Market Crash Continues, Dow Drops Another 500

Stocks were slammed again today with the Dow dropping another 508 points, to 9447, as Fed Chairman Ben Bernanke gave a gloomy picture of the economy, although he hinted that interest rate cuts could be coming. The S&P 500 fell nearly 6% today, crossing the 1,000 mark for the first time since 2003. The S&P is down 32% so far this year, the largest drop since 1937.

Stocks started the day stronger after the Federal Reserve Board took the unprecedented step to provide liquidity to the crucial Commercial Paper market. The Fed will create the Commercial Paper Funding Facility to provide liquidity to term funding markets. The facility will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle that will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers.

Federal Reserve Chairman Ben Bernanke's mid-day speech hinted at a future rate cuts, but also gave a stark portrait of the economic outlook. Bernanke said the credit and money markets are "under extraordinary stress" with liquidity in some markets drying up. Bernanke said turmoil in the credit market will likely increase the restraint on economic activity. He said "even households with good credit histories are now facing difficulties obtaining mortgage loans or home equity lines of credit. Banks are also reducing credit card limits, and denial rates on automobile loan applications reportedly are rising. Businesses, too, are confronting diminished access to credit. For example, disruptions in the commercial paper market and tightening of bank lending standards have made it more difficult for businesses to obtain the working capital they need to meet everyday operating expenses such as payrolls and inventories." Bernanke said the downside risks to growth have increased, while the outlook for inflation has improved somewhat. Bernanke said steps being taken now, including the TARP, are momentous, but "are being taken to address a problem of historic dimensions."

Data today on Consumer Credit showed that the credit crunch is hitting 'Main Street'. Consumer Credit dropped in August for the first time in more than a decade. Govenment data showed that consumer credit fell by $7.9 billion in August to $2.58 trillion. Economists were looking for a rise of $5 billion. The report doesn't include real estate borrowing.

Bank of America (NYSE: BAC), considered one of the strong banks, fell 26% today after reporting disappointing earnings, announcing a $10 billion common stock offering and announcing a 50% dividend reduction. The stock offering for BofA didn't go well. The pricing of the offering was cut numerous times as demand was slow to develop. At the close, it is said the deal is now oversubscribed in the $22-$23 range.

REITs General Growth Properties (NYSE: GGP) fell 42% today on concerns about the company's near-term debt maturities.

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