Stocks tumbled Monday on new worries about the financial sector after S&P cut its debt rating on a number of banks, and Wachovia and Washington Mutual announced management shakeups.It is very worrisome that some of the biggest names in the banking and brokerage industry are having their debt rating lowered. What S7P is saying is that they have doubts about these large institutions ability to pay their long term debts. Those who think this financial crisis are over are sadly mistaken.
The Dow Jones industrial average lost about 135 points, or 1%. The broader Standard & Poor's 500 index lost 1% and the Nasdaq composite lost 1.2%.
Both Wachovia and Washington Mutual announced management changes in the morning, sparking early stock declines despite a pair of better-than-expected economic reports.
The broad stock declines accelerated in the afternoon after S&P said it was cutting its debt rating on Merrill Lynch, Lehman Brothers and Morgan Stanley to "negative" from "stable" and cut its long-term outlook on JP Morgan Chase and Bank of America. The changes followed S&P's conclusion of its review of the securities industry.
Only time will tell how bad this crisis will become but for now I would pay close attention to the financial news and have a plan in case of the worst happening. This crisis could have been averted with strict oversight and regulation but the Republican Congress felt it was best to let industry police itself. We all can see how successful that strategy has been.