New York The stock market took another nosedive Wednesday as the American banking system appeared even shakier and investors worried that the financial crisis is spinning so far out of control that even government rescues can't stop it.
The Dow Jones industrial average, which only two days earlier had suffered its steepest drop since the days after the Sept. 11 attacks, lost another 450 points. About $700 billion in investments vanished.
One day after the Federal Reserve stepped in with an emergency loan to keep American International Group Inc., one of the world's largest insurers, from going under, Wall Street wondered which companies might be the next to falter.
A major investor in ailing Washington Mutual Inc. removed a potential obstacle to a sale of the bank, and stock in two investment banks, Morgan Stanley and Goldman Sachs, was pummeled.
It was the fourth consecutive day of extraordinary turmoil for the American financial system, beginning with news on Sunday that another venerable investment house, Lehman Brothers, would be forced to file for bankruptcy.
The 4 percent drop Wednesday in the Dow reflected the stock market's first chance to digest the Fed's decision to rescue AIG with an $85 billion taxpayer loan that effectively gives it a majority stake in the company. AIG is important because it has essentially become a primary source of insurance for the entire financial industry.
As the stock market staggered, the price of gold, which rises in times of panic, spiked as much as $90.40 an ounce. Bonds, a traditional safe haven for investors, also climbed.
"The economy is not short of money. It is short of confidence," said Sung Won Sohn, an economics professor at California State University.
The financial stocks in the Standard & Poor's 500 dropped even more, falling 10 percent, and insurance that backs corporate debt soared for the last two surviving independent U.S. investment banks, Morgan Stanley and Goldman Sachs.
"It seems as though banks are hoarding cash, no matter what rate they could be lending it at," said David Rosenberg, North American economist at Merrill Lynch.
Markets around the world also tumbled, with stocks dropping from Hong Kong to London. Brazil's benchmark index saw the largest drop, losing nearly 7 percent in a day.
Worse, the short-term credit markets remained frozen, with overnight interest rates soaring for loans between banks and for overnight loans to businesses. Long-term loans, however, didn't rise as much.
"The worry on short-term loans is you're not sure who the ultimate borrower is," said Brian Bethune, chief U.S. economist at Global Insight Inc.
And in case anyone needed additional symbolism, a glass panel near the top of a Bank of America skyscraper in Midtown Manhattan fell more than 50 stories onto the street below and shattered. No injuries were reported.
In the United States, the faltering economy and banking system have begun to dominate conversations at dinner tables, bars and online, not to mention seizing the campaign trail.
One blogger, Michele Catalano of Long Island, posted this on Wednesday: "Dreamed about AIG and the stock market, woke up with the urge to stock up on canned goods and shotguns."