Why did this happen?
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New York Stock Exchange 
The Dow Jones Industrial Average fell more than 280 points, Friday, to 13181.91, just two weeks after soaring to a historic record of 14,000. Two other major indexes, the Nasdaq and the Standard and Poor 500, fell more than 2% in a widespread market sell-off. 

Shares of Bear Stearns, the largest United States underwriter of mortgage bonds, fell 6.3% today, resulting from Standard and Poor's altering its outlook toward the company to "negative" from "stable". The investment banking firm recently saw two of its major hedge funds sink after exposure to the sub-prime mortgage decline. Standard and Poor's report said the firm may have problems, including its hedge funds, that could hurt the firm "for an extended period."

The company held a press conference at noon, but was unable to salvage its stock, leading to heavy losses in the rest of the financial sector. Chief Financial Officer Sam Molinaro remarked that the credit market was in the worst condition he had seen in 22 years.  

American Express shares fell 5.6%, while homebuilder Hovnanian Enterprises fell 9.4% in the sell-off which impacted all the indexes. 
American Home Mortgage Investment Corporation shares fell 52.07% in the session after announcing plans to close most operations and lay off over 6000 employees. The company has also lost its lending license in four states including New York.

"It is with great sadness that American Home has had to take this action," Chief Executive Michael Strauss said in a statement. "Unfortunately, the market conditions in both the secondary mortgage market as well as the national real estate market have deteriorated to the point that we have no realistic alternative."

Analysts say that the weakness in the stock markets and economy in general could prompt the Federal Reserve to lower interest rates, consequently allowing inflation to rise, but that it would also support stocks and ease borrowing. The Fed has not changed interest rates since June 2006.