Recession, Here We Come

Monday's booming rally already seems like ancient history. On Wednesday, global markets fell and fell hard, with the Dow recording its worst drop since October 1987 and second-worst drop all-time, the Wall Street Journal reports, adding "the index is down 21% this month and almost 40% from its record close a year ago." The culprit? Retail sales fell sharply in September, the New York Times reports, and Fed Chairman Ben Bernanke in a remarkably animated speech (in which he hints at another rate cut) warned his economist chums that a recovery “will not happen right away.” Take your pick of markets and the results are more or less the same. On Thursday, Japan's Nikkei tanked again, falling 11 percent as the entire Asian region was in the red, CNN reports. Europe, too, opened on Thursday sharply lower, BBC reports.

The NYT pins much of the blame for the economic downturn on you. "The key troubles lie with the American consumer, who, after months of coping with soaring gasoline prices, is faced with losses in the stock market and an uncertain financial future," the newspaper observes in explaining the consumer spending freeze. The Financial Times reckons the mass sell-offs in the global markets show that the worldwide bank rescue plans "have come too late to avert a deep global recession." They certainly aren't having a noticeable impact on the housing market. House prices will continue to fall for at least another year, the NYT writes.

With the global economy in such a deep funk, how are candidates John McCain and Barack Obama planning to bail us out? By sparring over who hates taxes more while vying for the support of some plumber in Ohio. The victor on Nov. 4 will have to book another flight to New York next month, where an economic summit is expected to be convened by G-8 leaders. On the agenda is "sweeping overhauls of institutions such as the International Monetary Fund and the World Bank to build a new global system of finance out of the ashes of the present one," the Los Angeles Times writes. This idea came out of Brussels yesterday, not Hempstead, N.Y.

The prospect of a drawn-out recession is hammering bank shares and their business outlook. State Street, JPMorgan Chase and Wells Fargo may be sitting okay now, "but things are about to get worse" for even the relatively stable banks, the NYT writes. “If you made it past the credit crisis, you are not making it past the economic carnage,” Meredith A. Whitney, a banking analyst at Oppenheimer and Co., told the newspaper. “And there is more to come.” On Wednesday, JPMorgan and Wells Fargo "posted steep declines in third-quarter earnings", the WSJ reports. The results were considerably above analysts' gloomy expectations. And the two banking giants are expected to collect $25 billion each from the government. That should help, right? Nope. Few people are banking on a recovery in the sector. Gerard Cassidy, analyst at RBC Capital Markets, told the NYT he expects banks will post soft results clear through 2009.

Staying on the banking beat, this just in this morning: The Swiss are joining the bank bailout parade. The Swiss government on Thursday morning announced it will take on $60 billion worth of UBS's toxic bank assets in exchange for a 9 percent stake in the bank, Marketwatch reports. Credit Suisse too is being forced to raise billions to meet new "adequacy standards."

The WSJ describes a new Morningstar report showing that hedge funds "posted their worst month in September for the third-straight month," hit by the "extreme and unforeseen events" of Fannie/Freddie, Lehman Bros., and AIG. Investors pulled at least $43 billion from U.S. hedge funds, says the FT, and now the once rampant industry is "bracing for potentially record levels of withdrawals" at the end of this year. Which might explain why hedge funds are pleading with the Bank of England to help "free an estimated $65 bn in assets frozen in London in the collapse of Lehman Brothers," reports another FT story. The Managed Funds Association said the entire U.K. economy could be at risk unless the funds were released as the current freezing of Lehman assets "could undermine bank rescue plans as tens of billions of dollars would be kept out of the market." It warned that many U.S. hedge funds have been moving billions of dollars of assets out of London in recent weeks.

Oil is at $75 a barreland a sure sign that a recession has arrived, says CNN Money. Plummeting oil prices will be cold comfort to the battered airline industry. American Airlines and Delta Air Lines Inc. both posted operating losses in the third quarter. And just when jet fuel is getting cheaper, the airlines must prepare for a "downturn in air travel that could keep them from making any profit," writes the Los Angeles Times. Times aren't much better for the clean-car maker Tesla. Fortune reports that the California company will announce layoffs, replacing its CEO Ze’ev Drori and delaying the launch of its new electric powered model. The company says it will focus on selling its current Roadster model and "building electric powertrains for other car companies." At $109,000 a shot, the roadster is getting a harder and harder sell.

Finally, in dark times comes dark humor. The U.K.'s Daily Mail has compiled a credit-crisis-joke list. Our favorite? "What's the capital of Iceland? About £3.50."