U.S. woes jolt world markets - A major French bank's troubles with sub-prime loans reverberate through Europe, Asia. Dow, other gauges dive.
The U.S. sub-prime mortgage crisis shook the world's financial system Thursday, unnerving bankers and investors and raising the risks for the global economy.
Markets worldwide staggered after a big French bank sparked a financial scare by halting withdrawals from investment funds that have lost money on high-risk U.S. mortgage securities.
The news suddenly made skittish European banks reluctant to lend to one another on the usual terms. The central banks of major economies, including the United States, responded by pumping tens of billions of dollars into their banking systems in an effort to shore up investors' confidence.
But stock markets on both sides of the Atlantic tumbled anyway. On Wall Street, the Dow Jones industrial average plunged 387.18 points, or 2.8%, to 13,270.68, its largest one-day loss since February. Early today in Asia, stocks were down sharply as well.
The day's events were the latest shock in the ongoing tumult stemming from the woes of struggling U.S. homeowners. The housing market's troubles -- and the risk they pose to the economy -- have helped drive stock markets down sharply in recent weeks, amid extraordinary volatility.
At the heart of global markets' turmoil is the financing that fueled the unprecedented U.S. housing boom of this decade. The rise of sub-prime loans -- mortgages for people of limited means or whose credit was dicey -- allowed millions of Americans to buy or refinance homes.
Wall Street funded many of those loans by packaging them into complex bonds designed to pass homeowners' loan payments through to investors.
But as growing numbers of homeowners have found they can't make their payments, sub-prime bonds have plunged in value. And because the securities were so popular with investors around the globe, every day seems to bring fresh reports of heavy losses.
"There's little knowledge about who holds the toxic waste and how much they hold," said Paul Kasriel, an economist at Northern Trust. "We see these dead fish float to the surface every now and then, and it's happening more frequently. That creates concern about where some of the other dead fish may be stored. No one knows."
For the economy, one escalating fear is that the upheaval in financial markets could damage the confidence of consumers, leading them to rein in their spending and spurring a deeper downshift in the pace of growth.
