US announces New debt plan to ease financial crisis
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The United States said it is putting together a rescue plan to clear away the mountains of bad debt that have weighed down banks and set off the worst financial crisis in decades.
The Thursday announcement came as leading central banks moved to flood markets with cash while British and US regulators put the brakes on short-selling shares, as nations banded together to try to end the turmoil on global markets.
US stocks staged a dramatic rally on rumours about the new plan, with the Dow Jones average recovering 3.86 percent Thursday. Asian markets followed Wall Street's lead, gaining broadly after days of turmoil and brutal sell-offs.
US Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke met with Congressional leaders late Thursday night, vowing to move swiftly amid fears that more banks could go under as the crisis deepens.
Paulson did not give details, stressing any plan would need Congressional approval, but US media reports said he was considering a bailout by taxpayers like that used in the savings and loan crisis of the 1980s and 90s.
"As we've said for some time, the root cause of the stress in the capital markets is the real estate correction," Paulson told reporters in a brief appearance with Bernanke after the meeting.
"We're coming together to work for an expeditious solution which is aimed right at the heart of this problem, which is illiquid assets on financial institutions in the United States on their balance sheets," he said.
Like Paulson, US lawmakers stressed that the plan would be put together quickly.
"We're anxious to see their proposal, which we hope to receive in a matter of hours, not days," Senate majority leader Harry Reid said.
The crisis, which began a year ago but intensified in recent weeks, was set off by so-called subprime mortgages from US banks -- loans to home-buyers with spotty credit that in many cases ended up in default.
The defaults drove down US house prices, reduced available cash and credit, and left financial institutions around the world, which bought many of the loans as part of complex investment instruments, exposed to the bad debts.
The crisis has led to the mergers or collapse of some of Wall Street's biggest names -- including Bear Stearns, Merrill Lynch and Lehman Brothers -- and now perhaps even Morgan Stanley.
The Financial Times said Morgan Stanley, along with Goldman Sachs the only major independent Wall Street investment bank still standing, was in talks to sell a stake of up to 49 percent to China's sovereign wealth fund CIC.
Paulson has faced criticism over the Fed's 85 billion dollar rescue of insurance giant AIG by the Fed, and putting taxpaying voters on the hook for billions more weeks before the presidential election could prove unpopular.
To help the country get out from the savings and loan crisis almost three decades ago, the US government created the Resolution Trust Corp -- which bought up assets from failed banks and eventually re-sold them.
The complicated mortgage-related investments connected to the current crisis could prove harder to sell, and Paulson indicated that Congress would need to approve any such measure -- effectively a massive taxpayer bailout.
"What we are working on now is an approach to deal with the systemic risk and the stresses in our capital markets," he said after the meeting with lawmakers including House speaker Nancy Pelosi.
"We talked about a comprehensive approach that will require legislation to deal with illiquid assets," he said.
Countries around the world have recognised the need to rein in the deepening global crisis. Major central banks announced a joint move Thursday to flood world markets with dollars to try to calm the turmoil.
Meanwhile Britain and the United States took steps to curb short-selling -- a practice by which investors bet that a given stock will decline in value. Short speculation has helped drive share prices down throughout the crisis.
Britain banned short-selling in financial stocks while the United States tightened the rules on shorting stocks, looking to bring some stability to the roller-coaster ride in equities in recent months.
"While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets," said the chief executive of Britain's Financial Services Authority, Hector Sants.
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er... it is more like, postpone the crisis rather than "ease".... hahahaha.... instead of biting the bullet, postponing only makes it worse later on...
...if it is so easy, why didn't they do it in 2007 when the crisis erupted? They could have announced the same thing then, why not?
... this is the end of act one, not the end of the play....
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but,
if the rest of the world co-operates (especially the coolie economies, like Singapore) the US will get away with spending money like there is no tomorrow and then printing some more when it runs out.....
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Originally posted by AndrewPKYap:
er... it is more like, postpone the crisis rather than "ease".... hahahaha.... instead of biting the bullet, postponing only makes it worse later on...
...if it is so easy, why didn't they do it in 2007 when the crisis erupted? They could have announced the same thing then, why not?
... this is the end of act one, not the end of the play....
they postpone it because the presidental election is coming mah......
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About 3 mths ago, I read an article by the famous Warren Buffet n he already predicted the melt down.
He also warned the US authority against prolonging the storm else there is this potential of it dragging into years. -
This is a Catch 22 situation.
If US dunt do anything enough and more troubles will come out.
No President and officails want troubles during their terms.
Their motto---leave troubles to next terms....
If they want to save,but Congress wo/men are not stupid.
The speed of passing laws to save Fannie showed Congress wo/men
are speed readers and quick thinkers
Congress just spent 2 weeks to draft,read,digest and make conclusion of
the 694 pages of Saving Fannies Bills is amazing!!
I cant believe US can drafted the 694 pages Bills
in no time and passed it in no time!!
The effeciency and effectiveness of US Congress really impress me.
But how can Congress wo/men passed the laws without understanding
it?This is a shot gun legislation.
Less than two weeks after the Bush administration called on Congress to approve an unprecedented plan to authorize the use of unlimit..
The bill passed by Congress is 694 pages long. It is certain that few, if any, of the congressmen and senators who voted for it even read the massive text of the legislation.....http://www.wsws.org/articles/2008/jul2008/econ-j28.shtml
I do hope they will read every words of the Mother of All Bailout $ 7oo billions
Bill !
mmmm
http://www.politico.com/news/stories/0908/13689.html
Many economists skeptical of bailout
showInitialOdiogoReadNowFrame (_politico_odiogo_feed_ids, '0', 290, 0);By AVI ZENILMAN |
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Originally posted by lionnoisy:
This is a Catch 22 situation.
If US dunt do anything enough and more troubles will come out.
No President and officails want troubles during their terms.
Their motto---leave troubles to next terms....
If they want to save,but Congress wo/men are not stupid.
The speed of passing laws to save Fannie showed Congress wo/men
are speed readers and quick thinkers
Congress just spent 2 weeks to draft,read,digest and make conclusion of
the 694 pages of Saving Fannies Bills is amazing!!
I cant believe US can drafted the 694 pages Bills
in no time and passed it in no time!!
The effeciency and effectiveness of US Congress really impress me.
But how can Congress wo/men passed the laws without understanding
it?This is a shot gun legislation.
http://www.wsws.org/articles/2008/jul2008/econ-j28.shtml
I do hope they will read every words of the Mother of All Bailout $ 7oo billions
Bill !
mmmm
http://www.politico.com/news/stories/0908/13689.html
Many economists skeptical of bailout
By AVI ZENILMAN |
Congress doesn't understand the implications of passing legislation. I suppose lionnoisy understands the implications?
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US financial bail out. each american pays US$ 2300. Each household around US$10K. US economy falls straight into recession because its most important consumers ie tax payers are over taxed and hence have no money to spend/consume.
Could the bail out be responsible for pushing US deeper into recession? Time will tell.
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the bail out might end up bailing out only the banks and pass all the sh.it to the people.
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Opinion polls show the US public is angry at Wall Street but deeply divided about a remedy, with many ready to blame Bush and his Republican Party -- which itself has fissured over the plan amid fierce objections from conservatives.
sometime ago, i mentioned that investment bankers would be scorned on by the public. today, the investment bankers would be looking over their backs. the public is angry at them.
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between april to june 2008, US central bank came out to say that Bear Stearns is the worst and the banking industry should have already pass the worst. 3 months later and now, he is saying that we need a huge bail out for the financial institutions. Obviously this guy does not know !! Is the tax payers bailing out not only the financial institutions but also the failings of their central bank?
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These days, when some top person says that so and so is ok and will weather the financial storm, I get ready to see it go bust in the next few weeks or so.
Bear Sterns said it was okay.
Fannie Mae said it was okay.
Lehman Brothers said it was okay.
Okay.
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If US economy don't look good, ours don't look good too.
Happy to see US financial meltdown and our SWF investments go down with it?
Only Iran openly declare she is happy about it
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noone is saying he is happy to see USA going down. just dont think this bail out makes any sense at all.
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so consumers could not get any credit, borrow any money from the banks. credit crunch crisis. so the proposal is to bail out the financial institutions by taxing the consumers, by taking big money from them. does this make sense?
not only the consumers cannot obtain credit from the banks, they are asked to pay up!
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It's crony capitalism at work.
Hey, isn't Singapore doing this too?
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About 3 mths ago, I read an article by the famous Warren Buffet n he already predicted the melt down.
He also warned the US authority against prolonging the storm else there is this potential of it dragging into years.warren buffett dont work for the fed not treasury nor is he in the House Financial Services Committee. thus it just plain talk no action.
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after this bail out is approved, we shall see police men chasing after ordinary folks for tax money instead of the bankers who are responsible for this crisis !! wtf.
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Paulson has been accused of trying to use taxpayers' money to bailout a coterie of Wall Street 8-figure earners. I somehow see a parallel here where taxpayers' money is used to enriched the stratospherically paid ministers.
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if i am american i did hate the mainstreet has to bail out the wallstreet.
moreover i dont agree that US treasury should spent 700billion USD on wallstreet without gaining a stake at these screw up investment banks and insurance company. that means should wall street recover the average american will not be able to benefits from it.
gaining access of the toxic mortages could take years for average to gain benefits from it. by then if they buy back the mortages, it is the taxpayers money that buy the mortages at the higher price.
H. paulson should be cautious especially that he use work for goldman sach before becoming secretary of treasury. what hat is he wearing now? typical PAP style, one head wear 2 hats.
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the problem is no one could quantify how large is the exposure to credit derivatives. the notional amount is many many trillions, JP Morgan Chase alone around 4 trillions. which makes the bail out amount of 700 billions peanuts. The most troubling fact is that the american tax payers could not afford to pay this peanut of 700 billions !!
looks like the investment bankers really managed to crash the USA economy by building such large exposure without co-ordinated industry wide risk management.
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Is the sun setting on USA economic supremacy?
http://www.chinadaily.com.cn/opinion/2008-09
Financial crisis threatens USA influence
http://www.atimes.com/atimes/Middle
Should the Russian Financial System be Saved?
http://en.fondsk.ru/article.php?id
Russia's WTO accession would mean 'end' of trade body
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we in singapore are sitting ducks if US's economy goes into panic recession. OMG!
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That is what you get when you invest in too much USA assets.
Once in a century rip-off
Once in a century rip-off Economist Michael Hudson: the bailout is a giveaway that will cause hyperinflation and dollar collapse
http://therealnews.com/t/index.php?option=com_content&tas
Why the Bailout Will Fail
The Insanity of the $700 Billion Giveaway