After the US Senate adopted a $700 billion bailout of the financial industry, European markets rose in early trading on Thursday. Asian stocks fell Wednesday after the news.
Watch our Top Story, "Bailout on the ropes", our Face-Off show, "No bailout, no way out?", and the France 24 Debate, "Crisis strikes Europe".
Read Douglas Herbert's commentary and our coverage of the effects of the crisis on French banks.
Find out more about the origins of the greatest financial crisis in decades and watch Professor Gerardo Della Paolera explain how we got there.
Read "How to spend $700 billion".
HONG KONG/LONDON, Oct 2 (Reuters) - The U.S. Senate endorsed
a revised $700 billion plan to tackle a financial crisis that
has drawn warnings of approaching economic catastrophe, leaving
the House of Representatives to decide its fate.
The House rocked global markets this week by rejecting an
earlier version. President George W. Bush, speaking after
Wednesday night's 74-25 Senate vote, called the bailout
"essential to the financial security of every American".
French President Nicolas Sarkozy will host a meeting of the
leaders of Britain, Italy, Germany and the European Central Bank
on Saturday to discuss their response to the financial crisis.
France and Germany have clashed over the idea of a
U.S.-style financial rescue fund for Europe amid further signs
of contagion from the global credit crisis.
A collapse in the U.S. housing market which spread to major
financial institutions has reverberated beyond American shores,
most recently hitting European banks, spurring the moves to
formulate a similar support plan.
U.S. figures showing falling factory output and plunging car
sales added to evidence the crisis is spreading now to the "real
economy", threatening industry, smaller businesses and jobs.
The bailout plan, equivalent to some $2,300 per American, is
intended to reinvigorate credit markets and interbank lending
that has frozen up while overleveraged financial institutions
staggered under the weight of failed mortgages. It has stirred
fierce criticism from those who see it as help for a Wall Street
guilty of taking reckless risks in pursuit of short-term profit.
Under the deal, the Treasury would take on illiquid assets
held by banks, in the hope of restoring confidence and
unfreezing credit markets vital to the wider economy.
Market participants warned that the rescue package is not a
cure-all, with a worsening economic outlook spurring calls for
central banks to cut interest rates.
"Even if the bill is passed, worries remain over the global
economic outlook so financial markets are unlikely to
stabilize," said Masamichi Adachi, senior economist at JPMorgan
"It's a completely different world now. All the things U.S.
authorities are doing now are simply aimed at preventing a
Asian stocks drifted lower despite the vote, on recession
fears. The FTSEurofirst 300 index of
top European shares rose 1.5 percent in morning trade.
Interbank lending rates, a gauge of general confidence
within the banking system, remained high, reflecting continued
uncertainty despite the Senate vote and large injections of cash
by central banks.
President Bush, his personal authority eroded by the
approaching end of his term in office, praised Senate passage of
the package and urged the House to quickly do the same when it
votes, probably on Friday.
"With the improvements the Senate has made, I believe
members of both parties in the House can support this
legislation," Bush said in a written statement.
HOUSE PASSAGE SEEN MORE LIKELY
Senate leaders hope that sweetening the plan with a tax cut
and extended federal protection for bank deposits can turn "no"
voters in the House into supporters. On Monday, the House
rejected the previous version of the plan by a 228-205 vote.
"It's still uncertain. I think it is likelier to pass than
before," House Financial Services Committee Chairman Barney
Frank said in an interview on CNN.
"The main change is reality. I think that it's not possible
now to scoff at the predictions of doom if we don't do
anything," the Massachusetts Democrat added.
Many Americans resent the idea that Wall Street is being
"bailed out" at taxpayer expense, and have made their views
clear in emails and calls to Washington, putting pressure in
particular on vulnerable members of the House.
The crisis has become the biggest issue in forthcoming U.S.
elections. Both presidential candidates, Republican Sen. John
McCain and Democratic Sen. Barack Obama, voted for the package.
Obama, echoing Republican Bush's warnings, said the bailout was
vital to 'prevent a crisis turning into a catastrophe'.
All 435 House seats will be contested in the election on
Nov. 4, as opposed to 35 seats up for grabs in the Senate.
Switzerland's UBS AG, which has written off more than any
other European bank this year because of exposure to U.S.
'toxic' assets, offered some good news for markets, announcing
it would make a small profit in the third quarter.
But Britain's Nationwide building society said house prices
in August were 12.4 percent lower than a year earlier, their
highest annual drop since records began in 1991. The country's
biggest retail chain Marks and Spencer posted a 6 percent drop
in second-quarter core sales and said it was cutting investment.
Treasury Secretary Henry Paulson, whose original three-page
proposal grew to hundreds of pages when Congress got involved,
urged the House to act swiftly to ratify it.
Should the House uphold the bill, it would go to the White
House for signature into law by President Bush.
"This sends a positive signal that we stand ready to protect
the U.S. economy by making sure that Americans have access to
the credit that is needed to create jobs and keep businesses
going," Paulson said.
Stocks in Tokyo dropped 1.9 percent on Thursday, while
MSCI's share index for the rest of Asia lost 1.2 percent. Oil
gained $1 a barrel.
"If the massive expansion of the Fed's balance sheet and
other CB (central bank) liquidity injections cannot do the trick
then coordinated global rate cuts becomes likely and necessary,"
Michael Hartnett, chief emerging markets equity strategist at
Merrill Lynch, wrote in a note.
The tally for all the various rescue measures launched by
U.S. authorities this year runs to about $1.8 trillion -- more
than the total economic output of both Canada and Spain last
Date created : 2008-10-02