The Obama honeymoon is over: Dow drops 332

Investors panic as banks continue to report huge losses

By Andrew Leonard

Published January 20, 2009 10:02PM (EST)

Roll up your sleeves, Mr. President. For economy-watchers of a liberal persuasion, the euphoria induced by the swearing in of the nation's first African-American president had all but evaporated by the time the New York Stock Exchange closed for the day. The Dow Jones industrial average fell 330 points, or 4 percent, closing under 8000. The honeymoon? Over -- even before the sun had set on the first day of Obama's presidency.

Banking woes, again, spurred the sell-off. If the announcement that the Royal Bank of Scotland had toted up losses of $40 billion for all of 2008 wasn't enough, revelations of severer-than-anticipated problems at Boston's State Street bank stoked additional fear among investors who now seem to have one finger permanently on the panic button.

The Financial Times found one unnamed "Wall Street banker" who claimed that fears of "nationalization" were contributing to investor dismay.

Investors are deeply concerned that the U.S. government might follow the lead of the U.K. and come in with a rescue package that hurts shareholders by wiping out companies' shares..."

They should be so lucky. At this point, fewer and fewer alternatives to outright nationalization appear feasible. If these "concerned" investors would rather try to fight for what they are owed, post-bankruptcy, amid the utter wreckage of Wall Street, one might be tempted to wish them luck, if it weren't for the real possibility that a wave of cascading bank failures could easily propel the current financial crisis into an even more destructive stage -- for everyone.

President Obama already has a meeting with his top economic advisers on the schedule for Wednesday morning -- which is also when Treasury Secretary nominee Timothy Geithner's confirmation hearing is set to finally take place. One wonders how many questions Geithner will get on his tax issues relative to what some might consider a more pressing worry: What do you plan to do, this afternoon, to stop the global banking system from imploding?

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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