Wordwide markets begin to feel U.S. financial pain

WASHINGTON (AP) — The government’s $700 billion rescue, aimed at rebuilding economic confidence, appeared to sound a global alarm instead Monday, triggering a fearful international sell-off as the U.S. began work on a plan that investors feared would be too little and too late to stave off a worldwide recession.

As markets around the world tumbled amid fast-spreading anxiety, officials in Washington worked quickly to put the new financial plan into effect and to shovel more money into the banking system.

The Treasury Department named a former Goldman Sachs executive, Neel Kashkari, now Treasury’s assistant secretary for international affairs, to oversee the new program and said it would increase its bond sales to help pay for the huge package that was approved with fanfare and signed Friday by President Bush.

Trying to do its part, the Federal Reserve increased a short-term loan program to as much as $900 billion and announced it would begin paying interest on reserves that banks keep with it.

Bush sought to reassure panicking markets. “It’s going to take awhile to restore confidence in the financial system. But one thing people can be certain of is that the bill I signed is a big step toward solving this problem,” he said in San Antonio, Texas.

Nobody seemed reassured. Chaos in the financial system seemed to be growing by the minute.

The Dow industrials plunged below the 10,000 level for the first time in four years, and at one point were down as much as 800 points before recovering to close with a loss of 370. All sectors — not just financial companies — were being sold off.

“People are panicked that their bank is going to go out of business. People have just lost a lot of trust in the financial system and in these large institutions,” said Anil Kashyap, professor of economics and finance at the University of Chicago’s Graduate School of Business. He suggested the crisis has morphed from a near shutdown in lending to a new, more dangerous phase in which financial and other companies face greater chances of insolvency.