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WORLD> America
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US bailout rejected; fear seizes markets
(Agencies)
Updated: 2008-09-30 08:50 Investors rushed to assets considered a safe haven. Government bond prices and gold jumped, and oil fell below $99 per barrel on the view that world demand will contract as the financial crisis puts the brakes on economic activity. "What should have been a day of hope turned into a day of desperation," said Marco Annunziato, chief economist for UniCredit in London. "We are facing a systemic crisis of confidence in the global financial system that is pushing us increasingly close to a complete meltdown." World stocks, as measured by the MSCI's world index, lost about $1.7 trillion for the day. Bailout prospects uncertain In Washington, the failure of the bailout bill -- after more than a week of intensive closed-door negotiation intended to hammer out a compromise plan -- brought new uncertainty about the response of the US government to the worst financial crisis since the Great Depression. Republican House members voted against the rescue package by a more than 2-to-1 margin. A majority of Democrats voted in favor. Both parties blamed each other for the failure of the closely watched bill after hours of closed-door negotiations intended to add provisions to protect taxpayers and head off criticism that Washington was riding to the rescue of bankers many Americans blame for triggering the housing crisis. "What happened today cannot stand. We must move forward," House Speaker Nancy Pelosi told reporters. "We are here to protect the taxpayer as we work to stabilize the markets." US presidential candidates Barack Obama and John McCain had both offered qualified support for the bailout proposal, which now dominates the election with just over a month before the vote. Obama, a Democrat, said he believed lawmakers would regroup to pass a financial rescue plan. "I'm confident we're going to get there," Obama said as he campaigned in Colorado. "It's going to be a little rocky. McCain, a Republican who suspended his campaign last week in a failed attempt to broker a bailout deal, called on lawmakers to go back to work. "Now is the time for all members of Congress to go back to the drawing board," he said. The Senate returns on Wednesday and the House on Thursday after a break for the Jewish New Year holiday of Rosh Hashanah. No laws can be passed in their absence but their staffs could work on a revised plan. The high-stakes political showdown on the bailout proposal came after Wachovia Corp agreed to sell most of its assets to Citigroup Inc in a deal brokered by regulators. It was one of three US financial deals struck as the crisis deepened. Global contagion Investors said there were ample signs that a financial crisis that started with risky lending to the overheated US property market had gone rapidly global. "The crisis is going to affect everybody. It's a very difficult situation and it's going to affect economies everywhere," Mexican billionaire Carlos Slim said. Earlier, the governments of Belgium, the Netherlands and Luxembourg moved to partly nationalize Belgian-Dutch group Fortis NV, and German lender Hypo Real Estate Holding AG secured a credit line from the German government. Earlier, European shares had dropped to a 3-1/2-year closing low, with bank shares weighing heavily. The world's central banks, led by the US Federal Reserve, announced a $330 billion expansion of currency swap arrangements, which allows them to increase the amount of money they can provide in their home markets, effectively throwing more money at the crisis. The Wachovia deal was the latest in a series of events that has transformed the American financial landscape and wiped out hundreds of billions of dollars of shareholder wealth. The changes include the government takeover of mortgage finance companies Fannie Mae and Freddie Mac, the bankruptcy of Lehman Brothers Holdings Inc, the failure of giant savings and loan Washington Mutual, and Bank of America Corp's purchase of Merrill Lynch & Co Inc. |
