The Economy & the Markets: What You Need to Know

The Economy & the Markets: What You Need to Know

As global markets have been whipsawed, logic and reason have given way to a more basic human force: survival. How did conditions get so turbulent so quickly? Economists, money managers, CEOs, and regulators are grasping for clues.

The fundamentals seem downright dismal: The U.S. economy teeters on the edge of its first consumer-led recession in decades, prompting fears that America's woes will spread. Banks have been hit by $100 billion in losses, with more likely. The Congressional Budget Office projects a rising deficit in the 2008 fiscal year. Oil prices remain stubbornly high. Against that backdrop, global stocks lost $5 trillion in the first three weeks of 2008.

The worst came on Jan. 21 when Asian and European markets plummeted in unison. Traders braced for the rout to continue when the U.S. markets opened the next day, but to their great surprise, what followed was relief—for a spell, anyway. A week ahead of its planned meeting, the U.S. Federal Reserve slashed interest rates deeper than it had in 23 years. The Dow's 500-point drop at the open turned into a mere 128-point dip (1%). A day later, stocks fell more than 300 points in early trading but finished that session up 300 points—a 600-point swing.

In the stories in our special report, we'll get to the bottom of what's driving the markets and why. We'll look at the possibility that much of the recent global economic boom was illusory, explore possible routes leading out of the bear market, examine approaches regulators might take to stave off big bank failures, and assess fiscal stimulus plans being floated in Washington. We'll also tell you the story of Larry Fink, CEO of bond firm BlackRock (BLK) and one of the savviest players during the subprime meltdown—a reminder that, even in the most challenging of times, opportunities abound.

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