U.S. Stocks Plunge as Lending Freezes Up Following AIG Takeover (Elizabeth Stanton, Lynn Thomasson)

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The Stock Market

Sept. 17 (Bloomberg) -- U.S. stocks tumbled as bank lending seized up in the wake of the government's takeover of American International Group Inc., raising concern that more of the nation's biggest financial companies will fail.

The Standard & Poor's 500 Index lost 4.7 percent, extending its decline from an October record to 26 percent and erasing half its gain from the five-year bull market that began in 2002.

{xtypo_quote_right} About $4.4 trillion of market value has been erased from global stocks this week, triggered by the largest-ever bankruptcy filing by Lehman Brothers Holdings Inc., once the fourth-largest U.S. securities firm. Russia halted stock trading for a second day and poured $44 billion into its three biggest banks in a bid to halt the worst financial crisis in a decade. {/xtypo_quote_right}

Goldman Sachs Group Inc. and Morgan Stanley, the only remaining independent brokerages on Wall Street, plunged the most ever. General Electric Co., the world's third-biggest company, fell 6.7 percent and U.S. Steel Corp. slid 11 percent. Yields on three-month Treasury bills sank to the lowest since World War II as investors sought the relative safety of government debt, and a measure of corporate borrowing costs surged above the level seen during the crash of 1987.

"It's ugly,'" said Michael Mullaney, a Boston-based money manager for Fiduciary Trust Co., which oversees $10 billion in stocks and bonds. "It's about the worst I've seen it in 25 years. You have to have free-flowing credit to lubricate the system. That's not happening right now."