Comments

You have commented 339 times on Rantburg.

Your Name

Your e-mail (optional)

Website (optional)

	My Original Nic Pic-a-Nic Sorry. Comments have been closed on this article.
Foto

Submit your comments on this article

Home Front Economy

Another US lender folds while Congress row blocks rescue deal

2008-09-27

Global stock prices crumbled Friday and investor anxiety mounted as another big US bank collapsed and political wrangling blocked a deal to save the beleaguered US financial sector.

With talks on a $700 billion rescue package at an impasse in Congress, President George W. Bush issued another plea to fractious lawmakers to come together and approve a plan that would restore confidence and calm frazzled markets. "We've got a big problem ... we need a rescue plan," Bush said in televised remarks minutes after Wall Street shares plummeted in line with Asia and Europe and as central banks again injected tens of billions of dollars to avert seizure on inter-bank lending markets.

After a rescue for American savings giant Washington Mutual by JP Morgan Chase in the biggest-ever US banking failure, shock waves hit European financial markets.

Belgian-Dutch financial group Fortis struggled to dispel liquidity concerns hammering its shares, insisting there was "not a single chance" of failure. The bank announced an emergency asset sale to raise 5.0-10 billion euros (up to $14 billion). Fortis closed with a loss of nearly 21 percent at 5.18 euros, its lowest reading in 15 years.

Wall Street shares lost ground Friday, with the Dow Jones Industrial Average down 0.71 percent at 10,943.77 at mid-day. The tech-heavy Nasdaq shed 1.63 percent to reach 2,150.93.

"The markets had known that Washington Mutual was not financially sound, but they were holding out hope that the government would act [on a rescue plan] before regulators had to step in," said Nathan Topper at Economy.com. "If factions in Congress and the Bush administration do not agree today on a bank rescue package, markets could sell off further," he added.

European exchanges also took a pounding on Friday. The London FTSE 100 index fell 2.09 percent to close at 5,088.47 points while in Paris the CAC 40 lost 1.50 percent to finish at 4,163.38. The Frankfurt Dax gave up 1.77 percent to finish at 6,063.50. Asian exchanges earlier in the day also closed in negative territory, with Tokyo shedding 0.94 percent and Hong Kong 1.3 percent.

"Confidence is swinging like a seesaw at the moment," said Joshua Raymond, a market strategist at City Index. "We can ill afford to drag this out longer than the weekend. It's increasingly looking like the bailout plan lacks the substance to get it through Congress, which would be devastating to markets."

Posted by:Fred

#14 It would be nothing like Walmart showing up. Walmart is a business, run by peole who want to make money. BoUS would be a government tool run by politicians who want to buy votes.

Posted by: Mike N. 2008-09-27 20:46

#13 ..the quantity of banks needs to shrink also

Whereas the BotUS becomes the First Leander(c) it forces efficiencies on the market. It would be like WallyMart showing up in a town full of mom and pop shops that have been less efficient in delivering the goods to the community. We've seen where that ends. The squeeze on operating costs (because they carry major overhead and commitments) would close many by itself. The 'numerous' banks/lending institutions that aren't efficient would basically be reduced to the corner Payday Loan office playing the high risk niche or disappearing.

Posted by: Procopius2k 2008-09-27 20:05

#12 YeastT INFectION.

Posted by: Nimble Spemble 2008-09-27 19:58

#11 That's why instead of selling another failing bank off to another institution, the government just assumes the entire structure [without the senior leadership who drove it to the brink]. You get the basics right in place, just a change of management and direct access to the Treasury to start fueling the credit market.

That would stil leave us with the problem of too many banks. With the shrinking quantity of loans (home loans especially) the quantity of banks needs to shrink also. There's now less loans and of better quality than a two years ago, so it stands to reason we require less banks and of better quality than there was two years ago.

Posted by: Mike N. 2008-09-27 19:51

#10 Y***T INF***ION? Usually I'm pretty good at JosephM shorthand, but that one is beyond me, Alaska Paul.

Posted by: trailing wife 2008-09-27 18:40

#9 pimf-----

THE FOX IS STILL IN THE CHICKENHOUSE >>>>D******NG IT!!!! AND THE BETTYCROCKERCRATS ALL HAVE A FINANCIAL Y***T INF***ION.
/CHANNELING JOE

Posted by: Alaska Paul 2008-09-27 15:33

#8 You will not really address the crisis until the congress is dealt with, because their enabling legislation was the big cause of the irresponsible financial orgy that caused the credit crisis that we find ourselves in now.

THE STILL IN THE CHICKENHOUSE >>>>D******NG IT!!!! AND THE BETTYCROCKERCRATS ALL HAVE A FINANCIAL Y***T INF***ION.
/CHANNELING JOE

Posted by: Alaska Paul 2008-09-27 15:32

#7 That's why instead of selling another failing bank off to another institution, the government just assumes the entire structure [without the senior leadership who drove it to the brink]. You get the basics right in place, just a change of management and direct access to the Treasury to start fueling the credit market.

Posted by: Procopius2k 2008-09-27 10:09

#6 I agree with the advantages you give for a Bank of the US. I do not think we have the time necessary (probably months) to set up such an entity. The credit markets typically move immense amounts of money around daily -- they will not wait much longer.

Posted by: Anguper Hupomosing9418 2008-09-27 09:20

#5 Yes, but the Bank removes at least one if not more levels of misrepresentation, cronyism, and fraud from the process. It also moves such behaviors from stockholder civil suits to direct criminal activity with the existing penalties being the forfeiture of monies and jail that brokers, corporate executives and boards so far have avoided.

Posted by: Procopius2k 2008-09-27 09:12

#4 --- Another element at stake that hasn't been mentioned on Rantburg so far: Pensions. If financial institutions supporting them collapse, the holdings that generate pension income will crash, pension payments will stop; government bailouts (PBGC) are already wired into the system, and will very likely cost more than what's needed now.
--- That horse isn't dead yet. Most of the electorate is still clueless as to what is at stake -- their jobs, or their pensions if they have any.
--- We need to focus exclusively on freeing up the credit markets and lessening the impact of bankruptcies. Saving people from foreclosure, keeping housing values absurdly high, and sweetheart deals need to be removed from the process. A "Bank of the United States" does not need to be created to do this. There is enough vagueness in the debated Treasury proposal to allow this credit market/bankruptcy relief to be the principal thrust of federal efforts, but it is vague.
Jerry Pournelle on his blog gave this prognostication on the MOAB: " There will be literally millions of transactions, all conducted by a vast bureaucracy composed largely (I would guess) of laid off Wall Street employees. Who else will they hire to do this? There will be mistakes. There will be cronyism and favoritism. There will be deliberate frauds both by bureaucrats and those seeking relief. There will be misvalued mortgage papers. There will certainly be overvalued mortgage papers. There will be no time for slow study and evaluation because the success of the bailout depends entirely on acting swiftly and finally and introducing some certainty back into the situation." A Bank of the United States would most likely operate under these exact same conditions.

Posted by: Anguper Hupomosing9418 2008-09-27 08:50

#3 Beats dead horse again -

The question is how many viable businesses will go bankrupt due to lack of credit,..

..a Bank of the United States would provide the mechanism to insure that credit is available to viable businesses. It would also cut out the middlemen who add inefficiency and costs to the process. Independent 'Lending Institutions' would have to meet or beat the terms the line of credit extended by a BotUS or take on risks that the Bank would not.

Posted by: Procopius2k 2008-09-27 08:26

#2 Yes, markets will survive any crisis. The question is how many viable businesses will go bankrupt due to lack of credit, how many employees will lose their jobs, and how many creditors will lose money they would otherwise have received -- these factors are the elements of old-fashioned, 19th-century-type Panics.

Posted by: Anguper Hupomosing9418 2008-09-27 07:58

#1 From TFA:

We can ill afford to drag this out longer than the weekend.

Why not? This has been brewing since September 2007

It's increasingly looking like the bailout plan lacks the substance to get it through Congress, which would be devastating to markets.

Actually, markets will do just fine as they always have as they always will. It's the players chin deep in crummy paper who will get hit.

Markets will survive this crisis.

Posted by: badanov 2008-09-27 00:14

00:00