September 29th: Worst day so far of crisis
by Raphie De Santos
US Financial Bailout a Dead Duck as European Governments Rescue Failed Financial Institutions with Tax Payers Money
The proposed $700 billion bailout of financial institutions by the US central bank using tax payers’ money appears to be dead before it is even thrown out by US legislators.
As the meltdown in financial companies stretched from Seattle to Germany, Britain, Belgium and Iceland the US central bank was forced to pump $630 billion into the money markets as the short-term interest rates rose sharply giving a thumbs down to the bailout and its chances of solving the greatest financial crisis to face capitalism since the 1930s slump.
Stock markets around the world fell
by between 3% and 7% as the magnitude and uncertainty of the crisis hit
home.
It’s clear that the crisis is a global one with financial institutions
in one day having to be nationalised, propped up or taken over in Seattle,
North Carolina, the UK Belgium, Germany and Iceland.
The markets have
passed their verdict that the bailout would not help financial institutions
outside the US and that the scale of the problem in the US alone is so
great that even the first muted $1000 billion rescue package could not
take care of all the bad mortgage related debt. The plan was much watered
down with only $250 billion available immediately and a further $100
billion to be approved with the option of a $350 billion at a later date.
The bailout offers only a home for mortgage related debt and is far from the blank cheque that the Federal Reserve wanted with any losses incurred by the tax payer being made good by the banks. It also, does not deal with the up to $60 trillion dollars of bankruptcy insurance - credit default swaps (CDS) - that banks around the world have sold to investors.
The losses to banks around the world on this could be in the region
of $5 trillion if we have a severe prolonged recession.
The bailout failed because it was very unpopular with ordinary Americans,
did not deal with all the toxic mortgage debt never mind the time bomb
of CDS and would not recapitalise (fresh cash) the banking industry which
is a perquisite to banks lending to each other gain. The recovery of
the toxic assets was dependant on the housing market recovering and most
analysts still see it as at least 20% over valued so there is little
chance of that happening.
Capitalism’s last card has not even made it to the table and we can expect
a severe recession with an all out assault on working people and poor
of the world.
Postscript, morning of 30th September
Far East equity markets are down by over three percent. Dexia - a Belgian bank - which loans to local authorities in Europe is set to be bailed out by the Belgian and French governments. Dexia had exposure to sub-prime debt products. European equity is likely to be two to three percent down at the opening waiting for the Street (Wall St) to open. A whole series of medium/small banks globally will come under pressure. Bankruptcy insurance (credit default swaps) will soar in value creating large paper losses for major banks who have sold it. Every bankruptcy is a massive payout and loss for these Banks. Oil down to $96 as a deep and long recession is now being priced in by markets.