Market continues its dreaded plunge — talk of nationalization grows

The stock market plunged again today, sending the main stock markets down to their to their lowest level in five years. The Dow dropped 678 points, or more than 7 percent, crashing below 9000. The Nasdaq fell 5.47 percent, and the S&P 500 fell 7.62 percent.

The continued drop has sparked increased talk by the government and experts about the need for a takeover of portions of the banking sector — in other words, a move by the U.S. Treasury to claim large ownership stakes of the big banks to help prop them up. Such socialist action is remarkable, considering many leading U.S. investors ridiculed China just a couple of years ago for Beijing’s active support of its banks. Many U.S. pundits predicted China’s bank system would collapse because of bad loans. But Chinese regulators took hard, quick action last year, slamming the brakes on new bank loans, instead of having to bail them out after they became insolvent. The Chinese may yet have problems. But now we’re being forced to take a serious look in the mirror, and we don’t like what we see.

The decline today was exacerbated by the move by Standard & Poors Rating Services, a credit rating agency, to signal a possible cut to its rating on General Motors Corp.

Consider what happened with IBM’s stock today. The company reported a robust 20 percent gain in third-quarter profit, and did something that should have had everyone buying its stock: It announced it was confirming its earning forecast for this year. But the stock still fell $1.55 to $89, as the entire market was routed at the end of the day.

Meanwhile, popular anger is likely to grow about reports of some of the excesses at places like American International Group (AIG), where executives hid a range of its risky financial products from auditors as losses mounted. Now we’re learning that the executives spent hundreds of thousands of dollars on a posh California retreat just days after getting a federal bailout of $85 billion. Now AIG has the cheek to ask for $37.8 billion more to save it, and it it is getting the money because its too big too important to let go out of business.

The market is dividing into the haves and have-nots. Mechtronix, a Montreal, Canada-based maker of multimillion dollar flight simulators, raised $39 million in private equity from Richardson Capital a couple of weeks ago. The company started looking for financing alternatives a year ago, as it was clear that the IPO market was shutting down, and the credit market was tightening. It was lucky to raise the cash and close the deal. “Right now it’s hard to say what’s going to happen,” said Xavier Herve, chief executive of Mechtronix. “It’s ridiculous to say a financial event of this magnitude won’t affect business. But I’m waiting for someone to show me crystal ball.”

|The have-nots are all those companies that weren’t lucky enough to raise money before last week. To start pitching for money from investors the first time would be very difficult indeed. Most investors are scrambling to make sure their existing investments are sound.