Posted on 09/24/2008 4:49:12 PM PDT by DeaconBenjamin
Money markets seized up once more yesterday amid deepening uncertainty about whether the US Congress will approve the Bush administration’s $700bn financial rescue plan and whether revised proposals would restore confidence.
The flagging state of the markets compelled John McCain, the Republican candidate for president, to announce a suspension of his campaign, and to ask for a postponement of Friday night’s scheduled debate with Barack Obama, his Democratic opponent.
US money market funds sitting on thousands of billions of dollars in assets led the stampede to safety, buying short-term government debt, selling commercial paper and withdrawing funds from the interbank market. As a result, the rates that banks charge each other soared – while yields on Treasury bills plunged.
President George W. Bush scheduled a speech on Wednesday night on the financial crisis as officials struggled to address the mounting objections in Congress and beyond to the plan to buy toxic assets from banks.
The Bush administration has come under overwhelming pressure from both parties to include curbs on executive pay for assisted companies. It has signalled that it will accept more oversight of the programme than it had envisaged.
Ben Bernanke, Federal Reserve chairman, told Congress on Wednesday that he was “not advocating that the government intentionally overpay for these assets” and said turmoil in the markets could lead to greater economic pain. New data showed existing home prices suffered a record drop in August.
Money markets
“The intensification of financial stress in recent weeks, which will make lenders still more cautious about extending credit to households and business, could prove a significant further drag on growth,” he said.
Peter Orszag, head of the Congressional Budget Office, warned lawmakers of possible “chaos” if Congress did nothing, adding: “You would have a financial market meltdown that would cause very severe dislocations . . . maybe on the magnitude of the Great Depression.”
The flight to safety drove the yield on three-month Treasury bills below 0.5 per cent, down from 1.45 per cent just two days before. The benchmark three-month London Interbank Offered Rate jumped 26.5 basis points to 3.476 per cent. British banks have hoarded nearly £6bn with the Bank of England rather than lend it to each other .
“A confluence of fiscal pain has all hit at the same time,” said William O’Donnell, strategist at UBS, highlighting “the swirling uncertainty over the Treasury rescue package” as well as after-effects from the collapse of Lehman Brothers and a traditional repatriation of funds due to the Japanese half year.
Warren Buffett, chairman and chief executive of Berkshire Hathaway, said markets remained in a “dangerous situation” and linked his company’s decision to invest $5bn in Goldman Sachs, at least in part, to the prospect of government action. “I am, to some effect betting on the fact that the government will do the rational thing and act properly,” Mr Buffett told CNBC
Mr Orszag, of the non-partisan CBO, said it was “impossible” to assess the net cost of the rescue plan since the administration “would have the authority to purchase virtually any asset, at any price, and sell it at any future date” but added that the CBO expected the Treasury to “fully use” the $700bn authority.
Although Democratic and Republican leaders, including the party’s presidential nominees, have called for a bipartisan effort to address the financial crisis, they have all also expressed misgivings about the proposal.
I’ll write my check just after Gates and Buffett...
"We need to give away 700 billion dollars? I need to think about that. OK, I thought about it. Give it away."
NO BAILOUT!
“The Bush administration has come under overwhelming pressure from both parties to include curbs on executive pay for assisted companies.”
This just shows how little people understand what is going on, even though it couldn’t be any clearer. Executive pay is nothing (NOTHING!) compared to the money that has been wasted on bad investments. Yet, people like Bill O’Reilly continue to rail against “golden parachutes,” price-gouging oil barons, speculators, and the lot.
It’s as if their economic theory is founded on a sort of animism. Some fat guys in nice suits are stealing money, and they must be stopped! No, the crisis is a monetary event, and it was caused by easy credit, which was ideologically motivated by politicians. Literally thousands of people are to blame. The problem is systemic (the “system” being the Federal Reserve System).
Argentina goes broke every ten years or so.... they seem to be still on the planet... Tell the Swiss/Arab bankers to go kiss off....
I worked for along time to get my life in order to live w/o debt and credit, so you can imagine how angry folks like me are about these carnival shenanigans.
This bailout sucks but what is the alternative. Do you want a Depression. Bernanke and Paulson are trying to prevent a repeat of what happened when the banking sector collapsed when the Depression hit. Bernanke cut his teeth academically looking at the role the bank failures of the 1930s played in making a bad situation horrific.
The sheeple are more concerned about "getting even" with the rich guys than they are the FACT that are economy is on the brink of a depression.
They're worried about a few hundred million dollars, when the investment banks that hold their investments are facing trillions of dollars in bad bets from the CDS market.
i think it goes a lot deeper than that and nobody wants to say it and panic the world. Congress had a big hand in this also.
I heard a conservative on the radio this afternoon breaking this down.
“So some young metrosexuals can’t close on their mortgage the next few months, and business have to actually run a cash business,...oh the horror....proves the point that our whole economy is too based on Peter floating money to Paul. If your business and that includes you WalMart need to tap credit constantly to keep the shelves stocked and employees paid then you aren’t running a business then you are running a ponzi scheme”.
Can’t say I don’t on some level agree with him.
Fortunately, the U.S.A. has the ability in a trillion dollar (emphasis on dollar) crisis to come up with the cash (as soon as the ChiComs lend it to us?).
Yet, the entire world financial system waits on the United States of America.
Consider the alternatives.
yitbos
They see this as some kind of high pressure sales tactic like those they have seen in a new car dealer showroom.
What is wrong with deliberation and debate taking place?
We are being asked to OK the largest government bail-out in the history of the country. Why can't we be educated more thoroughly and allowed to consider ALL alternatives?
Many of us are asking....WHERE'S THE FIRE?
Im watching O on Fox right now and he mentiond payback for homeowners attached to this. What is he talking about? Im a homeowner and i dont need a payback.
It's a fool's errand.
The meltdown has already destroyed confidence. A band-aid ain't gonna keep these panic-stricken people from jumping out of windows.
Come on, folks. It's close to those Wall Street year-end bonuses. What's 700 billion dollars. Sure 700 billion is only 3.5 percent of worldwide investments -- and it's what? about 20 - 25 percent of our federal budget.. but golly gee, have a heart.
“The intensification of financial stress in recent weeks, which will make lenders still more cautious about extending credit to households and business, could prove a significant further drag on growth,” he said.
It was like that decades ago -- and we still had economic growth! I am not kidding.
meltdown . . . maybe on the magnitude of the Great Depression.
During that time U.S. corporations had hundreds of millions invested in Nazi Germany. They could not repatriate their funds (assuming that they wanted to) because the Nazis said no. Today of course there are tens of billions invested in Red China. Ya think maybe U.S. Corporations would bring some to that money home? Stop laughing. This is series.
“we don’t want the undercoating!”
Im angry too but I also worked hard for my retirment and have college funds for grandchildren I dont want to lose. U know the real culprit is the government. What are they doing letting wallstreet and the banking industry go un atteneded. Where were the feds while all this was building up?
Not only are they trying to prevent a repeat, but they will repeat the failure, because the losses are far greater than $700 billion. All that money represents is the rats getting their dollars off a sinking ship. It would be better to suffer a smaller crash now than a larger one later, $700 billion further in debt.
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