Thursday, October 02, 2008

Economic Rescue Plan : Is the worst over?

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No. If anything is clear from the contradictory moves of the last week - allowing Lehman Brothers to collapse while taking over AIG, and engineering Bank of America's takeover of Merrill Lynch - there's no strategy to deal with the crisis, just tactical responses. It's like the fire department's response to a conflagration. The $700 billion buyout of banks' bad mortgaged-backed securities is mainly a desperate effort to shore up confidence in the system, preventing the erosion of trust in the banks and other financial institutions and avoiding a massive bank run such as the one that triggered the Great Depression of 1929.

Many on Wall Street and the rest of us are still digesting the momentous events of the last 10 days. Between one and three trillion dollars worth of financial assets have evaporated. Wall Street has been effectively nationalized. The Federal Reserve and the Treasury Department are making all the major strategic decisions in the financial sector and, with the rescue of the American International Group (AIG), the U.S. government now runs the world's biggest insurance company. At $700 billion, the biggest bailout since the Great Depression is being desperately cobbled together to save the global financial system.



Gov't Steps in with Economic Rescue Plan - U.S. - CBN News
... with Economic Rescue Plan ... with a plan that would rescue banks from what some are calling the worst ... over the past year. And there's been no word on how much the rescue plan being ...
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Economic Rescue Plan Faces Resistance from Conservatives in Congress
Economic Rescue Plan Faces Resistance from Conservatives in Congress ... They want the government to be able to take over ... announced several short-term measures to stem the worst ...
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Dow drops over 600 points on bailout fears
Wall Street’s worst fears came to pass Monday as the government’s financial rescue plan failed in ... and who is suffers from the economic ... Insurance Corp. has a list of over ...
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FOXNews.com - Economic Rescue Plan Faces Resistance from Conservatives ...
Economic Rescue Plan Faces Resistance from Conservatives in Congress ... They want the government to be able to take over ... announced several short-term measures to stem the worst ...
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Concerns about the Treasury Rescue Plan - Brookings Institution
Concerns about the Treasury Rescue Plan. Financial Markets, ... buying eligible securities at a pre-set premium over ... institutions that made what are, in retrospect, the worst ...
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Stocks slide after weekly employment reading
... ahead of a possible Friday House vote on the $700 billion financial sector rescue ... dent consumer spending, which accounts for more than two-thirds of U.S. economic ... The House is expected to vote on a revised plan as soon as Friday after rejecting ...
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Source: MSNBC
NewsDateTime: 34 minutes ago

Economic stress brings out isolationist feelings in U.S.
... needs to open new export markets to address what may become the worst economic downturn ... the Bush administration to spend much more than the country could afford over ... Politically, barring an immediate passage of a new rescue plan, financial chaos on ...
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Source: Miami Herald
NewsDateTime: 8 hours ago

Oil falls towards $94, focuses on demand
Senate approves $700 billion rescue plan ... refinery capacity came back online following the storm, which caused the worst ... supplies compounded falling demand with total U.S. oil product demand over the ...
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Source: Guardian Unlimited
NewsDateTime: 27 minutes ago

Oil falls, focuses on demand
... 700 billion bailout of the financial industry failed to allay concerns over ... The Senate's approval of the rescue plan reassured European stock markets and the U.S ... refinery capacity came back online following the storm, which caused the worst ...
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Source: Boston Globe
NewsDateTime: 27 minutes ago

Bailout jitters hurt stocks
... House vote on the $700 billion bank bailout plan already approved by the Senate. Credit markets remained tight, with closely watched measures of bank fear still at elevated levels. ... Monday sent the Dow down 777 points in its worst ...
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Source: CNN Money
NewsDateTime: 41 minutes ago




"An economic 9/11," warned Terry Connelly, dean of Golden Gate University's Ageno School of Business, of the potential fallout. As the package went down, panicked investors caused the Dow Jones industrials to nosedive nearly 780 points in their largest one-day point drop ever. Markets across Asia fell sharply Tuesday in the wake of the Wall Street downdraft. Lawmakers defeated the legislation by a 228-205 vote, although Democratic and Republicans leaders and Treasury Secretary Henry Paulson all pledged to keep working for a package acceptable to all sides. Vowed Mr. Bush: "This is not the end of the legislative process." In the meantime, the economic wreckage that the administration and Congress have warned about - rising unemployment, shrinking nest eggs and prolonged recession - might not happen immediately, but that doesn't mean it won't happen at all. "This is like the advice you get from the doctor who says you should quit smoking," said Robert Brusca, chief economist at Fact and Opinion Economics in New York. "You know he's right. But if you don't, you're not going to die tomorrow and you're not going to die next week. But at some time, it's probably going to get you." For now, Treasury was expected to work with other government agencies, including the Federal Reserve and the Federal Deposit Insurance Corp., to deal with problems on a case-by-case basis. "Our tool kit is substantial but insufficient" without a bailout, Paulson warned. There are some steps the Federal Reserve can take to cushion damage from the worst credit crisis since the Great Depression. The Fed, which has been providing billions in short-term loans to help banks overcome credit stresses, could keep expanding those loans in an effort to spur financial institutions to lend more freely again. And, it could keep working with other central banks to inject billions into troubled financial markets overseas. Undoubtedly, both businesses and consumers will run for cover. They will clam up. The snowball hitting the economy will pick up speed and gather mass. Ken Mayland economist, ClearView EconomicsAlso, the Fed could make it easier for banks and investment firms to draw emergency loans from the central bank by expanding the type of collateral they pledge to back those loans. And, if the credit crisis were to turn even worse, the Fed also has the power in extreme circumstances to expand emergency lending to other types of companies and even to individuals if they are unable to secure adequate credit from other banking institutions. The Fed also could do an about-face and start cutting its key interest rate again. The Fed in June halted an aggressive rate-cutting campaign and has kept its key rate since at 2 percent. While some Fed officials doubt that another rate reduction would do much to boost confidence and persuade banks to begin lending again, Brian Bethune, economist at Global Insight, insists a deep cut would pack a powerful punch. It would lower the prime lending rate, now at 5 percent, that serves as a benchmark for credit card rates and many other types of loans. Peter Morici, an economics professor at the University of Maryland, suggests Americans should be conservative with their money and focus on paying down debts. However, Morici told CBS' The Early Show that without some sort of government intervention, "everyone's personal finances are going to be worse. This has to be solved." If Congress doesn't act, analysts, who were scrambling to downgrade their economic forecasts, believe the U.S. economy could shrink even further. The unemployment rate - now at a five-year high of 6.1 percent - is expected to hit 7 or 7.5 percent by late 2009, which would be the highest since after the 1990-91 recession. Some economists say the jobless rate could rise even more. "Undoubtedly, both businesses and consumers will run for cover. They will clam up," said economist Ken Mayland, president of ClearView Economics. "The snowball hitting the economy will pick up speed and gather mass." More banks could fail, too. In the second quarter that ended in June, the Federal Deposit Insurance Corp. estimated 117 banks and thrifts were in trouble, the most since 2003. The threat of more banks failing in the U.S. and abroad forced the government to act swiftly. The tanking stock market and falling home values - the single-biggest assets for most Americans - have taken big bites out of people's wealth and their retirement accounts even as high energy and food prices are shrinking paychecks. Consumers are major shapers of the U.S. economy. If they retrench, the country will go into a tailspin. The bailout plan was intended to revive jittery and fragile banks on Wall Street and Main Street by buying billions upon billions of their worst mortgage-related assets so that lending, the oxygen of the American economy, would flow freely again. "People are going to go home and look at their 401(k)'s and not be very happy, and these are not just people from New York, but Iowa and everywhere else. This bill is meant for everyone - not just Wall Street but Main Street," said longtime New York Stock Exchange floor trader Theodore Weisberg. For some perspective on the value of $700 billion, consider this: According to the Wall Street Journal, half the money FDR spent on his New Deal program to lift the country out of the Depression and banking crisis was for public works projects. For $250 billion in today's dollars, the nation got 8,000 parks, 40,000 public buildings and 72,000 schools. On a more mundane level, $700 billion could pay the wages of 22 million average Americans for a year. (According to the Labor Department, the average nonsupervisory, non-agricultural wage was $612 a week in August.) The government could pay off the $550 billion in outstanding student loan debt in the United States, and then some. That's from both government and private lenders. Seven hundred billion dollars is five times what the federal government has devoted to Gulf Coast recovery in emergency funds and tax credits since Hurricane Katrina.
The number of Americans continuing to collect uninsurance claims increased by 48,000 to 3,591,000 for the week ended Sept. 20, the most recent week available. The 4-week moving average jumped 46,750 to 3,528,500 from the preceding week. Economists from Briefing.com expect September job losses to spike to 105,000 and for the unemployment rate to remain steady at 6.1% when the government's monthly report is released Friday. The economy already has lost 605,000 jobs this year






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Published on: 9/22/2008 8:03:52 PM


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