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WASHINGTON, D.C.: The US Congress’ rejection of a
$700-billion financial bailout sent shockwaves around the world
Tuesday hitting European banks, putting global markets into a new
spin and policymakers on the edge of despair.
As governments struggled to save
French-Belgian bank Dexia and markets again swung wildly, leaders
around the world expressed alarm at events in Washington and on
international markets.
British Prime Minister Gordon
Brown said he had sent a message to the White House to underline
“the importance that we attach to taking decisive action.”
New Japanese Premier Taro Aso
said: “We should not let the world financial system collapse.”
Australian Prime Minister Kevin
Rudd said he and other US allies would press Washington to take
action after what he called the “bad development” of the vote in
the US House of Representatives.
Treasury Secretary Henry Paulson
warned US lawmakers they had to act fast after his plan was
dramatically rejected by the House of Representatives on Monday.
“Markets around the world are
under stress,” said Paulson, architect of the proposal under which
the US government would buy up to $700 billion of bad
mortgage-related assets from banks, wiping dodgy debts from their
balance sheets to free them up to start lending again.
“We need to get something
done,” he added. “This is much too important to simply let
fail.”
Paulson and other top US
officials were summoned to the White House after the House voted
228-205 against the plan.
Many lawmakers blamed the looming
presidential election on November 4 for the failure of the plan that
has proved unpopular with the public. David Obey, a Democrat from
Wisconsin state, said, “Evidently some of those guys would rather
lose an economy than lose an election.”
Euro slides
In the fallout, French-Belgian
bank Dexia was rescued with injections totaling 6.4 billion euros
($9.2 billion) from governments in France, Belgium and Luxembourg,
the three countries that saved the giant Fortis bank over the
weekend.
French President Nicolas Sarkozy
held a pre-dawn crisis meeting with his economic team Tuesday. A
senior official in Sarkozy’s office said: “Banks are in trouble
in Germany, Belgium and Great Britain. We feel a bit surrounded.”
The euro fell again, to $1.4392
in Tokyo from $1.4432 because “credit worries are deepening over
the European financial system,” said Saburo Matsumoto at Sumitomo
Trust Bank.
“The euro may fall further,”
he said. “We fear the credit worries may spread into emerging
economies.”
Officials and commentators used
the language of disaster to describe the possible impact of further
delay in US action on the world economy and especially the global
interbank lending system.
Ensuring liquidity
Central banks again pumped out
huge sums to keep global banking liquid with the European Central
Bank renewing one-day loans of $30 billion and the Japanese central
bank injecting $28.8 billion.
France and Ireland reassured
people with deposits in banks that their money was safe, echoing
similar statements across Europe.
Japan’s economic ministers
voiced hope the United States would take action to halt the Wall
Street meltdown. The rejection “has a significant impact on not
only the US economy but the world economy,” said Kaoru Yosano, the
minister for economic and fiscal policy.
There was speculation the
world’s top central banks may choose coordinated interest-rate
cuts to try to prevent credit flows drying up.
London stocks fell sharply in
initial trading but later rallied for a gain of 0.27 percent,
Frankfurt was down 0.81 percent and Paris 0.52 percent and heavy
falls across Asia with a 4.1-percent drop in Tokyo, except in Hong
Kong where there was a closing rise of 0.8 percent.
The price of oil dropped another
$2 in London, after shedding 10 percent Monday, to $93.95 a barrel
on prospects that the crisis will hit global growth.
Not planned
“The failure of Congress to
approve on Monday the [bailout] plan was not in the script . . . the
markets, particularly equities, have not taken it too well,” said
Standard Chartered chief economist Gerard Lyons.
Hiroichi Nishi, equities chief at
Nikko Cordial Securities in Tokyo, said: “The market is exploring
where the bottom is now.”
The rescue for French-Belgian
bank Dexia followed the weekend part nationalization of Fortis with
11.2 billion euros. British bank Bradford & Bingley was rescued
through part takeover by Spanish Santander and part nationalization.
The rescues were seen around the
world as danger signs the crisis is now biting deep in Europe and
threatens every part of the globe.
In New York, investment firm
executive Marc der Kinderen said that collapsing trust in US
financial institutions was potentially the most damaging aspect of
the crisis.
“There is absolutely no trust,
no faith in the system as a whole,” der Kinderen told Agence
France-Presse. “Banks are the infrastructure of finance, like a
highway system, and right now, every ramp to the highway system has
effectively been shut down.”
--AFP
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