THE GUT WRENCHING CONTINUES

After a roller coaster day that saw a sharp drop, perhaps plunge is the right word, markets stabilized for the most of the day before returning to panic in the last hours of trading. Wall Street's woes have spread across the world. The Wizards of Wall Street have turned out to be as phony as the Wizard of Oz.

The Dow and the S&P 500 both closed down over 4% on the day. Toronto's TSX Composite Index lost 515 points, or more than four per cent, to close at 12,254 points. Japan's benchmark Nikkei 225 index was down 5.3 per cent in mid-afternoon trading Monday while Hong Kong's blue-chip Hang Seng Index shed 5.7 per cent. Both markets had been closed for holidays when investors learned Lehman Brothers had filed for bankruptcy and Merrill Lynch would be sold to Bank of America. People are desperate to cover bad bets and are dumping in the hopes of finding some cash.

At the moment, no one trusts anyone, and everyone is scared enough that they're lending to no one. That's not a very good place for a financial system to be. In a world where wealth is but bytes of information that can appear or disappear at the push of a button, it is hard to remain confident.

Hurricane Lehman hit Wall Street like a Category Four storm. The levees failed and now self doubt and insecurity rule. American International Group, among the world's biggest insurers, has secured a $20 billion lifeline. Washington Mutual Inc., America's largest thrift, or savings and loan, is hanging by a thread.

This comes only a week after the American government's $200 billion bailout of mortgage lenders Fannie Mae and Freddie Mac. Earlier this year the feds forced the merger of brokerage Bear Stearns Cos. into J.P. Morgan Chase Co. with a government guarantee that it will backstop $29 billion worth of Bear's lost "assets."

Is this the end-game? I fear not. Here are some ominous signs as this day begins:

Goldman Sachs Group Inc. fell 12 percent, the most since April 2000, to $135.50. JPMorgan Chase & Co. retreated 10 percent to $37. Their shares were downgraded by Merrill Lynch.

Goldman Sachs was cut to ``neutral'' on the likelihood Lehman's bankruptcy will reduce profitability for the biggest U.S. securities firm. The analysts cut their recommendation on JPMorgan to ``underperform'' and predicted the lender will report a third-quarter loss.

Morgan Stanley, the biggest U.S. securities firm other than Goldman Sachs, fell 14 percent to $32.19.