Tuesday, October 25, 2011
Tuesday, October 14, 2008
Dow jumps another 300 after 936-point gain Monday
Tuesday October 14, 9:54 am ET
Dow industrials jump another 300 points today after 936-point gain yesterday
NEW YORK (AP) -- The Dow Jones industrial average jumped more than 300 points in early trading today on top of yesterday's historic 936-point gain. Wall Street surged again today as investors reacted enthusiastically to the U.S. government's plans to spend $250 billion to buy stock in private banks.
In the first half-hour of trading, the Dow Jones industrial average rose 295.73, or 3.15 percent, to 9,683.34 after jumping more than 377 points in the early going.
Broader stock indicators also rose. The Standard & Poor's 500 index rose 40.69, or 4.06 percent, to 1,044.04 and the Nasdaq composite index rose 42.90, or 2.33 percent, to 1,877.15.
Investors had snapped up stocks Monday in anticipation of the government's plan. President Bush said Tuesday the government will use a portion of the $700 billion bailout to inject capital into the nation's major banks, which have been slammed by souring mortgage investments. The move follows a similar one announced Monday by European governments to invest about $2 trillion in their own troubled banks.
Investors are hoping extraordinary steps by government officials will help resuscitate stagnant credit markets.
The revised bailout plan differs from the original in that it aims to recapitalize banks, not just buy the troubled assets off their books at prices that could leave the banks with losses.
"This begins to penetrate the core of the problem," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc.
But, he said, "there will be a point in time where the euphoria of the bailout plan begins to wear off and the market begins to face reality. And that reality is likely to be a sour earnings season, and that the economy is in recession."
While the markets are enjoying a big rebound, stock trading may see ongoing volatility in the weeks and months ahead. The Dow remains 33.7 percent below its Oct. 9, 2007 record close of 14,164.53, and could fluctuate around these levels for some time as investors wait for signs of stabilization in the slumping housing market and deteriorating job market.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Dow industrials jump another 300 points today after 936-point gain yesterday
NEW YORK (AP) -- The Dow Jones industrial average jumped more than 300 points in early trading today on top of yesterday's historic 936-point gain. Wall Street surged again today as investors reacted enthusiastically to the U.S. government's plans to spend $250 billion to buy stock in private banks.
In the first half-hour of trading, the Dow Jones industrial average rose 295.73, or 3.15 percent, to 9,683.34 after jumping more than 377 points in the early going.
Broader stock indicators also rose. The Standard & Poor's 500 index rose 40.69, or 4.06 percent, to 1,044.04 and the Nasdaq composite index rose 42.90, or 2.33 percent, to 1,877.15.
Investors had snapped up stocks Monday in anticipation of the government's plan. President Bush said Tuesday the government will use a portion of the $700 billion bailout to inject capital into the nation's major banks, which have been slammed by souring mortgage investments. The move follows a similar one announced Monday by European governments to invest about $2 trillion in their own troubled banks.
Investors are hoping extraordinary steps by government officials will help resuscitate stagnant credit markets.
The revised bailout plan differs from the original in that it aims to recapitalize banks, not just buy the troubled assets off their books at prices that could leave the banks with losses.
"This begins to penetrate the core of the problem," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc.
But, he said, "there will be a point in time where the euphoria of the bailout plan begins to wear off and the market begins to face reality. And that reality is likely to be a sour earnings season, and that the economy is in recession."
While the markets are enjoying a big rebound, stock trading may see ongoing volatility in the weeks and months ahead. The Dow remains 33.7 percent below its Oct. 9, 2007 record close of 14,164.53, and could fluctuate around these levels for some time as investors wait for signs of stabilization in the slumping housing market and deteriorating job market.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Government moves again to unclog credit lines
Tuesday October 14, 10:01 am ET By Martin Crutsinger, AP Economics Writer
Administration buying some bank shares, raising insurance coverage, to steady faltering market
WASHINGTON (AP) -- President Bush on Tuesday announced a $250 billion plan by the government to directly buy shares in the nation's leading banks, saying the drastic steps were "not intended to take over the free market but to preserve it."
Nine major banks will participate initially including all of the country's largest institutions, he announced, in a move that sent stocks soaring on Wall Street.
Some of the nation's largest banks had to be pressured to participate by Treasury Secretary Henry Paulson, who wanted healthy institutions that did not necessarily need capital from the government to go first as a way of removing any stigma that might be associated with banks getting bailouts.
"We regret having to take these actions," Paulson said. "Today's actions are not what we ever wanted to do -- but today's actions are what we must do to restore confidence to our financial system."
It was the latest in a long series of moves taken by the administration and the Federal Reserve over the past several weeks to prop up a weakening financial industry. The economic picture in the United States had been darkening for months, but the slump took on new urgency -- and had greater global repercussions -- amid record-setting selloffs on Wall Street and enactment of a $700 billion bailout bill.
Under the new multifaceted stabilization program described Tuesday, the government will initially buy stocks in nine major U.S. banks. When financial markets stabilize and recover, the banks are expected to buy the stock back from the government, Bush said in brief remarks from the White House Rose Garden.
"These efforts are designed to directly benefit the American people by stabilizing the financial system and helping the economy recover," he said.
Paulson told a Treasury Department news conference that the aggressive government intervention was "what we must do to restore confidence in our financial system."
The Federal Reserve, meanwhile, announced that it will begin buying vast amounts of short-term debt on Oct. 27 -- its latest effort to break through a credit clog. The Fed is invoking Depression-era emergency powers to buy commercial paper -- a crucial short-term funding that many companies rely on to pay their workers and buy supplies. Last week the Fed said it intended to take the action but didn't specify when.
Fed Chairman Ben Bernanke welcomed all the new steps and said he believes they will help ease problems plaguing financial markets and threatening the economy. However, he also made clear that policymakers would continue to take actions as needed to battle the crisis.
"Our strategy will continue to evolve and be refined as we adapt to new developments and the inevitable set backs," he said. "But we will not stand down until we have achieved our goals of repairing and reforming our financial system and thereby restoring prosperity to our economy."
"The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it," Paulson said, meaning that they will use the money to bolster lending to each other and to their customers.
"Government owning a stake in any private U.S. company is objectionable to most Americans -- me included," he added. "Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable."
Said Bernanke: "We will not stand down until we have achieved our goals of repairing and reforming our financial system and thereby restoring prosperity to our economy."
The move, in effect a partial nationalization of the banking system, does put the United States in the awkward position of owning shares in institutions it also regulates. The shares purchased by the government are expected to be nonvoting ones.
"The government's role will be limited and temporary," Bush pledged. "These measures are not intended to take over the free market but to preserve it. He said these steps and other related actions echoed similar bold moves made overseas in an effort to prevent a global recession. Bush said that by restoring confidence in the system, the hope is to "return our economy back to the road of growth and prosperity."
He said that the efforts to rescue the nation's battered financial sector was a short-term move to help banks to be able to begin lending again.
Executives of the country's biggest banks were summoned to a remarkable meeting at the Treasury Department on Monday to be briefed on the plan. Paulson basically told the bank CEOs that they had to accept the government stock purchases for the good of the U.S. economy.
The administration plans to spend $250 billion this year on the stock purchases and the president was to certify that another $100 billion would be needed. That would leave $350 billion of the $700 billion program, presumably to be spent by the next president.
The action represents a remarkable turnaround for a rescue program that was already the largest bailout in U.S. history. As the plan sped through Congress, the administration said the money was needed to purchase bad mortgage-related assets that are weighing on the books of financial institutions, never mentioning direct stock purchases.
However, as the financial crisis gained new intensity last week, sending U.S. stocks down by a record amount, the administration decided to shift focus and adopt a bolder program modeled more along the lines of bank rescue efforts being put together in Britain and other European countries.
Tuesday morning's Wall Street advance took the Dow Jones industrials up more than 300 points and followed the Dow's historic 936-point jump Monday, when investors were buying in anticipation of the government's plan.
After the purchase of preferred stock in nine large banks, the new program is expected to be expanded to many others. Among the initial banks participating will be all of the country's largest institutions, including Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley, said one official, with each institution expected to receive billions of dollars in return for the sale to the government of preferred shares.
The advantage to the taxpayer is that if the rescue plan works, then the shares can be sold for more than the government initially paid, providing a profit on the transaction.
At a briefing, Treasury officials said that the first purchases of stock from the nine major banks will begin within days and will total $125 billion. The government expects to spend the entire $250 billion slated for the bank stock purchase program by the end of the year.
In addition to the stock purchases, the Federal Deposit Insurance Corp. will temporarily provide insurance for loans between banks, charging the banks a premium for doing so.
This FDIC program would take the form of providing insurance for new "senior preferred" debt that one bank would lend to another. This debt would be insured by the FDIC for three years, helping to unlock bank-to-bank lending, which has fallen dramatically because of fears about repayment in the face of billions of dollars of bank losses because of bad loans, primarily in mortgages.
The FDIC will also remove temporarily the current $250,000 limit on FDIC insurance on bank deposits for non-interest-bearing accounts. This primarily would benefit businesses who use non-interest-bearing accounts to run their companies. That money now would be insured, removing the need for companies to juggle funds among multiple bank accounts to stay under the $250,000 limit.
Congress, as part of the bailout bill, temporarily boosted the deposit insurance cap from $100,000 to $250,000, an action that will not be affected by the new program.
The $700 billion rescue program will continue to feature the purchase by the government of banks' bad assets, but the administration decided to place greater emphasis on the stock purchase program after doubts were raised about how long it might take to get the asset purchase program up and running.
Democrats in Congress, while supportive of Paulson's desire to expand the program, complained Monday that not enough strings were being attached, such as restricting excessive compensation for Wall Street executives who raked in millions of dollars in bonuses by pursuing risky investment strategies that now have helped push the U.S. financial system to the brink.
Paulson said companies which sell stock to the government will be required to accept restrictions on executive compensation including a ban on golden parachutes for the period in which Treasury holds the banks' stock.
Worried about the slumping U.S. economy only three weeks from the elections, House Republicans and Democrats on Monday pushed for fresh action to prevent a serious downturn. Democrats scheduled hearings to consider a postelection stimulus package that could cost as much as $150 billion. Republicans called for more tax cuts and energy exploration.
In a campaign speech in Ohio, Democratic presidential nominee Barack Obama proposed a 90-day moratorium on home foreclosures at some banks and a two-year tax break for businesses that create new jobs. His Republican opponent, John McCain, promised a change in direction from the Bush administration's economic policies.
Administration buying some bank shares, raising insurance coverage, to steady faltering market
WASHINGTON (AP) -- President Bush on Tuesday announced a $250 billion plan by the government to directly buy shares in the nation's leading banks, saying the drastic steps were "not intended to take over the free market but to preserve it."
Nine major banks will participate initially including all of the country's largest institutions, he announced, in a move that sent stocks soaring on Wall Street.
Some of the nation's largest banks had to be pressured to participate by Treasury Secretary Henry Paulson, who wanted healthy institutions that did not necessarily need capital from the government to go first as a way of removing any stigma that might be associated with banks getting bailouts.
"We regret having to take these actions," Paulson said. "Today's actions are not what we ever wanted to do -- but today's actions are what we must do to restore confidence to our financial system."
It was the latest in a long series of moves taken by the administration and the Federal Reserve over the past several weeks to prop up a weakening financial industry. The economic picture in the United States had been darkening for months, but the slump took on new urgency -- and had greater global repercussions -- amid record-setting selloffs on Wall Street and enactment of a $700 billion bailout bill.
Under the new multifaceted stabilization program described Tuesday, the government will initially buy stocks in nine major U.S. banks. When financial markets stabilize and recover, the banks are expected to buy the stock back from the government, Bush said in brief remarks from the White House Rose Garden.
"These efforts are designed to directly benefit the American people by stabilizing the financial system and helping the economy recover," he said.
Paulson told a Treasury Department news conference that the aggressive government intervention was "what we must do to restore confidence in our financial system."
The Federal Reserve, meanwhile, announced that it will begin buying vast amounts of short-term debt on Oct. 27 -- its latest effort to break through a credit clog. The Fed is invoking Depression-era emergency powers to buy commercial paper -- a crucial short-term funding that many companies rely on to pay their workers and buy supplies. Last week the Fed said it intended to take the action but didn't specify when.
Fed Chairman Ben Bernanke welcomed all the new steps and said he believes they will help ease problems plaguing financial markets and threatening the economy. However, he also made clear that policymakers would continue to take actions as needed to battle the crisis.
"Our strategy will continue to evolve and be refined as we adapt to new developments and the inevitable set backs," he said. "But we will not stand down until we have achieved our goals of repairing and reforming our financial system and thereby restoring prosperity to our economy."
"The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it," Paulson said, meaning that they will use the money to bolster lending to each other and to their customers.
"Government owning a stake in any private U.S. company is objectionable to most Americans -- me included," he added. "Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable."
Said Bernanke: "We will not stand down until we have achieved our goals of repairing and reforming our financial system and thereby restoring prosperity to our economy."
The move, in effect a partial nationalization of the banking system, does put the United States in the awkward position of owning shares in institutions it also regulates. The shares purchased by the government are expected to be nonvoting ones.
"The government's role will be limited and temporary," Bush pledged. "These measures are not intended to take over the free market but to preserve it. He said these steps and other related actions echoed similar bold moves made overseas in an effort to prevent a global recession. Bush said that by restoring confidence in the system, the hope is to "return our economy back to the road of growth and prosperity."
He said that the efforts to rescue the nation's battered financial sector was a short-term move to help banks to be able to begin lending again.
Executives of the country's biggest banks were summoned to a remarkable meeting at the Treasury Department on Monday to be briefed on the plan. Paulson basically told the bank CEOs that they had to accept the government stock purchases for the good of the U.S. economy.
The administration plans to spend $250 billion this year on the stock purchases and the president was to certify that another $100 billion would be needed. That would leave $350 billion of the $700 billion program, presumably to be spent by the next president.
The action represents a remarkable turnaround for a rescue program that was already the largest bailout in U.S. history. As the plan sped through Congress, the administration said the money was needed to purchase bad mortgage-related assets that are weighing on the books of financial institutions, never mentioning direct stock purchases.
However, as the financial crisis gained new intensity last week, sending U.S. stocks down by a record amount, the administration decided to shift focus and adopt a bolder program modeled more along the lines of bank rescue efforts being put together in Britain and other European countries.
Tuesday morning's Wall Street advance took the Dow Jones industrials up more than 300 points and followed the Dow's historic 936-point jump Monday, when investors were buying in anticipation of the government's plan.
After the purchase of preferred stock in nine large banks, the new program is expected to be expanded to many others. Among the initial banks participating will be all of the country's largest institutions, including Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley, said one official, with each institution expected to receive billions of dollars in return for the sale to the government of preferred shares.
The advantage to the taxpayer is that if the rescue plan works, then the shares can be sold for more than the government initially paid, providing a profit on the transaction.
At a briefing, Treasury officials said that the first purchases of stock from the nine major banks will begin within days and will total $125 billion. The government expects to spend the entire $250 billion slated for the bank stock purchase program by the end of the year.
In addition to the stock purchases, the Federal Deposit Insurance Corp. will temporarily provide insurance for loans between banks, charging the banks a premium for doing so.
This FDIC program would take the form of providing insurance for new "senior preferred" debt that one bank would lend to another. This debt would be insured by the FDIC for three years, helping to unlock bank-to-bank lending, which has fallen dramatically because of fears about repayment in the face of billions of dollars of bank losses because of bad loans, primarily in mortgages.
The FDIC will also remove temporarily the current $250,000 limit on FDIC insurance on bank deposits for non-interest-bearing accounts. This primarily would benefit businesses who use non-interest-bearing accounts to run their companies. That money now would be insured, removing the need for companies to juggle funds among multiple bank accounts to stay under the $250,000 limit.
Congress, as part of the bailout bill, temporarily boosted the deposit insurance cap from $100,000 to $250,000, an action that will not be affected by the new program.
The $700 billion rescue program will continue to feature the purchase by the government of banks' bad assets, but the administration decided to place greater emphasis on the stock purchase program after doubts were raised about how long it might take to get the asset purchase program up and running.
Democrats in Congress, while supportive of Paulson's desire to expand the program, complained Monday that not enough strings were being attached, such as restricting excessive compensation for Wall Street executives who raked in millions of dollars in bonuses by pursuing risky investment strategies that now have helped push the U.S. financial system to the brink.
Paulson said companies which sell stock to the government will be required to accept restrictions on executive compensation including a ban on golden parachutes for the period in which Treasury holds the banks' stock.
Worried about the slumping U.S. economy only three weeks from the elections, House Republicans and Democrats on Monday pushed for fresh action to prevent a serious downturn. Democrats scheduled hearings to consider a postelection stimulus package that could cost as much as $150 billion. Republicans called for more tax cuts and energy exploration.
In a campaign speech in Ohio, Democratic presidential nominee Barack Obama proposed a 90-day moratorium on home foreclosures at some banks and a two-year tax break for businesses that create new jobs. His Republican opponent, John McCain, promised a change in direction from the Bush administration's economic policies.
Friday, October 10, 2008
Bush says anxiety feeding market instability
Friday October 10, 11:26 am ET By Terence Hunt, AP White House Correspondent
President Bush says public and investor anxiety making credit crisis more severe
WASHINGTON (AP) -- President Bush said Friday that the government's financial rescue plan was aggressive enough and big enough to work, but would take time to fully kick in. "We can solve this crisis and we will," he said in brief remarks from the White House Rose Garden.
Bush spoke as leaders of the world's top economies gathered in Washington amid frozen credit markets, panic selling in stock markets and a looming global recession.
The president noted that major Western countries were working together in an attempt to stabilize markets and end the spreading panic, including coordinated cuts in interest rates.
"Through these efforts, the world is sending an unmistakable signal. We're in this together and we'll come through this together," Bush said.
Finance ministers and central bankers from the Group of Seven -- the United States, Japan, Britain, Germany, France Italy and Canada -- were here for a weekend meeting. Bush plans to meet with the leaders on Saturday.
Bush said he understood how Americans could be concerned about their economic future. "That anxiety can feed anxiety and that can make it hard to see all that's being done to solve the problem," he said.
But despite a relentless sell-off that has seen the Dow Jones industrials plunge 20 percent in the past seven trading days, Bush said, "We are a prosperous nation with immense resources and a wide range of tools at our disposal."
The president said the new $700 billion rescue plan that he signed into law a week ago authorizes the Treasury Department to use a variety of measures to rebuild their balance sheets including "purchasing equity of financial institutions."
It was the first time the president has mentioned suggestions that the government buy shares of banks, although it has been mentioned by other administration officials.
Since the bailout package was signed into law, the conversation about how it will be used has shifted from taxpayers buying troubled mortgages to taxpayers buying troubled banks. Or at least pieces of them.
Such a move would amount to a partial nationalization of the U.S. banking industry, a move once considered unthinkable.
The government is authorized under the law to buy "troubled assets."
Those assets include mortgages, but according to the law, they may also include "any other financial instrument" that is "necessary to promote financial market stability ... ."
It is the government's position that this authority extends to bank stocks.
"The plan we are executing is aggressive. It is the right plan. It will take time to have its full impact. It is flexible enough to adapt as the situation changes. And it is big enough to work," Bush said.
He also noted that the Federal Reserve has injected hundreds of billions into the system and with other central banks has made interest-rate cuts that should help thaw frozen credit markets and enable loans to flow again.
Government insurance on bank and credit union deposit accounts has been raised to $250,000 and the Treasury is offering insurance for the first time for money-market funds, he added.
"The federal government has a comprehensive strategy and the tools necessary to address the challenges in our economy," Bush said.
While he sought to reassure Americans that the government is doing all it can, Bush also acknowledged mounting worry among people about their retirement and investment accounts.
Bush said his administration had launched initiatives that "have helped more than 2 million Americans stay in their homes."
He also noted "rigorous enforcement" steps taken by the Securities and Exchange Commission to make sure that some investors don't "take advantage of the crisis to illegally manipulate the stock market."
Stock market volatility continued, with the Dow Jones industrials falling nearly 700 points soon after trading began, regaining all of that deficit to show an advance and then turning lower again.
"Over the past few days," Bush said, "we have witnessed a startling drop in the stock market, much of it driven by uncertainty and fear. This has been a deeply unsettling period for the American people."
President Bush says public and investor anxiety making credit crisis more severe
WASHINGTON (AP) -- President Bush said Friday that the government's financial rescue plan was aggressive enough and big enough to work, but would take time to fully kick in. "We can solve this crisis and we will," he said in brief remarks from the White House Rose Garden.
Bush spoke as leaders of the world's top economies gathered in Washington amid frozen credit markets, panic selling in stock markets and a looming global recession.
The president noted that major Western countries were working together in an attempt to stabilize markets and end the spreading panic, including coordinated cuts in interest rates.
"Through these efforts, the world is sending an unmistakable signal. We're in this together and we'll come through this together," Bush said.
Finance ministers and central bankers from the Group of Seven -- the United States, Japan, Britain, Germany, France Italy and Canada -- were here for a weekend meeting. Bush plans to meet with the leaders on Saturday.
Bush said he understood how Americans could be concerned about their economic future. "That anxiety can feed anxiety and that can make it hard to see all that's being done to solve the problem," he said.
But despite a relentless sell-off that has seen the Dow Jones industrials plunge 20 percent in the past seven trading days, Bush said, "We are a prosperous nation with immense resources and a wide range of tools at our disposal."
The president said the new $700 billion rescue plan that he signed into law a week ago authorizes the Treasury Department to use a variety of measures to rebuild their balance sheets including "purchasing equity of financial institutions."
It was the first time the president has mentioned suggestions that the government buy shares of banks, although it has been mentioned by other administration officials.
Since the bailout package was signed into law, the conversation about how it will be used has shifted from taxpayers buying troubled mortgages to taxpayers buying troubled banks. Or at least pieces of them.
Such a move would amount to a partial nationalization of the U.S. banking industry, a move once considered unthinkable.
The government is authorized under the law to buy "troubled assets."
Those assets include mortgages, but according to the law, they may also include "any other financial instrument" that is "necessary to promote financial market stability ... ."
It is the government's position that this authority extends to bank stocks.
"The plan we are executing is aggressive. It is the right plan. It will take time to have its full impact. It is flexible enough to adapt as the situation changes. And it is big enough to work," Bush said.
He also noted that the Federal Reserve has injected hundreds of billions into the system and with other central banks has made interest-rate cuts that should help thaw frozen credit markets and enable loans to flow again.
Government insurance on bank and credit union deposit accounts has been raised to $250,000 and the Treasury is offering insurance for the first time for money-market funds, he added.
"The federal government has a comprehensive strategy and the tools necessary to address the challenges in our economy," Bush said.
While he sought to reassure Americans that the government is doing all it can, Bush also acknowledged mounting worry among people about their retirement and investment accounts.
Bush said his administration had launched initiatives that "have helped more than 2 million Americans stay in their homes."
He also noted "rigorous enforcement" steps taken by the Securities and Exchange Commission to make sure that some investors don't "take advantage of the crisis to illegally manipulate the stock market."
Stock market volatility continued, with the Dow Jones industrials falling nearly 700 points soon after trading began, regaining all of that deficit to show an advance and then turning lower again.
"Over the past few days," Bush said, "we have witnessed a startling drop in the stock market, much of it driven by uncertainty and fear. This has been a deeply unsettling period for the American people."
Japan to propose bailout fund at G-7
Friday October 10, 3:33 am ET By Yuri Kageyama, AP Business Writer
Japan to propose international bailout fund at G-7 meeting
TOKYO (AP) -- Japan is set to propose to the world's leading industrialized nations that a joint fund be set up to give emergency loans to nations hit by the growing financial crisis, the finance minister said Friday.
Japanese Finance Minister Shoichi Nakagawa said he is set to make the proposal at the Group of Seven meeting of finance and central bank officials that he is attending in Washington.
"Japan would like to see what it can do to work with other countries to ensure ample capital supply," he said on nationally televised NHK news.
He did not give details of the plan. But he said Japan's experience in dealing with its bad debt crisis in the 1990s may offer lessons for the other G-7 nations.
He said he hopes to tell others how Japan injected public money into banks at that time to bolster their capital after the so-called bubble economy of soaring land and stock prices burst and banks got stuck with mountains of bad debt.
His comments come at a time when Washington, which is implementing a $700 billion bailout, mainly to buy bad mortgages and mortgage-related securities from banks and financial institutions, may also need to inject capital in them and take partial ownership.
Britain is moving to pour cash into troubled banks in exchange for stakes in them -- a partial nationalization. In Iceland, the government now has control of all three of the country's major banks as it struggles to contain the troubles there.
Japan's proposal will call for setting up a cooperative scheme through the International Monetary Fund to dole out emergency lending to nations whose financial systems run out of cash, The Nikkei, Japan's top business daily, reported in its Friday's editions, without citing sources.
China and Middle Eastern nations will also be asked to contribute money to the fund, the report said, in an effort to prevent the further spread of the global fallout from the U.S. credit crisis.
Japan to propose international bailout fund at G-7 meeting
TOKYO (AP) -- Japan is set to propose to the world's leading industrialized nations that a joint fund be set up to give emergency loans to nations hit by the growing financial crisis, the finance minister said Friday.
Japanese Finance Minister Shoichi Nakagawa said he is set to make the proposal at the Group of Seven meeting of finance and central bank officials that he is attending in Washington.
"Japan would like to see what it can do to work with other countries to ensure ample capital supply," he said on nationally televised NHK news.
He did not give details of the plan. But he said Japan's experience in dealing with its bad debt crisis in the 1990s may offer lessons for the other G-7 nations.
He said he hopes to tell others how Japan injected public money into banks at that time to bolster their capital after the so-called bubble economy of soaring land and stock prices burst and banks got stuck with mountains of bad debt.
His comments come at a time when Washington, which is implementing a $700 billion bailout, mainly to buy bad mortgages and mortgage-related securities from banks and financial institutions, may also need to inject capital in them and take partial ownership.
Britain is moving to pour cash into troubled banks in exchange for stakes in them -- a partial nationalization. In Iceland, the government now has control of all three of the country's major banks as it struggles to contain the troubles there.
Japan's proposal will call for setting up a cooperative scheme through the International Monetary Fund to dole out emergency lending to nations whose financial systems run out of cash, The Nikkei, Japan's top business daily, reported in its Friday's editions, without citing sources.
China and Middle Eastern nations will also be asked to contribute money to the fund, the report said, in an effort to prevent the further spread of the global fallout from the U.S. credit crisis.
Monday, September 29, 2008
U.S.News & World Report
Monday September 29, 6:07 pm ET By Rick Newman
Bailout, Take II: What the Feds Do Next
OK, so that didn't work.
After a bunch of all-nighters in Washington and some premature back-slapping, we're right back where we were a couple of weeks ago, after Lehman Brothers declared bankruptcy and the government lent AIG $85 billion. There's no one-size-fits-all bailout plan, after all. That $700 billion in taxpayer money remains under lock and key. Glum investors are now the ones bailing out, fleeing stocks and bonds and seeking safer ground.
But there are still some levers the government can pull. Working through the mess just won't be as orderly or predictable as it would if there were a single plan and a big pot of money. Here's what's likely to happen next:
Another try at a big bailout plan. A lot of those constituents who have been calling Congress to complain about rescuing fat cats are going to rethink their indignation as they watch the stock markets--and their own portfolios--sink. Lawmakers who voted against the bailout plan are going to have to explain why they're letting the markets collapse. The more uncomfortable voters get, the more likely Congress will be to pass some kind of sweeping relief plan. This is far from over.
More piecemeal bailouts. Before the big $700 billion bailout plan even existed, the Fed and the Treasury Department were already patching leaks in the financial system--one trouble spot at a time. The idea behind an umbrella bailout plan was to overhaul the whole system, establishing public standards and treating every ailing company more or less the same, before a bunch of leaks became a gusher. That would have eliminated the guesswork over whether a struggling company meets the criteria for a rescue--like AIG--or falls short, like Lehman Brothers.
Now we're back to guessing. The feds still have the wherewithal to lend money, buy bad assets, or take other measures to keep ailing companies afloat. What they don't have is a single plan that applies to all companies and the authority to soak up vast amounts of bad assets. So those weekend meetings at the New York Fed, with supplicant CEOs pleading for help, are likely to continue.
More failed companies. Duke University finance Prof. Campbell Harvey predicts there could be 750 to 1,000 bank failures over the next six months because of billions in bad assets stemming from the housing meltdown. Scarce credit also threatens other types of companies that are already struggling and desperately need capital, such as the Detroit automakers and some of the airlines. The government will be able to deal with some of those companies one at a time, but without a comprehensive plan, others will fall through the cracks.
Manic markets. Investors were hoping that a big bailout plan would offer some predictability about how the government will deal with struggling companies. Their crystal ball is once again very dark. That means wild swings in stock prices as big investors try to get out of the market ahead of bad news, and get back in if it looks like the feds will ride to the rescue. One of the most volatile sectors is likely to be regional bank stocks as investors worry that banks like Sovereign Bancorp and National City might be the next to fail.
Patchwork regulation. There's already a system in place for dealing with failed banks--led by the FDIC--but that may not be enough to handle the damage that's unfolding. Even without a big bailout bill, Congress may have to set up a new agency to deal with dozens or hundreds of bank failures, one similar to the Resolution Trust Corp. formed in the late 1980s. We could see a whole slew of lesser regulations, too, like restrictions on certain lending practices and higher federal coverage limits on bank deposits.
Continued government intervention. The Federal Reserve continues to pump huge sums of money into the global banking system in a desperate effort to prompt banks to loosen their grip on loans to companies, consumers, and one another. For now, that seems to be having little effect as banks absorb the startling news from Washington and hunker down. That may lead the Fed to pump out even more money and take other important steps, like cutting interest rates. Sooner or later, that will probably help loosen things up. Until then, however, it's apparently up to the markets to fix themselves. Plan accordingly.
Bailout, Take II: What the Feds Do Next
OK, so that didn't work.
After a bunch of all-nighters in Washington and some premature back-slapping, we're right back where we were a couple of weeks ago, after Lehman Brothers declared bankruptcy and the government lent AIG $85 billion. There's no one-size-fits-all bailout plan, after all. That $700 billion in taxpayer money remains under lock and key. Glum investors are now the ones bailing out, fleeing stocks and bonds and seeking safer ground.
But there are still some levers the government can pull. Working through the mess just won't be as orderly or predictable as it would if there were a single plan and a big pot of money. Here's what's likely to happen next:
Another try at a big bailout plan. A lot of those constituents who have been calling Congress to complain about rescuing fat cats are going to rethink their indignation as they watch the stock markets--and their own portfolios--sink. Lawmakers who voted against the bailout plan are going to have to explain why they're letting the markets collapse. The more uncomfortable voters get, the more likely Congress will be to pass some kind of sweeping relief plan. This is far from over.
More piecemeal bailouts. Before the big $700 billion bailout plan even existed, the Fed and the Treasury Department were already patching leaks in the financial system--one trouble spot at a time. The idea behind an umbrella bailout plan was to overhaul the whole system, establishing public standards and treating every ailing company more or less the same, before a bunch of leaks became a gusher. That would have eliminated the guesswork over whether a struggling company meets the criteria for a rescue--like AIG--or falls short, like Lehman Brothers.
Now we're back to guessing. The feds still have the wherewithal to lend money, buy bad assets, or take other measures to keep ailing companies afloat. What they don't have is a single plan that applies to all companies and the authority to soak up vast amounts of bad assets. So those weekend meetings at the New York Fed, with supplicant CEOs pleading for help, are likely to continue.
More failed companies. Duke University finance Prof. Campbell Harvey predicts there could be 750 to 1,000 bank failures over the next six months because of billions in bad assets stemming from the housing meltdown. Scarce credit also threatens other types of companies that are already struggling and desperately need capital, such as the Detroit automakers and some of the airlines. The government will be able to deal with some of those companies one at a time, but without a comprehensive plan, others will fall through the cracks.
Manic markets. Investors were hoping that a big bailout plan would offer some predictability about how the government will deal with struggling companies. Their crystal ball is once again very dark. That means wild swings in stock prices as big investors try to get out of the market ahead of bad news, and get back in if it looks like the feds will ride to the rescue. One of the most volatile sectors is likely to be regional bank stocks as investors worry that banks like Sovereign Bancorp and National City might be the next to fail.
Patchwork regulation. There's already a system in place for dealing with failed banks--led by the FDIC--but that may not be enough to handle the damage that's unfolding. Even without a big bailout bill, Congress may have to set up a new agency to deal with dozens or hundreds of bank failures, one similar to the Resolution Trust Corp. formed in the late 1980s. We could see a whole slew of lesser regulations, too, like restrictions on certain lending practices and higher federal coverage limits on bank deposits.
Continued government intervention. The Federal Reserve continues to pump huge sums of money into the global banking system in a desperate effort to prompt banks to loosen their grip on loans to companies, consumers, and one another. For now, that seems to be having little effect as banks absorb the startling news from Washington and hunker down. That may lead the Fed to pump out even more money and take other important steps, like cutting interest rates. Sooner or later, that will probably help loosen things up. Until then, however, it's apparently up to the markets to fix themselves. Plan accordingly.
House rejects $700B bailout in stunning defeat
Monday September 29, 10:06 pm ET By Julie Hirschfeld Davis, Associated Press Writer
House rejects $700B bailout in stunning defeat, driving stocks down; Treasury vows more work
WASHINGTON (AP) -- In a vote that shook the government, Wall Street and markets around the world, the House on Monday defeated a $700 billion emergency rescue for the nation's financial system, leaving both parties' lawmakers and the Bush administration scrambling to pick up the pieces. Dismayed investors sent the Dow Jones industrials plunging 777 points, the most ever for a single day.
"We need to put something back together that works," a grim-faced Treasury Secretary Henry Paulson said after he and Federal Reserve Chairman Ben Bernanke joined in an emergency strategy session at the White House. On Capitol Hill, Democratic leaders said the House would reconvene Thursday, leaving open the possibility that it could salvage a reworked version.
Senate leaders showed no inclination to try to bring the measure to a vote before they could determine its fate in the House. President Bush, meanwhile, was scheduled to make a statement on the rescue plan Tuesday morning, the White House said.
All sides agreed the effort to bolster beleaguered financial markets, potentially the biggest government intervention since the Great Depression, could not be abandoned.
But in a remarkable display on Monday, a majority of House members slapped aside the best version their leaders and the administration had been able to come up with, bucking presidential speeches, pleading visits from Paulson and Federal Reserve Chairman Ben Bernanke and urgent warnings that the economy could nosedive without the legislation.
In the face of thousands of phone calls and e-mails fiercely opposing the measure, many lawmakers were not willing to take the political risk of voting for it just five weeks before the elections.
The bill went down, 228-205.
The House Web site was overwhelmed as millions of people sought information about the measure through the day.
The legislation the administration promoted would have allowed the government to buy bad mortgages and other sour assets held by troubled banks and other financial institutions. Getting those debts off their books should bolster those companies' balance sheets, making them more inclined to lend and ease one of the biggest choke points in a national credit crisis. If the plan worked, the thinking went, it would help lift a major weight off the national economy, which is already sputtering.
Hoping to pick up enough GOP votes for the next try, Republicans floated several ideas. One would double the $100,000 ceiling on federal deposit insurance. Another would end rules that require companies to devalue assets on their books to reflect the price they could get in the market.
In the meantime, Paulson said he would work with other regulators "to use all the tools available to protect our financial system and our economy."
"Our tool kit is substantial but insufficient," he said, indicating the government intended to continue piecemeal fixes while pressing Congress for broader action.
Stocks started plummeting on Wall Street even before Monday's vote was over, as traders watched the rescue measure going down on television. Meanwhile, lawmakers were watching them back.
As a digital screen in the House chamber recorded a cascade of "no" votes against the bailout, Democratic Rep. Joe Crowley of New York shouted news of the falling Dow Jones industrials. "Six hundred points!" he yelled, jabbing his thumb downward.
The final stock carnage far surpassed the 684-point drop on the first trading day after the Sept. 11, 2001, terror attacks.
In the House, "no" votes came from both the Democratic and Republican sides of the aisle. More than two-thirds of Republicans and 40 percent of Democrats opposed the bill. Several Democrats in close election fights waited until the last moment, then went against the bill as it became clear the vast majority of Republicans were opposing it.
Thirteen of the 19 most vulnerable Republicans and Democrats in an Associated Press analysis voted against the bill despite the pleas from Bush and their party leaders to pass it.
In all, 65 Republicans joined 140 Democrats in voting "yes," while 133 Republicans and 95 Democrats voted "no."
The overriding question was what to do next.
"The legislation may have failed; the crisis is still with us," said House Speaker Nancy Pelosi, D-Calif., in a news conference after the defeat. "What happened today cannot stand."
Republican leader John Boehner, R-Ohio, the minority leader, said he and other Republicans were pained to back the measure, but in light of the potential consequences for the economy and all Americans, "We need to renew our efforts to find a solution that Congress can support."
Sen. Chris Dodd, D-Conn., said there was scant time to reopen legislation that was the product of hard-fought bipartisan negotiations.
"What happened today was not a failure of a bill, it was a failure of will," said Dodd, the Banking Committee chairman. "Our hope is that cooler heads will prevail, people will think about what they did today and recognize that this is not just scare tactics -- it's reality."
A brutal round of partisan finger-pointing followed the vote.
Republicans blamed Pelosi's scathing speech near the close of the debate -- which assailed Bush's economic policies and a "right-wing ideology of anything goes, no supervision, no discipline, no regulation" of financial markets -- for the defeat. It was not much different from her usual tough words against the president and his party.
"We could have gotten there today had it not been for the partisan speech that the speaker gave on the floor of the House," Boehner said.
Rep. Roy Blunt, R-Mo., the whip, estimated that Pelosi's speech changed the minds of a dozen Republicans who might otherwise have supported the plan.
That amounted to an appalling accusation by Republicans against Republicans, said Rep. Barney Frank, D-Mass., chairman of the Financial Services Committee: "Because somebody hurt their feelings, they decide to punish the country."
More than a repudiation of Democrats, Frank said, Republicans' refusal to vote for the bailout was a rejection of their own president.
Indeed, many GOP lawmakers spurned Bush's urgent calls for action. "We have a gun to our head," said Rep. Ginny Brown-Waite, R-Fla., who opposed the bill. "This isn't legislation -- it's extortion."
The two men campaigning to replace Bush watched the situation closely -- from afar -- and demanded action.
In Iowa, Republican John McCain said his rival Barack Obama and congressional Democrats "infused unnecessary partisanship into the process. Now is not the time to fix the blame; it's time to fix the problem."
Obama said, "Democrats, Republicans, step up to the plate, get it done."
Lawmakers were under extraordinary pressure from powerful outside groups, which gave notice they considered the legislation a "key vote" -- one they would consider when rating members of Congress.
The U.S. Chamber of Commerce said opponents of the bailout would pay for their stance.
"Make no mistake: When the aftermath of congressional inaction becomes clear, Americans will not tolerate those who stood by and let the calamity happen," said R. Bruce Josten, the Chamber's top lobbyist, in a letter to members.
The conservative Club for Growth made a similar threat to supporters of the bailout.
"We're all worried about losing our jobs," Rep. Paul Ryan, R-Wis., declared in an impassioned speech in support of the bill before the vote. "Most of us say, 'I want this thing to pass, but I want you to vote for it -- not me.'"
"We're in this moment, and if we fail to do the right thing, Heaven help us," he said.
If Congress doesn't come around on a bailout, more pressure would fall on the Federal Reserve.
The Fed, which has been providing billions in short-term loans to squeezed banks to help them overcome credit stresses, could keep expanding those loans to encourage lending. And, it could keep working with other central banks to inject billions into financial markets overseas.
It also has the power to expand emergency lending to other types of companies and even to individuals if they are unable to secure adequate credit.
Associated Press writers Jeannine Aversa, Jim Abrams and Andrew Taylor contributed to this report.
House rejects $700B bailout in stunning defeat, driving stocks down; Treasury vows more work
WASHINGTON (AP) -- In a vote that shook the government, Wall Street and markets around the world, the House on Monday defeated a $700 billion emergency rescue for the nation's financial system, leaving both parties' lawmakers and the Bush administration scrambling to pick up the pieces. Dismayed investors sent the Dow Jones industrials plunging 777 points, the most ever for a single day.
"We need to put something back together that works," a grim-faced Treasury Secretary Henry Paulson said after he and Federal Reserve Chairman Ben Bernanke joined in an emergency strategy session at the White House. On Capitol Hill, Democratic leaders said the House would reconvene Thursday, leaving open the possibility that it could salvage a reworked version.
Senate leaders showed no inclination to try to bring the measure to a vote before they could determine its fate in the House. President Bush, meanwhile, was scheduled to make a statement on the rescue plan Tuesday morning, the White House said.
All sides agreed the effort to bolster beleaguered financial markets, potentially the biggest government intervention since the Great Depression, could not be abandoned.
But in a remarkable display on Monday, a majority of House members slapped aside the best version their leaders and the administration had been able to come up with, bucking presidential speeches, pleading visits from Paulson and Federal Reserve Chairman Ben Bernanke and urgent warnings that the economy could nosedive without the legislation.
In the face of thousands of phone calls and e-mails fiercely opposing the measure, many lawmakers were not willing to take the political risk of voting for it just five weeks before the elections.
The bill went down, 228-205.
The House Web site was overwhelmed as millions of people sought information about the measure through the day.
The legislation the administration promoted would have allowed the government to buy bad mortgages and other sour assets held by troubled banks and other financial institutions. Getting those debts off their books should bolster those companies' balance sheets, making them more inclined to lend and ease one of the biggest choke points in a national credit crisis. If the plan worked, the thinking went, it would help lift a major weight off the national economy, which is already sputtering.
Hoping to pick up enough GOP votes for the next try, Republicans floated several ideas. One would double the $100,000 ceiling on federal deposit insurance. Another would end rules that require companies to devalue assets on their books to reflect the price they could get in the market.
In the meantime, Paulson said he would work with other regulators "to use all the tools available to protect our financial system and our economy."
"Our tool kit is substantial but insufficient," he said, indicating the government intended to continue piecemeal fixes while pressing Congress for broader action.
Stocks started plummeting on Wall Street even before Monday's vote was over, as traders watched the rescue measure going down on television. Meanwhile, lawmakers were watching them back.
As a digital screen in the House chamber recorded a cascade of "no" votes against the bailout, Democratic Rep. Joe Crowley of New York shouted news of the falling Dow Jones industrials. "Six hundred points!" he yelled, jabbing his thumb downward.
The final stock carnage far surpassed the 684-point drop on the first trading day after the Sept. 11, 2001, terror attacks.
In the House, "no" votes came from both the Democratic and Republican sides of the aisle. More than two-thirds of Republicans and 40 percent of Democrats opposed the bill. Several Democrats in close election fights waited until the last moment, then went against the bill as it became clear the vast majority of Republicans were opposing it.
Thirteen of the 19 most vulnerable Republicans and Democrats in an Associated Press analysis voted against the bill despite the pleas from Bush and their party leaders to pass it.
In all, 65 Republicans joined 140 Democrats in voting "yes," while 133 Republicans and 95 Democrats voted "no."
The overriding question was what to do next.
"The legislation may have failed; the crisis is still with us," said House Speaker Nancy Pelosi, D-Calif., in a news conference after the defeat. "What happened today cannot stand."
Republican leader John Boehner, R-Ohio, the minority leader, said he and other Republicans were pained to back the measure, but in light of the potential consequences for the economy and all Americans, "We need to renew our efforts to find a solution that Congress can support."
Sen. Chris Dodd, D-Conn., said there was scant time to reopen legislation that was the product of hard-fought bipartisan negotiations.
"What happened today was not a failure of a bill, it was a failure of will," said Dodd, the Banking Committee chairman. "Our hope is that cooler heads will prevail, people will think about what they did today and recognize that this is not just scare tactics -- it's reality."
A brutal round of partisan finger-pointing followed the vote.
Republicans blamed Pelosi's scathing speech near the close of the debate -- which assailed Bush's economic policies and a "right-wing ideology of anything goes, no supervision, no discipline, no regulation" of financial markets -- for the defeat. It was not much different from her usual tough words against the president and his party.
"We could have gotten there today had it not been for the partisan speech that the speaker gave on the floor of the House," Boehner said.
Rep. Roy Blunt, R-Mo., the whip, estimated that Pelosi's speech changed the minds of a dozen Republicans who might otherwise have supported the plan.
That amounted to an appalling accusation by Republicans against Republicans, said Rep. Barney Frank, D-Mass., chairman of the Financial Services Committee: "Because somebody hurt their feelings, they decide to punish the country."
More than a repudiation of Democrats, Frank said, Republicans' refusal to vote for the bailout was a rejection of their own president.
Indeed, many GOP lawmakers spurned Bush's urgent calls for action. "We have a gun to our head," said Rep. Ginny Brown-Waite, R-Fla., who opposed the bill. "This isn't legislation -- it's extortion."
The two men campaigning to replace Bush watched the situation closely -- from afar -- and demanded action.
In Iowa, Republican John McCain said his rival Barack Obama and congressional Democrats "infused unnecessary partisanship into the process. Now is not the time to fix the blame; it's time to fix the problem."
Obama said, "Democrats, Republicans, step up to the plate, get it done."
Lawmakers were under extraordinary pressure from powerful outside groups, which gave notice they considered the legislation a "key vote" -- one they would consider when rating members of Congress.
The U.S. Chamber of Commerce said opponents of the bailout would pay for their stance.
"Make no mistake: When the aftermath of congressional inaction becomes clear, Americans will not tolerate those who stood by and let the calamity happen," said R. Bruce Josten, the Chamber's top lobbyist, in a letter to members.
The conservative Club for Growth made a similar threat to supporters of the bailout.
"We're all worried about losing our jobs," Rep. Paul Ryan, R-Wis., declared in an impassioned speech in support of the bill before the vote. "Most of us say, 'I want this thing to pass, but I want you to vote for it -- not me.'"
"We're in this moment, and if we fail to do the right thing, Heaven help us," he said.
If Congress doesn't come around on a bailout, more pressure would fall on the Federal Reserve.
The Fed, which has been providing billions in short-term loans to squeezed banks to help them overcome credit stresses, could keep expanding those loans to encourage lending. And, it could keep working with other central banks to inject billions into financial markets overseas.
It also has the power to expand emergency lending to other types of companies and even to individuals if they are unable to secure adequate credit.
Associated Press writers Jeannine Aversa, Jim Abrams and Andrew Taylor contributed to this report.
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