Wall St. plunges on credit fears; Dow sinks two percent

US shares plunged Thursday in one of the worst selloffs this year, as investors gripped by housing market and "credit crunch" fears ran for cover.

The Dow Jones sank as much as 448 points before bouncing back somewhat, ending with a loss of 311.50 points (2.26 percent) at 13,473.57.

It was the worst day for the blue-chip index since the February 27 tumble in the wake of a stock market collapse in Shanghai, in which the Dow average lost 416 points.

The tech-heavy Nasdaq composite sank 48.83 points (1.84 percent) to 2,599.34 and the broad-market Standard Poor's 500 index slid 35.43 points (2.33 percent) to 1,482.66.

The market was reacting to more gloomy news about the US housing market, which has been in a slump for more than a year and a half.

Sales of new homes dropped 6.6 percent in June to an annualized 834,000 units, the Commerce Department said. It was the lowest level since March, and significantly below the Wall Street analyst forecast of 900,000 units.

More significantly, Wall Street is worried that failures in the housing market will hurt banks and finance companies enough to curb the availability of credit on which the economy feeds.

More at the link.

I wonder if the real rulers have decided that their puppets are about to fall so they are going to take their money and run....or will they once again prop us up because there is still a few crumbs they can steal from us.

Of course....the crash of wall street....the total obliteration of all of our wealth could upset the public a bit. That would be a pretty good excuse for martial law.

Not that anyone is manipulating us or anything.

My brother called me yesterday, telling me that he'd been told by someone doing a credit check on his wife, (she was looking into a little business venture), that his/her credit card LIMITS would be construed as POTENTIAL DEBT during her loan application because, with the swipe of a card, he or his wife could max out their cards if they so chose. The loan company wouldn't see this as anything else. He was advised to immediately LOWER his limits on all of his credit cards and he'd be better off....any thoughts on this? I told my brother I'd never heard of such a thing..but, what we don't know now can actually hurt us! .

Catherine,

Well, I am not a banker and I have never applied for a business loan before. But, on the surface of things it sounds like a prudent thing for a creditor to know about; ie how much of a risk are you going to be to me if I lend you the money? But, then again, if the banker is looking for security and collateral he should be looking at her assets right now and how he can recover his money if she should default. Like I said, I have no idea how the bankers conduct their business, this is just my two cents worth. So, let's say you did cut back on your limit and get your loan and then go raise it again, then what? How is the banker going to know? On the other hand, the banker should be looking at her loan limitss as her ability to pay and her good worthiness as well. Don't you think? This also sounds like unnecessary prying as well, like invasion of privacy. Are bankers this careful when they are giving out sub-prime loans? Maybe the bankers are just running scared in the current credit environment.

PS Actually, I just thought of something else. Small business loans are risky things. The vast majority of small business fail within the first year or so, so maybe there is extra attention given to these kinds of loans.

This seems reasonable to me Cat.

Part of the problem that we have been experiencing regarding our national debt is that many have equated credit as a potential income and have been using it as such, thus driving themselves into further debt.

Right now the banks are tightening their belts. They were giving out loans loosely and recklessly without regards to the implications and the repercussions of these unsound practices that are now coming home to roost.
Basically they flooded the market with money and people were allowed to borrow this money backed by property which they did not own.

Your full potential debt includes any debt that you currently have AND and debt that you can easily gain. (Credit Cards)

Even if someone practices good financial tactics throughout their lives, if a time of extreme financial hardship comes about, the person, normally fueled by necessity, turns to credit such as loans if they can and or credit cards.

A person who is in dire straights is willing to fully max out all credit potential they possess and worry about the ramifications at another time...if they are able to get back on their feet.

The problem is compounded however by the fact that many times even if the person is able to get back to their feet, the payments required to pay for their debts are overwhelming, thus sending them into bankruptcy.

I'm not sure how many credit cards your brother and your wife have between them, nor how much credit available, but as a common practice, it is a good idea to only hold one credit card for each them which is used only in the case of an emergency and if at all possible to pay it off at the end of every month.

Just my 2 cents. I charge no interest

Thanks, guys...and for not charging for the insightful comments!

Of course, if you pay off your credit cards, the lender will raise your limit...and make it seem like it's such an honor! I know about this, as the only credit card I have with a debt right now is MC...and it'll be paid off in a couple of months...but boy, did they go nuts when I paid it off last time! I couldn't believe what my credit limit went up to!

What my brother said he did was to immediately check the credit limit on all of their joint credit cards and if that limit was over $5,000, he had them changed to that amount. He said it took ages for him to get through to a real human on his Mastercard or his Visa...forget which. I wasn't surprised, because they really don't want to hear you say that you want to REDUCE your credit limit...they want to hear a request for a RISE in credit limit! They told him that he might be making a mistake in case he had an "emergency." He said thanks for the advice...but no thanks.

One thing that I've done is applied to my bank for a credit card with a maximum limit of $1,000....specifically for ordering things off the net, such as books, dvds, making hotel reservations, a plane ticket when they're cheap, that sort of thing.

By the way, my husband bought a new truck a few months ago...had to get something that got better gas milage...he was told by the dealership that we had "sterling credit." No doubt!

Hey One More,

Not to change the subject, but I just read what you have in your sig. and I love it.

If only FDR were still around...

Fed action leaves underlying instabilities unaddressed

I agree JOMT, I don't understand how Bear can just get off the hook with the help of our tax dollars, but my neighbor is going to get kicked out of their house because they didn't get the thing that their low rate mortgage was going to adjust to an unbelievable rate after a year or two. The analogy is the same. Bear took too much risk and got bailed out. Joe Shmoe took too much risk and now lives in a car. I don't really see the fairness of this at all. Surprisingly (to myself), I don't believe that the gov should just go and help all of the people who are in foreclosure. Of course, many people were tricked and I think there should be some recourse for those people, and perhaps some jail time for the lenders that tricked them, but overall, when someone applies for and receives a loan, they are stuck with figuring it out. If that is the case, why when Bear or whatever multi-zillion dollar company gets itself stuck does the government (meaning we tax payers) pay for them to get off the hook? I don't buy the bs about the market. I swear, I'll look for this transcript, the guy from the treasury department the other day made a comment on this that almost made me barf on myself. He was asked how exactly he thought it was fair and reasonable to bail out Bear when all these homeowners are losing everything and he said something to the effect that the Bear stockholders weren't happy about the value of their stocks plummeting to $2 a share. Like there is some comparison. I can almost promise that ZERO percent of the people having trouble with the sub-prime loans have STOCKS in any company and sure as hell don't care if the stockholders in bear are sad about the price of their stocks. I was so fricken shocked the idiot could actually compare the two situations.

(HORRAY I FOUND THE VIDEO OF PAULSON'S remarks)
http://www.youtube.com/watch?v=kIyvAlry1OE

If you didn't see this, you should really go watch it.