Coming up

Don't miss




No strategy and a beige suit

Read more


The World This Week - 29 August 2014 (part 2)

Read more


The World This Week - 29 August 2014

Read more


Alain Choquette: A Hilarious Magician in Paris

Read more


France welcomes Iraqi Christian refugees

Read more


Emmanuel Macron: A new economy minister with a pro-business agenda

Read more


More of this year's best Observers stories

Read more

#TECH 24

Changing the world, one video game at a time

Read more


Socialist Party summer conference kicks off in explosive atmosphere

Read more

  • Exclusive: Fabius warns of further sanctions against Russia

    Read more

  • EU leaders meet in Brussels to seek a response to Russia

    Read more

  • IMF stands behind Lagarde amid French corruption probe

    Read more

  • Experimental Ebola drug ‘ZMapp’ heals all monkeys in study

    Read more

  • British killer escapes from French psychiatric hospital

    Read more

  • Ukraine to relaunch NATO membership bid

    Read more

  • Police hunt for British boy with brain tumour taken to France

    Read more

  • Suriname leader’s son pleads guilty to courting Hezbollah

    Read more

  • Mapping Ukraine: Canada and Russia in ‘tweet for tat’ row

    Read more

  • France shines in IMF list of world’s promising economists

    Read more

  • Chelsea’s Torres set for AC Milan switch

    Read more

  • First case of Ebola confirmed in Senegal

    Read more

  • West backs Ukrainian claims of Russian incursion

    Read more

  • Obama has 'no strategy yet' against IS militants in Syria

    Read more

  • Netflix to woo French with ‘House of Cards’ set in Marseille

    Read more

  • French businesses ‘hoping for a new Thatcher’

    Read more

  • The deleted tweets of Manuel Valls

    Read more

  • Libyan PM resigns as Islamists set up rival administration

    Read more

  • Syrian refugees surpass 3 million, UN says

    Read more

  • UN says 43 peacekeepers captured in Golan Heights

    Read more

  • Peru seizes record 6.5 tonnes of Europe-bound cocaine

    Read more

Focus shifts to fallout after US adopts bailout plan

Latest update : 2008-10-04

Investors remain anxious following the adoption of the Paulson bailout plan by the US Senate and House of Representatives. Despite the $700 billion financial rescue package, confidence in US markets remains severely shaken.

The U.S. government enacted a landmark $700 billion bank bailout on Friday, but investors questioned whether it could contain a panic that began on Wall Street and spread to become a global financial crisis.

The U.S. House of Representatives approved the rescue plan by a vote of 263-171 on Friday. That sent the measure to President George W. Bush, who quickly signed it into law, concluding two weeks of high-stakes haggling over the plan that had roiled and captivated global markets.

Markets pivoted on passage of the U.S. bailout, as investors' attention turned to signs of a gathering recession.

Stocks, which had been higher before the vote, dropped, with the S&P 500 index closing at its lowest level in almost four years. The dollar was also in retreat.

"This probably comes a bit too late. If this had been done earlier, it probably would have had a much bigger impact in restoring confidence," said Anna Piretti, economist at BNP Paribas in New York.

U.S. Treasury Secretary Henry Paulson, who had been the administration's chief lobbyist for the plan, said he would move quickly to buy up distressed assets from banks.

"We have shown the world that the United States of America will stabilize our financial markets and maintain a leading role in the global economy," Bush said in a short statement delivered before cameras outside the White House.

Analysts cautioned it was still unclear whether the U.S. plan would work as advertised.

"There are more questions than answers out there still," said David Kelly, chief market strategist of JPMorgan Asset Management. "Even if the banks do participate, how willing will they be to make new loans into the economy if they can get rid of the bad ones?"

The U.S. government has run up a bill of $1 trillion in recent weeks as it rushed to stabilize its banks, including the seizures of Fannie Mae and Freddie Mac. That cost is equal to over 7 percent of the world's largest economy.

Earlier on Friday, the hobbled financial sector was bolstered as Wells Fargo & Co stepped in to buy Wachovia Corp in a deal that would take the place of a shotgun merger with Citigroup Inc brokered by U.S. banking regulators.

But in signs of the spreading crisis, California said it was running out of money, France said the world stood on the "edge of the abyss" and European leaders divided over their response to the banking sector's difficulties.


The House had shocked world markets on Monday by rejecting a previous draft. With elections a month away, lawmakers from both parties were wary of voter backlash in asking taxpayers to pay for Wall Street's mistakes.

Earlier on Friday, the United States reported its biggest monthly job loss in 5-1/2 years, more evidence of an approaching recession. Data showed the U.S. services sector holding up.

Speaker after speaker from both parties on the House floor said rejecting the bailout a second time could have devastating consequences for an already slowing U.S. economy.

"While the focus has been on the Dow Jones and Wall Street, we are addressing the real pain felt by Mr. and Mrs. Jones on Main Street," said House Speaker Nancy Pelosi, a California Democrat.

 The credit crisis and its threat to the economy have dominated the U.S. presidential election. Both Republican John McCain and Democrat Barack Obama supported the bailout and welcomed its passage.

"I'm glad to see we've finally got this thing dealt with," Obama said while campaigning in Pennsylvania. "The No. 1 thing is that the administration uses this authority wisely."

McCain said it was "an outrage" that the crisis had reached the point of demanding an emergency response from lawmakers.

"Our economy is still hurting, hurting badly," he said in Arizona. "Further action is needed and it shouldn't take a crisis to get this country to act."

Meanwhile, the nation's most populous state warned it could need to fall back federal loans because it has been shut out of credit markets. California, with an economy on par with Spain's, cautioned it could run out of cash by the end of the month, bringing services to a grinding halt.

 A collapse in the U.S. housing market and resulting bad mortgages have shattered confidence in the financial sector, with banks across the United States and Europe needing support from governments or outside investors this week.

Interbank lending and credit to businesses and private individuals has all but seized up. Central banks have injected billions of dollars to maintain some flow of funds.


French Prime Minister Francois Fillon, whose country is hosting an emergency summit with Italian, British and German leaders on Saturday, said only collective action could solve the financial crisis. He said he would not rule out any solution to stop any bank failing.

"The world is on the edge of the abyss because of an irresponsible system," Fillon said, alluding to widespread anger over past lax regulation and excessive lending.

Fillon said President Nicolas Sarkozy would propose at the emergency meeting measures to unfreeze credit and coordinate economic and monetary strategies.

In Britain, Prime Minister Gordon Brown shook up his cabinet and authorities took three separate steps to try to shore up the financial system.

Bad news mounted in the European financial sector.

Dutch-Belgian banking and insurance giant Fortis was broken up on national lines, with the Dutch government taking over its operations in the Netherlands, after an earlier rescue effort and asset sale failed.

In Switzerland, UBS AG, hardest hit among European banks by its exposure to subprime holdings, said it would cut 2,000 investment banking jobs.

Divisions have emerged within Europe over the past week, with Ireland offering guarantees on bank deposits, prompting a flight of capital from British lenders to Irish banks.

EU partners said Ireland's move could break competition rules and threatened the unity necessary to ensure an ordered approach to turmoil ahead.

Date created : 2008-10-04