The Nikkei index plunged in trading Tuesday (01:14), down 490.75 points and shedding over 4% of its value. The Sydney All Ordinaries were down 2.41% (01:34) off 117.60 points.
The steep drop in Tokyo and Sydney followed a dark day on Wall Street: the Dow Jones Industrial Average (DJIA) lost 504.48 points or 4.42%: its biggest single day drop in seven years.
The BBC online reported Monday night that turmoil in the markets would continue, according to US Treasury Secretary Henry Paulson, until the housing market corrects itself. When, or even if, that self-correction would occur without concerted government intervention in the housing sector is far from certain.
The Asian Pacific region's opening trade on Tuesday left no doubt that most investors have little confidence that the housing situation---in the United States or elsewhere---was going to self-correct any time soon.
Yesterday's massive global sell-off across the board called into question US government policy on housing and a range of other economic issues. US retail sales in August were down, manufacturing is off, and unemployment, both new claims, sytemic joblessness, and underemployment, hampered investor confidence.
Those sorts of negative readings make the housing outlook bleaker and raise questions about the US government's current economic approach.
Lehman Brothers filing of Chapter 11 bankruptcy is suggestive of the sort of endemic, systemic hemorrhaging that is compunding problems in American markets.
Lehman Brothers problems were rooted in the bundling of subprime and Alt A mortgages that were subsequently hidden in funds in which the company invested. Since the values of those sorts of investments are "derived," not direct, the worth of the funds ultimately raised questions about the soundness of the investment bank. Since such shadow banking practices are unregulated in the US, no one seemed to know their value, not least Lehman itself. Dick Fuld, the CEO of the former Lehmans Brothers Holding, Inc. just last week proclaimed the company had sufficient assets and was undervalued. Potential buyers saw it differently.
When Lehmans went under its staff faced massive lay-offs further compunding the associated problems. That trend may be expected to continue until the US government finds the political will, philosophical rationalization, or public pressure to intervene. American officials judged Bear Stearns and the mortgage firms, Fannie Mae and Freddie Mac, indispensable. The adjudication on Lehmans reached another verdict.
One thing remains clear: the seas ahead remain very rough.
