Stocks plunged Monday amid the most serious financial crisis in years after Lehman Brothers filed for the biggest bankruptcy in history and Bank of America said it would buy Merrill Lynch in a $50 billion deal. Losses could have been worse, but were partially offset by tumbling oil prices and the Federal Reserve's decision to loosen it lending restrictions. The central bank also could reduce a key interest rate when it meets Tuesday, analysts said. Also helping stocks was news that a group of 10 major banks had provided up to $7 billion each to create a $70 billion lending pool to help smaller firms. Lehman Brothers announced it was filing for bankruptcy, after weekend talks aimed at saving the 158-year-old firm failed. Unlike with Bear Stearns last March, the government was reportedly not willing to help finance a takeover, bailout, or restructuring of the company. Lehman shares fell 94 percent. After withdrawing from the Lehman Brothers negotiations, Bank of America announced that it will buy Merrill Lynch for $50 billion in stock. Merrill posted losses of more than $17 billion over the last year and saw its stock fall 27 percent last week. Light sweet crude for October delivery fell $5.50 to $95.68 a barrel on the New York Mercantile Exchange, dropping below $100 for the first time in six months. Prices plunged as investors continued to foresee a global economic slowdown and reports emerged that Hurricane Ike caused less damage than feared to oil rigs and refineries along the U.S. gulf coast. The U.S. dollar gained versus the euro and the yen. The Dow Jones industrial average fell 503.99, or 4.4 percent, to 10,917.51. It was the biggest one-day point decline since September 17, 2001, when the market reopened for trading after having been closed due to the September 11 terrorist attacks. Afternoon worries focused around insurer AIG, which has been trying to raise enough cash to prevent ratings-agency downgrades and stay in business. New York Governor David Paterson said the company would be allowed to use $20 billion in subsidiary assets to provide itself with a bridge loan. AIG shares fell 52 percent. The broader Standard & Poor's 500 index fell 59.00, or 4.7 percent, to 1,192.70. The technology-heavy Nasdaq composite index fell 81.36, or 3.6 percent, to 2,179.91. The New York Stock Exchange composite index fell 410.59, or 5.1 percent, to 7,681.25. The American Stock Exchange composite index fell 59.04 to 1,846.71. And the Russell 2000 index fell 30.50 to 689.76.
