September 29, 2008
Central banks pump in $620bn as shares plummet
Central banks around the world unveiled a plan to pump massive amounts of cash into the global banking system in a concerted effort to boost market confidence and inject liquidity into the global markets.
The move followed a fall in the Dow Jones of nearly 300 points in morning trade to 10,869 as the market took fright at several bank nationalisations in Europe and the US despite the approval of the "son of Tarp" — the Troubled Asset Relief Programme —bailout. The FTSE 100 index of leading shares was down almost 5 per cent, taking it to a new low for the year and below the psychologically significant threshold of 5,000.
As nine central banks used currency swaps to oil the wheels of dollar liquidity in the money markets, sterling plunged and was on course for its steepest one-day drop against the dollar for at least a decade and a half.
This was in response to the nationalisation of Bradford & Bingley (B&B), the stricken UK mortgage bank, which fuelled markets' fears over Britain's battered banking sector and the fallout for its economic prospects.
B&B nationalised with £40bn mortgage debt
Customers and shareholders will end up paying for B&B
ANALYSIS: politicians call Paulson's bluff
In the US, the Dow Jones fell nearly 300 points in morning trade to 10,869 as the market took fright at several bank nationalisations in Europe and the US despite the approval of the "son of Tarp" — the Troubled Asset Relief Programme —bailout.
US Treasury debt staged a meteoric rally as investors scrambled for the safe haven of American government securities. The 30-year Treasury bond’s price rose more than three points. The flight to safety was even after the Federal Reserve said it would substantially increase currency swap limits to $620 billion (£342 billion ) with nine leading central banks in response to short-term strains in the money markets.
In its latest severe sell-off, the already sharply weaker pound plummeted by almost 5 cents against the dollar today compared with its level at the close of New York trading on Friday.
The fall of more than 2.5 per cent in sterling saw it tumble from $1.8445 to levels below $1.80, taking it to a 10-day low of $1.7962. The pound has now shed almost 11 per cent against the greenback from peaks above the watershed of $2 reached at this time last year.
The price of Brent crude fell more than $5 a barrel to $98.05, its lowest level for almost six months.
Markets were anxious about Britain's fast deteriorating economic outlook and the stability of its banking sector as B&B followed Northern Rock in being nationalised. The worries followed the fire sale of HBOS, the nation's biggest mortgage lender to Lloyds TSB, and led to the London stock market succumb to a fresh hammering of its leading shares.
The FTSE 100 index of British blue chip stocks closed down by 253 points, or 4.97 per cent, taking it below the psychologically significant threshold of 5,000 to 4,835.45 and to a new low for the year, down 28 per cent from the 6,730.71 level it reached on October 12, 2007.
The steep sell off of sterling and London shares came as agreement reached on Capitol Hill on a proposed $700 billion rescue plan for the US banking system was overshadowed by the latest woes for British and continental European banks. As well as B&B, the Belgian, Dutch and Luxembourg Governments nationalised parts of Fortis, the European banking and insurance giant, and agreed to inject €11.2 billion into the group.
Iceland's government also took control of Glitnir, that country's third biggest bank.
Analysts said the developments switched attention back to the international nature of the banking and financial upheavals spawned by the credit crisis.
"I think there has been a very lax attitute over the last couple of weeks ... [suggesting] it's been seen as a purely US-centric problem," Jeremy Stretch, of Rabobank, said.
"We've gone from a piecemeal response in the US to something more substantive with the bailout package. Whether it works or not is a different matter."
The euro also fell heavily against the dollar amid concern over the eurozone's banking strife and the adequacy of arrangements for bank rescues in the 15-nation bloc. The euro lost as much as 1.8 per cent against the dollar, falling to levels of about $1.4340 from a US close of $1.4613 on Friday.
Tokyo’s Nikkei 225 index was down 1.3 per cent at 11,743.61, and Hong Kong’s Hang Seng Index shed 2.1 per cent to 18,286.90.
“They’re worried that another fire is starting in Europe,” said Castor Pang, an analyst at Sun Hung Kai Financial in Hong Kong.
Have your say
You have just witnessed the power of the people. You might like to try it sometime, dear cousins.
Yes, hard times are coming, but the bailout would have only delayed the inevitable. At least we managed to stop the nest feathering.
Kate, Maryland, USA
Just read the 'Shock Doctrine' and you will understand what Bush and his cronies is up to. Create chaos as in Iraq and then when everyone is in shock make a huge profit. Well done democracy.
G Davies, Cardiff, Wales
deregulation was a good thing. This did not cause this problem - creed did. You cannot make private companies and individual behave responsibly. Democrat or Republican, companies are companies and both went fast footing forward. The Salaries and bonuses paid out were outrageous.
dona, edinburgh, scotland
What Americans needs to do is read up on what happend before the 2nd world war in Germany. What was the climate of tihings leading up to that war. When you find the answer you will know where you have been going wrong. And where you are going, and know why you need to change direction. US is paying.
Daphne Kenward, Cambridge, UK
It is too late for all the Members of the Congress to remember the interests of the taxpayers. They watched for years the taxpayers being robbed by these bankgsters and now they are inflicting more pain by letting these banks fail. And who will suffer from the failure? The bankgsters or the taxpayer
Ilias, Bradford , United Kingdom
Idiotiotic way of selling the proposal/bill. Just say to those in congress... if you don't vote for this bill, then wave goodbye to your cash savings at your local bank and potentially your pension pots.
The article points blame on the Republicans voting heavily against it, but the Democrats are have the majority in the House and Senate. They could have passed it without a single Republican yes vote.
Had they listened to the regulator assigned to Fannie and Freddie and '04, we wouldn't be here.
Anna, Seattle, USA
That's it, keep going Congress, reject it outright. Let's hope this isn't some Congress-power-game, with deal making going on in the background to serve personal political agendas, so that Congress gives in later in the week.
Reject it 100%. Not $7, $700b or more. Leave the market alone.
Laura Roberts, London, UK
Well I hope all of you anti-bailout bill people are happy now. I also hope you'll be happy when the world markets crash.
Dennis, Morristown, USA
This isn't exactly chaos. Lots of people bought stock with the expectation of a government handout. Now that they know there's no free money headed to stock holders, they're selling the stocks. Looks like standard, rational egoist behavior.
Joseph, New York City, USA
Remember, it was the Republicans who made this plan fail, though they wanted it to pass, so they could taint the Democrats with giving a handout to Wall Street fat cats, while rewarding their supporters with lots-o-cash for worthless paper. Now they'll blame the Dems for not supporting Bush's plan.
A, Palo Alto,CA, USA
Wouldn't be NICE if Brits would become a bit more informed as to the true cause of this crisis. Since the late 1990's when liberal democrats began to strong-arm American banks to provide home ownership to 16-17,000,000 of the lower economic classes, whom could never truly afford the loans.
Dr. Mark , Lincoln,
This is not about being cheated by a few goal hungry spivs, its human nature, who says that any given person would have behaved the same. Thats sort this out now and in future add a tad of regulation so it does'nt happen again?
Rich, London, England
Quit proclaiming that "deregulation" caused this. Please explain which specific deregulations caused this and how! Details, not bromides, please.
It was actually the CRA and other leftist regulations that required banks to give loans to poor people for "affordable housing" that caused this.
Alano, Virginia, USA
If the rising cost of health insurance didn't bankrupt ordinary Americans, this would not be a crisis.
There are many reasons for this state of affairs, but saying that "low income folks" didn't pay their bills is a mistake. There are many reasons for this, and blaming the poor is a cop-out.
brizzle, San Diego, CA,
All the "bad paper" that is fueling these banking failures is a direct result of Democrats demanding for the past few years that home loans be given to people that otherwise were too high-risk or could not afford them. The bright side is that the "bad paper" is backed by actual houses.
John, Raleigh, NC, USA
I agree with Stu Peters, the act states that it is not to exceed 700bn worth of outstanding debt, AT ANY ONE TIME. Also to note, that they requested to remove the provision that caped the amount they could take by law and placed 11 trillion (our GDP) in its place. Basically a Blank Check, our GDP
Benoni, Pittsburgh, USA
SEC Chairman Cox removed rules to make it easier for shorts to make money in the stock markets since mid last year! Cox and his friends are making loads SHORTING
removed uptick rule in placed since 1937
let NAKED shorting persist -ie no transparency
much relaxed stock market circuit breakers
Dennis, Allen, USA
The price you pay for lending to high risk borrowers and lending more than 2 and a half joint salaries. Let it all crash and teach those a lesson in taking a little responsibility for their actions rather than expecting others to bail them out-Start living in the real world people!
Phil, Houston, USA's comment #2 "de-regulation did not cause this but rather regulations requiring banks to make "affordable mortgages" available to low income folks." is WRONG.
The Act requiring this www.ffiec.gov/cra/
was passed in 1977. If it caused the meltdown, it should have happened then.
A, Palo Alto,CA, USA
CALL YOUR SENATE AND HOUSE IMMEDIATLY!!
tell them to reject this plan. If you have not done your homework on this, you need to. This is the worst idea in the history of the United States... EVER...
Ben, Roanoke, USA
Anyone know why the dollar is still holding up despite this mess?
In 1995 Clinton mandated Fannie Mae and Freddie Mac change their lending to count unemployment and Social Security payments as income-wanted more govt lending to uncredit worthy borrowers-in 2005 McCain tried to reign this in and regulate how they lend under a Bill which was voted down by Democrats
Richard Z, Lakewood, U.S.A
Give us, the TAXPAYERS this money and we will bail ourselves out! Just think what each taxpayer over 18 could do with say...$150,000.00 each? That's a lot less than $700 BILLION. I would invest in REAL ESTATE. How about you?
Dave, Derry NH, USA
'They' keep saying that 'this must never happen again'. When you get an economy based on shopping and house-price rises (and not manufacturing) and credit is oh so easy to get, it must surely have occurred the 'them' that there would at some time be a massive reaction. And I am not an economist.
Ricky, de-regulation did not cause this but rather regulations requiring banks to make "affordable mortgages" available to low income folks. If everyone would pay their bill there would be no crisis.
Phil, Houston, USA
Thank goodness. Government and the banking plutocrats created this crisis...who now expected the same criminals to "fix" it by continuing the same policies that created this? Let the markets now clean out the malinvestments
Rob, Sparta, NJ, USA
Thank goodness the House voted to reject the so called "bailout."
greg, Blairstown, USA
Wouldn't it be nice if the right wingers who blog here showed a little humility. After demanding de-regulation you got it, and now that it's all gone pear-shaped, well, that's someone else's fault. As for what to do now, if you think the answer is inaction, then be prepared for global catastrophe.
Ricky, Bakewell, UK
How many banks can this hopeless government nationalise - which is next? And the remaining banks are expected to foot the bill! This could end up with all banks nationalised. And the economy in total tatters. Maybe it's time Labour started nationalising the housebuilders-it might make a profit.
I think leaders are going with the devil they know.
Better to bail out and place the weight on people who can do nothing about it than hope the markets simply "correct themselves"
This didn't work in the 1930's, probably even less so now.
We certainly live in what will be a historic time.
Elio, cambridge, US
Our chancellor Mr Darling is a very rich man. How did he make his money before this job.. I think you will find it was in the money market
My word, didn't Gordon do well?
You Europeans are so caught up in sneering at the US that you ignore your on financial state. I just read an article talking about Europe gloating and just started laughing...were you stupid enough to think that our markets aren't so deeply intertwined that the same depression isn't coming for you?!
Shawn, Boston , United States
President Palin would have prevented this whole mess. She can see a bank from her house, so she understands finance.
RBA, Washington, DC, USA
break out the champagne david. you are a "shoe in" bring the general election on gordy!!! you canott bottle out for ever!
sheila wilson, bishop's stortford, herts
Maybe it's about time we should all face our eyes towards Heaven and seek Gods help in prayer because it's going to take divine intervention of Jesus Christ to fix the mess men and woman have created for themselves.
It makes no sense not to seek God for his forgiveness rather than rely on man!
Tony, Jacksonville, USA
What a disaster Labour is. Nationalising a second bank has destroyed UK and foreign investor confidence in the UK.
They should have bought with recourse say 5 years down the line BB's "toxic" debt.
So many people are seeing their pension savings and/or jobs wiped out due to this incompetence
Very recently, B&B shareholders were invited to buy 'rights' shares for 80p, later reduced to 55p, and some did. This stinks of non-disclosure, meriting investigation by the FSA; while the bonuses paid its bosses, after only weeks in the job, scream for the attention of the Serious Fraud Office
Noel Falconer, COUIZA, France
Who do you work for? From whom do they get their loans ? Where do you buy your food? From whom do they get their loans to operate? Bonuses mostly paid in shares, now worthless, so bankers are stuffed too. Who borrowed money they couldn't repay? Shares are way up on 5 years ago.
edward, London, England
It will be more than $700 billion, much more - read the smallprint on Page 40 of the draft, "the amount shall be limited to $700 billion AT ANY ONE TIME."
Revolving billions for two years, buy a load of toxic debt, flog it off. go buy some more, etc.
Yet, no liquidity as such for the banks. ??
Stu Peters, Nova Scotia,
I am starting to think that this government bailout is a misnomer. Call it reparations, instead. It was a croocked and fraudulent scam that promoted writing and securitizing the bad mortgages. Good intentions do not justify unsound business practices. It is just that the government buy this garbage
Claire Solt PhD, West Palm Beach, USA
So the USSA has run out of liberal bazookas? If you call yourself a capitalist then be one. In tooth and claw.
Rahul Kalla, London, UK
Drops a little more and I can finally come over to visit. Anyone have spare Manchester United tickets?
Erik, Denver, USA
If the problem is homeowners defaulting and consumers not spending then give us the $700 billion dollars in tax rebates and the man on the street will get the economy moving again
This is the product of one major problem - around the world people have believed that the Markets should decide. Most of those who complain about the British Government ironically are fans of this illusion.
Let's get it right. Markets are not moral, decent or even sensible. End of story.
If the pound continues to fall against the dollar, then it makes sense to for people to convert pounds into dollars, because they get more money back when they exchange their dollars back into pounds.
Ha! Ha! I've got no money, so I'm safe.
Stan Snowdon, Congleton, Cheshire
Watch the biggest retards in the world at play !
Loosing the battle 700 billions USD to taxpayers, USA having so well exported their crazy subprime, now the $ is up against £ and Euro ! ! !
Ha ha ha; LOL, we are living in a funny world ! Rewards to the guilty one ! ! !
Michel, Aix en Provence, France
It is now clear that Mc Broon doesn't like people who save, e.g those with a pension plan, or those who invest in shares. Those people will never, ever trust Labour again. Quite rightly.
Bill Peter, Kuala Lumpur, Malaysia
Not surpising the markets have dropped. The fundamental problem of over indebted consumers still exists. The real economy can not be bailed out and the markets, deep down, know this. The markets are on the edge and it is just a matter of time before we see huge drops.
Chris, Chipping Norton,
B&B Shareholders added cash when they wanted it now they get nothing?.....Executives get paid for stuffing it all up.
Now this is grossly unfair and needs to be fixed,shareholders need at least 55p.
Keith, Hull, UK
Ah! Brown's red herrings the short sellers must be at it again.
This is all due to greed and self regulation!
All these huge bonuses and playing with our hard earned money. They are beeing brought down to face the wrath of turmoil they have created.
So what do the labour party do?
Bail out companies that have been left to play in the park!
Philip Hodge, Middlewich, United Kingdom