October 9, 2008 (Thursday): Meltdown in Iceland; Dow Drops 679 Points

Bankruptcy appears to loom for Iceland after the government takes over Kaupthing Bank, the third and final of the country’s three banks to come under government control. Iceland also suspends trading on its equities markets today. Meanwhile, trading in the krona, the nation’s currency, stops after an aborted stab at fixing the exchange rate to the euro. Financial analysts speculate that only an intervention from the IMF can prevent Iceland’s financial collapse.

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The White House today reveals a possible plan to buy equity stakes in troubled U.S. banks through cash injections, but says such investments would not turn into government takeovers of the banks. The worsening stock market swoon this week hastened the Treasury’s search for solutions to ease the credit crunch and free up capital so that banks can begin lending again. Other countries, including Iceland and England, have announced similar plans.

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The DJIA takes a 679 point drop today, the third-worst in its history, as nervous investors unload stocks in hordes. That decline puts the Dow below 9,000 for the first time in five years. Exxon Mobil and Chevron each fall 12%, while General Motors loses 31% and Ford gives up 21%. 1,754 stocks fall today, while just 87 climb. The Dow has lost 20.8 percent in the past six trading days, but today is a dramatic turn for the worse, with the bulk of the sell-offs occurring in waves after 3 p.m. One analyst tells the New York Times, “There is a downward spiral of fear.” (For more on this news, click here, here, and here.)