September 2008 Archives

Wall Street reacted violently early Monday after the House failed to pass a proposed $700 billion bailout plan to rescue troubled financial companies from the failed mortgage loans that have clogged their books and put a damper on further lending.

At one point, the Dow Jones industrials nose-dived more than 700 points before throttling upward into safer, but still negative, territory.

Let's be clear on this. No one - the president and Capital Hill lawmakers included - wanted to have to vote on a bill that essentially acts as a get-out-of-jail-free card for over-eager lenders and inattentive regulators who helped allow this financial mess to occur.

And let's not forget the borrowers who took out mortgage loans they clearly weren't going to be able to pay down the road. If you're looking for culpability, there's plenty to go around.

But, like it or not, forward motion is badly needed right now. Opponents may not agree with some of the details, but any plan that can begin to free up lending at banks would likely go a long way toward unclogging the economic logjam we find ourselves in.

A story from the Associated Press captures some of the craziness that occurred before noon on Monday:

NEW YORK (AP) -- Fear swept across the financial markets Monday, sending the Dow Jones industrials down as much as 705 points, after the government's financial bailout package failed the House.

 

As the vote was shown on TV, stocks plunged and investors fled to the safety of the credit markets, worrying that the financial system would keep sinking under the weight of failed mortgage debt.

While investors had some worries that the vote would be close, many investors appeared to believe it would ultimately pass.

The markets were highly volatile, with the Dow regaining ground then falling backing again, trading down 454.95, or 4.08 percent, to 10,688.18. At its low, it was down 705.06, not far from its previous record for an intraday drop, 721.32, set during the first trading day after the Sept. 11, 2001, terror attacks.

Broader stock indicators also tumbled. The Standard & Poor's 500 index declined 66.64, or 5.49 percent, to 1,146.63, and the Nasdaq composite index fell 133.92, or 6.13 percent, to 2,049.42.

The Federal Reserve declined to comment on the market's decline.

With Wall Street in turmoil, the yield on the 3-month Treasury bill fell to 0.68 percent from 0.87 percent on Friday. That showed that investors were prepared to get meager returns on an investment as long as it was secure.

Marc Pado, U.S. market strategist at Cantor Fitzgerald, said investors are worried about the spread of troubles beyond banks in the U.S. to Europe and other markets.

"Things are dying and breaking apart while they sit there and vote on this thing," he said.

As Congress wrangles over the details of a proposed $700 billion market bailout, much of the debate has centered on whether taxpayers should foot the bill for bad decisions made by Wall Street executives and homebuyers who got in over their heads by taking out mortgages they couldn't afford.

The government plan is intended to give the economy a shot in the arm by taking bad debt off the balance sheets of banks and other financial institutions, thereby loosening up credit so that the economy can grow. Mostly, this means buying up troubled mortgages and mortgage-backed securities, but it could also include credit card debt, auto loans or just about any kind of debt that none of the big banks and Wall Street firms feel good about carrying in these troubled times.

While everyone's weighing the need to protect and preserve the nation's economy against the unpleasant possibility of rewarding those who endangered it, no one seems to be thinking of those people who lost big chunks of their savings accounts when their banks failed earlier this year.

What about them?

And the carnage continues.

Washington Mutual Inc. is the latest financial player to fall in the nation';s widening economic crisis.

On Thursday, the Federal Deposit Insurance Corp. seized WaMu and sold the thrift's banking assets to JPMorgan Chase & Co. for $1.9 billion. The Seattle-based bank, founded in 1889, is the largest bank to fail by far in the country's history.

The failure occurred as lawmakers in Washington struggle to hammer out a $700 billion bailout plan  that would relieve banks and financial institutions of their toxic mortage-related debt.

House Minority Leader John Boehner is demanding that "serious consideration" be given to a radically different proposal that provides no government money up front for a financial rescue.

"If such consideration is not given, a large majority of Republicans cannot -- and will
not -- support" the administration's plan, Boehner said in a letter to House Speaker
Nancy Pelosi, D-Calif.

Home prices in Los Angeles County continued their steep fall last month, tumbling 35 percent compared to the same period last year, according to an industry report released Thursday.

The median price for a single-family home in the county stood at $394,870 in August, down 35 percent compared to last year, according to the California Association of Realtors. Year-over-year sales were off 28.6 percent. 

L.A. County's numbers mirrored those statewide, which also saw a large drop from last year.
At $350,140, the median price of a single-family home in California was 40.5 percent lower than August 2007.

Statewide, sales spiked 56.7 percent compared to August of last year when 313,310 homes were sold, and they spiked 1.8 percent from July, reflecting the large numbers of foreclosures on the market, CAR reported.

"While sales appear to have turned the corner, the median will experience additional downward pressure as we move into the off-peak season in the coming months, and will continue to face pressure from distressed sales," said CAR Vice President and Chief Economist Leslie Appleton-Young. "Sales are just one of the variables that must fall into place before we see real improvement in the market."
 

Industry experts and sideline observers have long speculated as to when the nation's floundering housing market will hit bottom. Many voiced their views in a story we ran in Sunday's paper.

If figures released Thursday by the Commerce Department are any indication, we still have a way to go. In fact, new home sales tumbled in August to the slowest pace in 17 years, while the average sales price fell by the largest amount on record, demonstrating the depth of the problem that Washington is trying to solve. 

For more on this, read on.

 

 

While both sides of the aisle continue to haggle over the details - and scope - of the government-proposed bailout plan for the nation's financial institutions,  presidential candidates John McCain and Barack Obama have jumped into the fray.

Republican Sen. John McCain challenged Democratic political rival Sen. Barack Obama to delay Friday's first presidential debate and join forces to help Washington fix the financial mess. But Obama rebuffed his GOP rival, saying the next president needs to "deal with more than one thing at once." 

Here's more of the story from the Associated Press: 

The White House rivals maneuvered to claim the leadership role in resolving the
economic turmoil that has overshadowed their campaign six weeks before Election Day. Obama said he would proceed with his debate preparations while consulting with bailout
negotiators and Treasury Secretary Henry Paulson.

 McCain said he would stop all advertising, fundraising and other campaign events to return to Washington and work for a bipartisan solution.

"It's my belief that this is exactly the time when the American people need to hear
from the person who, in approximately 40 days, will be responsible for dealing with
this mess," Obama said at a news conference in Clearwater, Fla. "It's going to be part
of the president's job to deal with more than one thing at once."

But McCain said they must focus on a bipartisan solution to the nation's financial
woes as the Bush administration's $700 billion bailout proposal seemed headed for
defeat. If not, McCain said ominously, credit will dry up, people will no longer be
able to buy homes, life savings will be at stake and businesses will not have enough
money to pay workers.

"It has become clear that no consensus has developed to support the administration's
proposal," McCain said. "I do not believe that the plan on the table will pass as it
currently stands, and we are running out of time."

Sen. Lindsey Graham, McCain's representative in debate negotiations, said McCain will
not attend the debate "unless there is an agreement that would provide a solution" to
the financial crisis. Graham, R-S.C., told The Associated Press that the agreement
would have to be publicly endorsed by Obama, McCain, the White House and congressional leaders, but not necessarily given final passage by the House and Senate.

 

Republicans and Democrats continued to wrangle over details of a proposed $700 billion bailout plan for ailing financial firms on Tuesday when the FBI stepped into the mix.

The federal agency is investigating four major U.S. financial institutions whose collapse helped trigger a $700 billion bailout plan by the Bush administration, according to The Associated Press.

Two law enforcement officials said Tuesday the FBI is looking at potential fraud by
mortgage finance giants Fannie Mae and Freddie Mac, and insurer American International
Group Inc. Additionally, a senior law enforcement official said Lehman Brothers
Holdings Inc. also is under investigation.

 

 

It's the largest government bailout in U.S. history, and two days after it was introduced to the Americans paying for it, the proposal is still largely a mystery.

Among the unanswered questions: How will the government mop up the bad mortgage debt on banks' books, who will run the process and how much will it cost?

Pessimism surrounded the bailout Monday as the Dow Jones industrial average fell more than 370 points as analysts predicted the $700 billion bailout coupled with the $200 billion committed to take over mortgage giants Fannie Mae and Freddie Mac could cause the government to boost its borrowing.

The Bush administration is asking Congress for $700 billion to buy up troubled assets from financial institutions. Congressional Democrats are proposing to add several limits and requirements. Here's a quick ouline of both plans.
 

From the Associated Press:

Volatility swept the financial markets again Monday as investors grew nervous about an amorphous government plan to buy $700 billion in banks' mortgage debt. Stocks fell sharply, taking the Dow Jones industrials down more than 370 points, while investors sought safety in hard assets such as gold and oil, which at one point shot up more than $25 a barrel.

 When it comes to law enforcement, identifying the good guys from the bad guys is critical.

Especially if it can be done quickly. And Cogent Inc.'s BlueCheck mobile identification device will soon be helping officers throughout Los Angeles County do just that.

Lt. Leo Norton, California ID manager for the Los Angeles County Regional Identification System, said this tool will help officers get a positive ID on someone they have stopped or detained when that person "is playing the name game with them and doesn't have an ID."

 

President George W. Bush and Treasury Secretary Henry Paulson this morning announced the government is working on a sweeping bailout plan that could cost taxpayers hundreds of billions of dollars to stabilize foundering financial markets.

Paulson will spend the weekend working with members of Congress to craft legislation paving the way for the largest government intervention since the Great Depression.

"We must act now to protect our nation's economic health from serious risk," Bush said in the news conference.

Bush said Capitol leaders have already been briefed on the urgent need for Congressional approval of the government's plan to buy bad debt, such as troubled mortgages, from banks and other financial institutions.

"These illiquid assets are clogging up our financial system, and undermining the strength of our otherwise sound financial institutions," Paulson said. "As a result, Americans' personal savings are threatened, and the ability of consumers and businesses to borrow and finance spending, investment, and job creation has been disrupted."

Complete text of Bush speech.
Complete text of Paulson speech.

This comes today from the U.S. Attorney's Office in Los Angeles:

Defendants Allegedly Engaged in Covert Rehiring of Locked-out Workers as Means of Undermining 2003-2004 Strike Affecting Grocery Stores

        LOS ANGELES - A federal grand jury in Los Angeles has returned a 23-count indictment against former Ralphs employees, alleging that they participated in a conspiracy to secretly rehire hundreds of locked-out employees under false names and false social security numbers during the 2003-2004 grocery workers labor dispute.

      

From the Associated Press:

Wall Street managed a sweeping turnaround Thursday, with the Dow Jones industrials gaining 410 points on news that the federal government may create an entity that will take over banks' bad debt.

And these days, there's certainly enough of that around.

Treasury Secretary Henry Paulson is mulling over the formation of an entity that would work much like the Resolution Trust Corp. that was set up during the savings and loan crisis of the late 1980s and early 1990s - a move that left investors cheering.

Thursday's market action was a welcome change from the previous day when the Dow lost nearly 450 points in reaction to the government's bailout plan for mega insurer American International Group Inc.

I don't think anyone - casual observers and industry insiders included - knows exactly where our nation's economic train is headed. But one thing's certain, it's laboring more heavily than ever. 

OnThursday, the Federal Reserve pumped as much as $180 billion into money markets overseas, and the New York Federal Reserve acted to ease a spike in overnight lending rates by injecting $55 billion into the banking system.

And more changes are probably on the way, according to Nancy D. Sidhu, vice president and senior economist for the Los Angeles County Economic Development Corp.

Sidhu figures things are going to get uglier before they get better in the nation's financial sector.

"Whole firms are disappearing and others will have different names," she said. "I think we'll continue to see shrinkage in that sector. But if you look solely at what's happened recently, you'd rather be in L.A. than New York. But if banks can't borrow from each other there will be less money to lend to households and businesses."

 

As more and more consumers and investors are coming to realize, the upheaval in our nation's financial system has far-reaching effects.

The Federal Reserve's bailout of mega insurer American International Group Inc. offers yet another example of how deep this economic abyss extends.

On Tuesday, the Federal Reserve said a disorderly failure of AIG could hurt the already-delicate financial markets and economy and "lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance." 

Babette E. Heimbuch, chief executive officer and chairwoman of First Federal Bank of California, acknowledges that things are bad, although not as bad as some might think.

"The issue to me is not a collapse of the financial system ... but how sluggish the slowdown will make the economy," she said.

For more on this, go to our story.

Our faltering economy is also being blamed by some for increased crime in some San Gabriel Valley cities.

Increases in violent crime were reported in Covina, El Monte and Azusa, which officials at each city's police department attributed to the struggling economy. Property crimes increased in several cities, including San Dimas and Covina.

And many fear that more large financial institutions will topple before all of this is over. We'll be tracking that, so stay tuned.

 

 

 

 

 

The Federal Reserve has extended a two-year $85 billion line of credit to American International Group, Inc. Federal officials said a fire sale of AIG assets could further damage the economy. AIG has promised to repay the loan, presumably from a more controlled sale of assets, at 11.5 percent interest. The line of credit is greater than the state of Nebraska's GDP last year (just over $80 billion).

Wall Street, apparently, was unimpressed. The stock market this morning has already given up yesterday's gains, dropping 200 points in early trading.

Business Editor Kevin Smith chronicles this week's economic turbulence in a story today - Lehman Brothers declares bankruptcy, Bank of America to buy Merrill Lynch, American International Group fights for life and the Dow drops 500 points.

Rep. Adam Schiff, D-Pasadena, is quoted high with a sentiment shared by many:

"I never saw anything like this in my lifetime," he said. "During a more typical financial crisis you might lose one major institution and maybe one smaller bank, but to see several financial giants who have been around for so long start to fold up their tents ..."

"I'm hoping that the earthquake has hit and this is not a pre-shock for bigger things to come," Schiff said.

In that vein, a smattering of good (or at least better) news today:

• The Dow rallied, gaining 141 points to close above 11,000.
• The Labor Department reports consumer prices went down for the first time in two years in July (sure, it's only by .01 percent, but down is better than up, right), leading experts to anticipate further "price moderation" in coming months, especially if energy prices continue to decline.
• Shares of WaMu and Wachovia bounced as AIG secured enough funding to keep fighting.

And, perhaps taking a hint from the Labor Department, Home Depot announced it will cut prices on more than 1,200 items by 5 percent to 50 percent over the next three weeks. The price cuts will remain in effect at least through the next quarter, according to an AP story.

The nation's financial sector continued to bleed Friday, and much of the news came from Lehman Brothers, a 158-year-old investment bank that could be sold in bits and pieces as early as Sunday night, according to analysts.

Prospective buyers, which could include Bank of America Corp. and Britain's Barclay's
Plc, may swallow portions of Lehman's investment banking or bond trading business, analysts said. And Lehman's riskier assets - like its mortgage and real-estate portfolios -could be sold for just pennies on the dollar. For more, see the story. 

Washington Mutual is also in the news, with speculation abounding that the company is in "advanced" talks with JPMorgan Chase & Co. about a possible buyout deal. A person close to JPMorgan Chief Executive Jamie Dimon, however, said the bank is currently not in talks with WaMu.

The Citrus College Foundation will present the 11th annual Taste of Autumn from 4 to 8 p.m. on Oct. 5 at Citrus College. The event will feature music by the Citrus Singers, Night Shift and the Citrus College Jazz Combo. There will also be fine arts exhibits and a silent auction.

Food and wine will be provided by BJ's Restaurant and Brewery, Canyon City Barbecue, Chipotle Mexican Grill, Falcon's Nest Restaurant, Frisella's Roastery, J. Filippi Winery, Outback Steakhouse, Ranchero Mexican Restaurant & Cantina, San Dimas Wine Shop & Tasting Room, Three C's Restaurant, Tulipano Ristorante Italiano and the Village Eatery (and more).

Admission is $75 per person if you register before Sept. 30 and $80 if you register after. For more information, call (626) 914-8825 or e-mail cgreer@cirtuscollege.edu. Also, check out the Web site.

Avery Dennison Corp., the Pasadena-based adhesive label maker, is facing challenges because of a weakening global economy.

On Tuesday, the company said it earned less than expected in July and August - an estimated 15 to 20 cents per share below its internal forecast for those months.

Avery raised its prices in July of this year and company President and CEO Dean A. Scarborough - speaking at an earnings call in early July - said additional price hikes will be implemented in October and January to recover its profit margin.

For the whole story, go to the business section of the San Gabriel Valley Newspaper Group   

Local real estate experts are applauding the government bailout of Fannie Mae and Freddie Mac, saying it will help re-energize the San Gabriel Valley's housing market.

Here's what some of them had to say on Monday:

"Interest rates have already dropped today," said Tom Adams, who owns Century 21 Adams & Barnes in Glendora and Monrovia. "They've come down three-quarters of a percent just on anticipation of this being the right thing to do. Now people can take advantage of the lower prices -- and get a good rate at the same time."

Adams said some home prices in the eastern San Gabriel Valley and Inland Empire have fallen 40 percent over the last 2 1/2 years.

"There are some phenomenal opportunities out there for people who are willing to take advantage of them," he said.

Chris Vigil, a Realtor with Keller Williams Realty in Whittier, was equally supportive of the government's move.

"I think this may do a great deal for buyers who have been sitting on the fence," he said. "We had a lot of activity during the summer, but this will stabilize things and keep interest rates lower."

More people may end up buying, but Vigil doesn't expect waves of homeowners to refinance their mortgage loans, even with lower interest rates.

"The rates might be down but a lot of people don't have enough equity to refinance," he said.

The big unknown is the price tag for all of this.

With the government takeover of Fannie Mae and Freddie Mac, U.S. taxpayers now
essentially own the bulk of the nation's mortgage market. This ownership could even lead to a big increase in the national debt -- to $15 trillion, up from just under $10 trillion now -- if things don't work out as planned.

Yikes!

 

 

If ever there was a question about how broad and deep the nation's housing and credit crisis has become, that question was answered Sunday when the Bush Administration announced it was putting mortgage giants Fannie Mae and Freddie Mac under govenment control.

That's not the kind of news anyone wants to hear.

Still, some industry experts think this will prompt more investors to buy the debt issued by Fannie and Freddie as the federal government is now standing firmly behind that debt.

Both institutions are being placed in a governement conservatorship. And there are fears that this could cost taxpayers billions of dollars. But Treasury Secretary Henry Paulson figures it had to happen.

Letting them fail, he said, would only make the problem worse by driving up the cost of home loans and other kinds of borrowing because of "great turmoil in our financial markets here at home and around the globe."

This takeover closely follows the Federal Deposit Insurance Corp.'s recent seizure of Pasadena-based IndyMac Bancorp. Inc., which now operates as IndyMac Federal Bank FSB.

So just how big are Fannie and Freddie?

To provide a sense of scale, Fannie Mae and Freddie Mac collectively own or guarantee about $5 trillion in home loans. That's about half the nation's total. But, owing to severe problems in the industry, they've lost $14 billion in the last year.

For more information, read on:

WASHINGTON (AP) -- Uncle Sam has just become the 800 pound gorilla in the U.S. mortgage market. The Bush administration is seizing troubled mortgage giants Fannie Mae and Freddie Mac in a bid to help reverse a prolonged housing and credit crisis.
 
But private analysts worried that it may not be enough to stabilize the slumping housing market given the glut of vacant homes for sale, rising foreclosures, rising unemployment and weak consumer confidence.

Mark Zandi, chief economist at Moody's Economy.com predicted that 30-year mortgage rates, currently averaging 6.35 percent nationwide, could dip to close to 5.5 percent. That's because investors will be more willing to buy the debt issued by Fannie and Freddie -- and at lower rates -- since the federal government is now explicitly standing behind that debt.

"Effectively, the federal government has now become the nation's mortgage lender," he said. "This takes a major financial threat off the table."

Treasury Secretary Henry Paulson refused to estimate how much the takeover of the two companies will cost the government, but he insisted that taxpayers will get paid back first.

"We structured this facility to protect the taxpayer," Paulson said Monday in an interview on the CBS Early Show. "The government will be repaid ... before the shareholders of these companies get a penny."

In a separate appearance on CNBC, Paulson said "we obviously don't know" when asked how much the takeover could end up costing taxpayers. He said that will depend on how quickly the housing market turns around.

Wall Street posted a huge rally Monday as investors reacted with enthusiasm to the government's actions. The Dow Jones industrial average was up nearly 280 points in late morning trading.

 

 

Federal officials announced today a takeover of Fannie Mae and Freddie Mac. In a statement this morning, Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director Jim Lockhart outlined a four-pronged plan to stabilize the two struggling mortgage giants.

"We examined all options available, and determined that this comprehensive and complementary set of actions best meets our three objectives of market stability, mortgage availability and taxpayer protection," Paulson said.

The plan:

1. FHFA will take over Fannie and Freddie via conservatorship. The CEOs of both companies will be dismissed, and federal officials will assume control..
2. Treasury and FHFA have established contract agreements under which the Treasury Department will ensure both companies remain solvent while protecting taxpayers as much as possible. Under these "Preferred Stock Purchase Agreements," Treasury will receive senior preferred equity shares. Common and preferred shareholders will suffer losses before the government.
3. Treasury has established a secured lending credit facility for Fannie Mae, Freddie Mac, and other federally backed banks in order to lend money to agencies in need.
   
4. Treasury is initiating a temporary program to buy mortgage-backed securities in order to stabilize rates and ease the market. The program will end in December 2009, when Treasury's expanded power over government-sponsored enterprises such as Fannie Mae and Freddie Mac expires.
   

Federal officials said the takeover was necessary to safeguard the U.S. economy and to protect taxpayers.

"Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe," Lockhart said. "This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement."

Treasury Department press release and fact sheets here.

Fed Chairman Ben Bernanke approves: "These necessary steps will help to strengthen the U.S. housing market and promote stability in our financial markets. I also welcome the introduction of the Treasury's new purchase facility for mortgage-backed securities, which will provide critical support for mortgage markets in this period of unusual credit-market uncertainty."

From today's Associated Press story:

The Bush administration's seizure of troubled mortgage giants Fannie Mae and Freddie Mac is potentially a $200 billion bet that it will help reverse a prolonged housing and credit crisis.

The historic move announced Sunday won support from both presidential campaigns, but private analysts worried that it may not be enough to stabilize the slumping housing market given the glut of vacant homes for sale, rising foreclosures, rising unemployment and weak consumer confidence.

(snip)

Mark Zandi, chief economist at Moody's Economy.com predicted that 30-year mortgage rates, currently averaging 6.35 percent nationwide, could dip to close to 5.5 percent. That's because investors will be more willing to buy the debt issued by Fannie and Freddie -- and at lower rates -- since the federal government is now explicitly standing behind that debt.

"Effectively, the federal government has now become the nation's mortgage lender," he said. "This takes a major financial threat off the table."

A record number of homeowners are behind schedule in mortgage payments or have already entered foreclosure proceedings, according to the Mortgage Bankers Association.

More than 9 percent of U.S. mortgages were delinquent or in foreclosure at the end of June, according to the MBA's National Delinquency Survey. In a statement released today, the MBA reported 6.41 percent of home loans were behind by at least one payment with an additional 2.75 percent already in foreclosure.

"The seasonally adjusted total delinquency rate continues to be the highest recorded in the MBA survey," according to the MBA statement. "The increase in the overall delinquency rate was driven by increases in the number of loans 90 or more days past due, primarily in California and Florida."

The Wall Street Journal reports today that a Treasury Department bailout of Fannie Mae and Freddie Mac could come as soon as this weekend. While spare on the details, WSJ reports the plan will likely include "a capital injection" and "changes to senior management."

Looking for a job?

You may be pounding the pavement longer than you think because numbers released today show that nationwide unemployment hit a five-year high in August, with employers cutting another 84,000 jobs.

That was worse than an anticipated 75,000 jobs cuts, bringing the U.S. unemployment rate to 6.1 percent in August compared with 5.7 percent the previous month.

Lisa Barnhouse, 32, of La Puente knows how tough the current job market is. Barnhouse used to work in the customer service department at an Acura dealership, but that position was axed when the business was sold.

She did manage to snag a seasonal job as a ticketseller at this year's L.A. County Fair, but she's still looking for something more permanent.

"Jobs used to be a dime a dozen ... but now I can't find anything," she said.

Here's more detail:

WASHINGTON (AP) -- The nation's unemployment rate zoomed to a five-year high of 6.1 percent in August as employers slashed 84,000 jobs, dramatic proof of the mounting damage a deeply troubled economy is inflicting on workers and businesses alike.
 
The Labor Department's report, released Friday, showed the increasing toll the housing, credit and financial crises are taking on the economy.

The report rattled Wall Street again. The Dow Jones industrial average was down about 40 points in midday trading. All the major stock indexes tumbled into bear territory Thursday as investors lost hope of a late-year recovery. With the employment situation deteriorating, there's growing worry that consumers will recoil, throwing the economy into a tailspin later this year or early next year.

The jobless rate jumped to 6.1 percent in August, from 5.7 percent in July. And, employers cut payrolls for the eighth month in a row. Job losses in June and July turned out to be much deeper. The economy lost a whopping 100,000 jobs in June and another 60,000 in July, according to revised figures. Previously, the government reported job losses at 51,000 in each of those months.

So far this year, job losses totaled 605,000.

Wall Street took a major nose dive on Thursday amid reports of dismal back-to-school sales from many retailers and a rise in new applications for unemployment insurance.  The Dow fell 344.65, or 2.99 percent, to 11,188.23. It was the worst drop for the blue-chip index since June 26, when it fell more than 358 points, or 3.03 percent. For all the gory details, read on:

 

NEW YORK (AP) -- Dejected investors sent stocks plunging Thursday, hurtling the Dow Jones industrials down more than 340 points after retailers and the government added to a mountain of bad economic news and devastated hopes for a late-year recovery.
 
The market was already nervous as it waited for the government to release its August employment report on Friday. So news from the nation's major retailers that shoppers curtailed their spending last month due to higher gas and food prices came as a heavy blow.

Wal-Mart Stores Inc., the world's largest retailer, beat expectations because of its big discounts, but many teen retailers and luxury chains did poorly, a sign that consumers are spending mostly on essentials and putting discretionary buying on hold.

Meanwhile, the Labor Department said new applications for unemployment insurance rose by 15,000 last week from the previous week. That broadly missed expectations for a fourth-straight week of declines, heightening worries that the average American -- already feeling the effects of the weak housing market -- will have even less means to spend.

Furthermore, if the job market keeps deteriorating, it is tough for Wall Street to see a rebound in sight for the economy's biggest culprit: the tumbling housing market.

"You have to have a paycheck to pay that mortgage," said Craig Peckham, market strategist at Jefferies & Co.

The numbers released Thursday were a sign that despite some upbeat reports over the past month, the economy remains deeply troubled. Investors are not expecting any promising news in the August jobs report, particularly after the ADP National Employment Report said that private sector employment decreased in August by 33,000. Economists are predicting the government will report the eighth straight monthly payrolls drop, and a rise in the unemployment rate.

The market was so disheartened that it showed little reaction when the Institute for Supply Management said the service sector grew unexpectedly in August for the first time in three months as new orders increased and inflation moderated. The August reading of 50.6 was higher than the 50.0 expected, and the reading of 49.2 in July; but the sector's edging above the threshold between contraction and expansion was hardly a sign of a robust economy.

An economic recovery appears to be far off to investors -- and with the Dow down more than 15 percent for the year so far, they don't appear to be holding out for a significant upturn in stocks, either.

"We're seeing nothing but sellers," said Ted Oberhaus, director of equity trading at Lord, Abbett & Co. "In a bear market, you sort of really don't need an excuse to sell."

The Dow fell 344.65, or 2.99 percent, to 11,188.23. It was the worst drop for the blue-chip index since June 26, when it fell more than 358 points, or 3.03 percent.

Broader indexes also tumbled. The Standard & Poor's 500 index fell 38.15, or 2.99 percent, to 1,236.83, and the Nasdaq composite index dropped 74.69, or 3.20 percent, to 2,259.04.

All three indexes moved back into bear market territory, defined as a 20 percent drop from a recent peak. The indexes were at highs, including a record 14,198.09 for the Dow, last October.

 

High gasoline prices and a lackluster economy have muted back-to-school sales for the nation's retailers, with mall-based stores and high-end merchants taking a big hit. But mega discounter Wal-Mart managed to come out on top. Here's the skinny:

NEW YORK (AP) -- Many of the nation's retailers struggled with a sluggish back-to-school season, though Wal-Mart posted higher August sales Thursday as shoppers focused on buying essentials amid worries about high gas and food prices.
 
As merchants announced their August sales results, Wal-Mart Stores Inc., the world's largest retailer, reported a solid gain that beat Wall Street forecasts. But mall-based apparel stores, like teen merchants Wet Seal Inc. and Abercrombie & Fitch Co., remained in the doldrums. And high-end retailers Saks Inc. and Nordstrom Inc. posted weaker results as their affluent customers start to feel pinched.

"Consumers are spending on necessities and looking for value and the lowest price possible. And it's reflective again in the results that we are seeing," said Ken Perkins, president of research company RetailMetrics LLC.

The International Council of Shopping Centers-UBS sales tally rose 1.7 percent in August, below the 2 percent forecast. Excluding Wal-Mart, the results were unchanged from a year ago. Last month's pace was below the 2.3 percent average since the beginning of the industry's fiscal year in February. The tally is based on same-store sales, or sales at stores opened at least a year, and are a key indicator of a retailer's health.

A report from the Labor Department offered more evidence that the slowing economy is taking its toll on jobs, a bad sign for consumer spending. The number of workers seeking unemployment benefits jumped unexpectedly last week, reversing three weeks of declines.

Such reports aren't comforting to the retail industry as it prepares for the critical holiday season. Many merchants had entered the fall season with inventories well below a year ago, but that may have not been enough as last month proved to be even weaker than planned. In some cases, stores were hurt by having too little clearance merchandise, cutting into sales. That was the case with TJX Co. and Bon-Ton Stores Inc., according to their reports.

One encouraging factor is that Hurricane Gustav, which hit the Gulf Coast on Monday, wasn't as bad as analysts feared -- and that sent oil prices even lower. Gas prices have fallen from more than $4 a gallon to a national average of $3.678 on Wednesday, but remain well above the year-ago figure of $2.792, according to AAA and the Oil Price Information Service.

Still, Michael P. Niemira, chief economist at the ICSC, thinks that gas prices have to fall to $3 per gallon or below before shoppers will increase their spending. And even then, Americans still face other economic worries such as slowing personal income, higher food prices and a slumping housing market.

"The fall in oil prices is a bit of good news, but we need to see more positive economic news," Niemira said. He added that oil prices remain volatile. In fact, retailers are now getting ready for the next series of tropical storms, which could send oil prices back up.

Wal-Mart reported a solid 3 percent gain in same-store sales, helped by sales of groceries and back-to-school products. Analysts surveyed by Thomson Reuters had expected a 1.6 percent increase. Including fuel, the retailer's same-store sales rose 3.5 percent.

"The underlying business performance for Wal-Mart U.S. continued to show strength and the improved relative performance has resulted in market share gains," Eduardo Castro-Wright, the president and chief executive of Wal-Mart's U.S. stores, said in a statement.

Rival Target Corp.'s same-store sales fell 2.1 percent, though better than the 2.6 percent decline expected. The cheap chic discounter hasn't fared as well as Wal-Mart in the weak economy as Target heavily emphasizes nonessentials such as home furnishings and trendy jeans.

Another bright spot is warehouse clubs as shoppers buy in bulk to save money. Costco Wholesale Corp. posted a 9 percent same-store sales increase, though below the 9.6 percent estimate. Excluding the effect of higher gas prices, Costco's U.S. same-stores sales rose 6 percent.

Among luxury department stores, Saks recorded a 5.9 percent drop in same-store sales, steeper than the 4.7 percent decline that Wall Street expected. Nordstrom's 7.9 percent drop was worse than the 7.1 percent decline expected.

On Wednesday, J.C. Penney Co. announced that same-store sales at its department store business dropped 4.9 percent, slightly better than the 6.3 percent decline that analysts had projected.

Gap Inc. recorded an 8 percent drop, though it was less steep than the 9.7 percent decline forecast.

Limited Brands, the operator of Victoria's Secret and Bath & Body Works, suffered a 7 percent drop, mostly in line with the 6.9 percent decline estimated.

Business at teen merchants was disappointing. Abercrombie & Fitch's 11 percent drop in same-store sales was worse than the 7.9 percent decline expected. Wet Seal recorded an 8.7 percent drop, steeper than the 7.5 percent decline estimated.

Pacific Sunwear of California Inc.'s same-store sales fell 6 percent; Wall Street had expected a 8.8 percent decline.