Wall Street's meltdown sent the stock market reeling and left Main Street with one sobering thought: It isn't over yet.
The record bankruptcy filing of Lehman Brothers yesterday and fire sale of Merrill Lynch to Bank of America raised the specter of further blowouts threatening the stability of an already-battered financial system in the months ahead.
Unlike a stock market crash that hits all at once, the "agonizing and deep-seated" drumbeat of trouble seems certain to drag on, said market veteran Phil Hummer of Chicago's Wayne Hummer Investments. "I've been hoping we would see the turning point, but I think it could be a long, long process."
The latest takedown of storied names in American business sparked a guessing game about which remaining financial giant would falter next. Those fears touched off the biggest drop in the Dow Jones industrial average since 2001: 504 points. About $700 billion evaporated from retirement plans, government pension funds and other investment portfolios.
Making matters worse, investors targeted the stocks of giant insurer AIG and savings-and-loan Washington Mutual, both down sharply in yesterday's feverish session.
Why the meltdown at once-great firms? Too much debt, inattention to risk, and leaders who failed to keep track of their operations, said James Tyree, head of Mesirow Financial in Chicago. "I see continued turmoil in general in the financial markets," he said. "These are the inevitable results of excess."
Treasury Secretary Henry M. Paulson Jr., who refused to toss a financial lifeline to Lehman, was unapologetic as the Bush administration signaled strongly that Wall Street shouldn't expect more rescues from Washington.
The American people should remain confident in the "soundness and resilience in the American financial system," Paulson told reporters at the White House.
Six months ago, Paulson moved to prevent the collapse of Bear Stearns, brokering a deal for JP Morgan Chase & Co. to buy the firm at a fire-sale price with Federal Reserve backing. This month, he stepped in to help the government seize Fannie Mae and Freddie Mac in hopes of reversing the housing and credit crises.
But yesterday, Paulson said he "never once" considered putting taxpayer money at risk to resolve the problems at Lehman Brothers, which was saddled with $60 billion worth of soured real estate holdings.
