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US Stocks Plunge; G-8 Leaders Plan Crisis Talks


U.S. stock markets plunged today (Wednesday) after disappointing economic reports showed consumer spending declining and a tight credit market hampering commerce.

Consumer spending drives about two-thirds of the U.S. economy and credit problems are blamed for hurting business and slowing the overall economy. The best-known U.S. stock index, the Dow Jones Industrial Average, fell nearly eight percent, losing more than 700 points. European stocks were off six percent or more at the close of trading. Leaders of the world's major industrial countries say they will gather "in the near future" for talks on the global financial crisis.

White House officials said today (Wednesday) that leaders of the Group of Eight industrialized nations (including the United States, Japan, Germany, France, Britain, Italy, Canada, and Russia) would work to strengthen financial institutions and restore confidence. The announcement came one day after U.S. President George Bush outlined key parts of a plan to bolster the financial sector. The head of the U.S. Federal Reserve, Ben Bernanke, said it will take some time to solve the "large and complex" problems facing the economy. Treasury Secretary Henry Paulson told television interviewers (on ABC and NBC) he is confident the government rescue plan for the financial system will work.

They spoke about a 250 billion dollar plan for the government to buy part ownership of some U.S. banks and guarantee more loans and deposits. The U.S. plan is similar to efforts underway by major European nations to restart the stalled credit market that is hampering business and dragging down the economy. Paulson said the government intervention will increase the money available to private banks and encourage them to resume lending. President Bush said these measures are temporary and intended to preserve the free market, not replace it.

A wave of home loan defaults sparked the current financial crisis, which included the collapse of several major financial institutions and a plunge in world stock markets. The crisis spread because mortgages were gathered into investment instruments and sold to investors around the world.

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