America: Stevie Wonder Is Driving The Bus
Is it just me, or is it becoming increasingly apparent that America hasn't got a clue what it's doing?
Take the US Treasury's about-face on Wednesday, when it officially abandoned its original strategy of buying troubled assets from banks.
The Bush administration now says it will try to jump-start the stalled credit markets with new lending programs, rather than by buying troubled assets from banks. But the line for help at the Treasury keeps getting longer. A big commercial lender, the CIT Group, applied to become a bank on Thursday in hopes of qualifying for rescue money. American Express took the same step earlier this week. And then, of course, there is the beleaguered auto industry, we'll get onto them in a minute.
Before that, consider the AIG precedent. It shows that once a company has the money and is deemed too important to fail, it can do as it pleases.
It was less than two months ago that the government put up $85 billion for AIG. The interest rate was high, and the term of the loan was just two years. The company, under a new chief executive, would have to shape up or close down within 24 months.
The first thing the new CEO did, as soon as the cheque had cleared, was renegotiate more favourable terms. Plus more money, in exchange for what? For the US government taking on the risk of some of his company's worst assets while letting AIG share in the profits if those assets should prove valuable!
Meanwhile, President-elect Barak Obama is a big fan of the US automakers, and is pushing for Bush to step in now and bailout GM, Ford & Chrysler. News emerging last night suggests that Democratic congressional leaders have conceded that they would face potentially insurmountable Republican opposition to push such a bailout through, ahead of Obama's inauguration. Some industry experts fear that without it one of the Big Three automakers will collapse before then.
The idea is to channel $25 billion of the promised $700 billion bailout fund to the Big Three. Bush, however, has not signaled any willingness to tap the bailout fund, which the Treasury has said is money better spent on financial institutions. And some powerful Republican lawmakers have voiced strong opposition to government aid for the automakers.
Senator Richard Shelby of Alabama, the senior Republican on the banking committee, said he would not support legislation to aid the auto companies and seemed prepared to let one or all of them collapse.
"The financial straits that the Big Three find themselves in is not the product of our current economic downturn, but instead is the legacy of the uncompetitive structure of its manufacturing and labor force," Shelby said in a statement. "The financial situation facing the Big Three is not a national problem but their problem."
"They are producing high-cost products that consumers don't want to buy. And so now we have Washington on the verge of giving them a bailout simply because we have all heard of them and they have high-priced lobbyists," said a Representative.
America: would you buy a used car off it?
Bailouts R Us
Unless you've been living in a cave, by now you will probably know that Bush's Big Bailout finally got it's approval Friday night by a vote of 263-171.
US President George W. Bush hastily signed the bailout bill that could cost American taxpayers $700-billion and then, in a short Rose Garden appearance, told them they would probably get their money back, sometime.
"The government will purchase troubled assets," he said. "And once the market recovers, it is likely that many of the assets will go up in value. And over time, Americans should expect that much, if not all, of the tax dollars we invest will be paid back."
Although the bill got passed it wasn't without much wailing and gnashing of teeth.
"Nobody in East Tennessee hates the fact that I am going to vote yes more than me," said Representative Zack Wamp. "On Monday, I cast a blue-collar vote for the American people," he said before voting. "Today, I am going to cast a red, white and blue-collar vote with my hand over my heart for this country, because things are really bad and we don't have any choice. We're out of choices and our backs are up against the wall."
Maybe Zack noticed the news Friday that more than 159,000 American jobs disappeared in September, roughly twice the pace of job losses previously this year.
Anecdotal reports tell of sharp drops in the last two weeks of consumer purchases of big-ticket items, especially motor vehicles, either because they are afraid to buy or can't get financing. And businesses are getting cut off from the cash they need for day-to-day operations.
"We're hearing more and more stories about small businesses that just got shut off from credit and missed a payroll," said Jim Wilcox, an economist at the Haas School of Business at UC Berkeley.
There was no burst of confidence in the locked-up credit markets late Friday. Interest rates that financial institutions charge on loans to one another remained in the stratosphere as they continued to shy away from lending and instead put free cash into US government securities.
Interesting times lie ahead.
Senate Approves Bailout; House To Vote Friday
The U.S. Senate strongly endorsed the $700 billion economic bailout plan on Wednesday, leaving backers optimistic that the easy approval, coupled with an array of popular additions, would lead to House acceptance by Friday.
In stark contrast to the House rejection of the plan on Monday, a bipartisan coalition of senators — including both presidential candidates — showed no hesitation in backing a proposal that had drawn public scorn, though the outpouring eased somewhat after a market plunge followed the House defeat. The Senate margin was 74 to 25 in favour of the White House initiative to buy troubled securities in an effort to avoid an economic catastrophe.
US Senate To Vote Today On Re-jigged Bailout Plan
US Senate leaders will vote later today on a $700 billion financial bailout package after agreeing to add tax breaks and a higher limit for insured bank deposits in a bid to attract enough votes to reverse a shocking defeat in the House and send legislation to President Bush by the end of the week.
After a day of behind-the-scenes manoeuvring, top lawmakers said the Senate proposal would include a tax package as well as a plan endorsed on Tuesday by both major presidential candidates and the Bush administration to raise government coverage for bank deposits.
Stocks Plunge As US House Rejects Rescue Plan 228-205
Markets plunged Monday as the US House of Representatives rejected, by a vote of 228 to 205, the $700 billion measure to authorize the biggest government intervention in the markets since the Great Depression.
The Dow Jones index lost 770 points - 6.9% - its biggest one-day point drop yet as Congress surprised observers by not backing the rescue plan.
Meanwhile the Nasdaq index fell 9.1% and London's FTSE 100 index lost 5.3%.
Confidence had already been smashed by the rescue of US bank Wachovia and Bradford and Bingley's nationalisation.
The Dow Jones closed at 10,365.4 points after the bail-out result threw efforts to calm the US financial crisis into disarray. The tech-heavy Nasdaq ended down 200 points at 1,983.7.
Dollar Rises As Rescue Talks Breakdown
The dollar is firmer across the board Friday as news emerges that just when a final deal was within reach, US lawmakers fell short of securing agreement on the Treasury Department’s $700 billion rescue plan to shore up the financial markets.
Congressional leaders worked late into the night with Treasury Secretary Henry Paulson to finalize provisions only to have efforts dashed by Republican members of the House of Representatives who said the plan would mean too much of a commitment of taxpayers’ money and too great of an intrusion into private enterprise.
The dissenters circulated an alternative proposal, whereby the government would insure unstable financial institutions rather than outright buying their holdings of problematic assets.
A White House summit of key Congressional leaders, presidential nominees McCain and Obama, and representatives of the Bush administration called to show bipartisan effort to stave off catastrophe reportedly ended in a “shouting match”.
A partial deal had been agreed to in principle earlier this morning whereby the administration would get approval for half of the $700 billion it requested, with the rest subject to a Congressional veto.
At 7.45am BST the dollar was $1.8390 against the pound and $1.4639 against the euro.
Rescue Plan Stalls
Talks in Washington have so far failed to reach agreement on a massive $700bn (£380bn) government proposal to bail out the troubled US finance sector.
After several hours of talks with President George W Bush, Republican members of Congress remained sceptical.
The proposal would see the government buy bad debts from US banks.
A group of House Republicans led by Eric Cantor of Virginia said they wouldn't back a plan based on the approach outlined by Treasury Secretary Henry Paulson and backed by President George W. Bush and Democratic leaders.
Congressional leaders are to meet again on Friday morning to try to hammer out an agreement.
Britain's Big Banking Boys Belatedly Bailout Beleagured Buy-to-let Bradford & Bingley
I've been saving up all my B's, in a kind of Buy one Get ten B's Free sort of a deal. A bit like B&B shares I suppose....
(Mailonline) -- Britain's Big Six banks staged a dramatic rescue of Bradford & Bingley last night in a bid to avert a new Northern Rock crisis.
Under pressure from the financial services regulator, they agreed to buy a large chunk of shares in the beleaguered bank.
The bail-out followed a £400million rights issue by the former building society which was sunk when its shares plunged further during a day of bloodletting on the stock market. Up to £36billion was wiped off the value of Britain's biggest listed companies amid fears of recession.
Bradford & Bingley shares, which have fallen by nearly 90 per cent over the past year, have now dropped to a level where shareholders will refuse to buy any more.
They were described as worthless by one analyst yesterday and the rights issue was described as 'a dog's breakfast'. Existing shareholders had been offered the chance to buy at a 'discounted' 55p.
But the price nosedived a further 19 per cent to a record low of 34p yesterday, following a fall of 16 per cent on Monday.
It is understood the six banks, HBOS, Abbey, Barclays, Lloyds TSB, Royal Bank of Scotland and HSBC, stepped in after being leaned on by the Financial Services Authority.
They have promised to buy the shares which Bradford & Bingley's main underwriters, the American investment banks UBS and Citigroup, do not buy, a procedure known as ' subunderwriting'.
As a result, the high street banks will end up owning at least 30 per cent of their rival.
One banking source said: 'It is in everyone's interest that there is confidence in the market.'
