.
Since the mid-September collapse of Lehman Brothers sparked the latest chaos in the financial markets, Bush has repeatedly tried to reassure the Americans.
"We can solve this crisis - and we will," said Bush, in a speech at the White House Friday, his 27th commentary on the nation's financial health. "Here's what the American people need to know: The U.S. government is acting, and we will continue to act, to resolve this crisis and return stability to our markets," he said.
The government has started taking a number of steps to attack the crisis, Bush said Friday. These include helping homeowners to refinance into more affordable mortgages; cutting the target for the federal funds rate; unveiling a plan to support the market for commercial paper; and offering government insurance for money market mutual funds.
The plan will authorize the Treasury to buy bad mortgage-related investments from finance companies, unfreezing the credit markets by freeing up banks and finance firms to lend once again.
Source: CNNMoney.com/Fortune
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