In any other time, Monday September 29th, 2008 would have already been a monumental day. With markets still reeling from among other things, the collapse of Lehman, the bailout of AIG, and Washington Mutual having recently been placed into receivership by the FDIC, investors had just finished dealing with another weekend where the Financial sector looked considerably different on Monday morning than it did the prior Friday. Over the weekend, Washington lawmakers worked on getting the necessary votes to pass the $700 billion bank bailout, and on Sunday the AP reported that an agreement had been reached. The bill would be put to vote on Monday. Barney Frank said he was confident the bill would pass, albeit by a slim margin.
As if that wasn't enough, on Monday, Wachovia traded down 80% from ($10 to $2) after news broke that Citigroup would acquire its banking operations and the FDIC would guarantee any losses beyond $42 billion. It was shaping up to be just another day of the credit crisis with the averages each opening down between 2% and 3%. While it was a big decline, there was some hope that markets would recover in the afternoon when Congress passed the bailout bill in the afternoon.
By the time voting began at 1:28 PM ET, stocks were still down sharply but had stabilized from the declines at the open. Shortly after the vote began, the 'nays' outnumbered the 'yeas', but given lawmakers had said they had the votes to pass the bill, this early trend wasn't too troubling. After all, Congress wouldn't just do nothing would they? After more minutes passed, however, traders began to worry as the count of 'nays' started pulling away from the 'yeas'. The market quickly went into free-fall. Eighteen minutes after the vote began, the S&P 500 had doubled its losses and was now down over 7%.
What everyone thought wouldn't happen did. At the end of the day, the major averages finished down more than 7%, and the DJIA had its largest point decline in history with a loss of 777 points. Nearly 200 of these points came in the minutes after the close as the crush of last minute sell orders were delayed in hitting the tape.
While last year's 777 point decline in the DJIA was its largest ever, in percentage terms, it didn't even crack the top ten. While the credit crisis caused one of the largest peak to trough declines in the index's history, only one day (10/15/08) made it to the top ten in percentage declines.
While it seems like the market only went down last year, many of the Dow's best single day performances also came during the credit crisis. Seven of the DJIA's top ten single day point gains and two of the ten best single day percentage gains came during the credit crisis. In other words, in terms of largest single day moves in points and percentages, the credit crisis saw more "best ever" than "worst ever" days! They don't say good days happen in bad markets for nothing.
Finally, the failure of Congress to pass the bank bailout has been cited as the main factor behind the decline in equity markets on September 29th, 2008. The following day, the headline on the Journal's "Markets" column read, "Dow Falls 777.68 Points on Bailout's Delay." The column then went on to quote traders who said, "This is negative and it is a failure of leadership in Washington on both political sides." Reacting to the behavior of Congress, another trader commented that, "We thought the adults would show up." So the general consensus was that Congress's failure to pass the bill led to the record decline.
While the reaction was swift, lawmakers in Washington appeared to quickly come to their senses. On October 3rd, Congress took the bill up for vote again and it passed. Later that day, President Bush signed it into law. Given the passage, one would assume that stocks would rally or at least stabilize right?
Ironically, the DJIA not only declined 1.5% on October 3rd, but it fell another 3.6% the next day (10/6), and the selling didn't stop there. Selling intensified on the 7th with a decline of 5.1%, and then fell 2.0% on October 8th. Topping that off, the DJIA then went on to fall another 7.3% on October 9th. This five day decline of 18.2% was the worst five-day decline of the credit crisis, the worst since the 1987 crash, and the third worst ever. All of this came after the passage of a bill that was meant to stabilize the Financial markets. As was the case with most events of the credit crisis, markets were damned if they did, and damned if they didn't.
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