Markets Face Meltdown After Rescue Plan Rejection
The US bail-out plan for banks was rejected on Monday. As a result financial markets around the world went into free-fall. More banks went under, and others are expected to follow. President Bush will make another attempt at a rescue plan later in the week.
Days of almost financial market meltdown are expected after the US financial rescue plan was rejected on Monday.
The Dow Jones index on Wall Street saw a fall of over 700 points on Monday – its biggest single day fall – and European markets are expected to follow the trend. In overnight trading the Nikkei index in Japan was down 4.1% and the Hang Send in Hong Kong was down 2.4%. Russia has suspended trading on the two main stock markets in the country.
Already on Monday the FTSE 100 index in the UK was down by 269 points, after the City reacted badly following the demise of Bradford & Bingley. In early trading on Tuesday banking shares were again hit, as no-one can predict where the axe will fall next.
The rejection of the rescue plan by the House of Representatives came as a shock to financiers the world over. A vote of 228 to 205 saw hopes end in tatters. Two-thirds of Republicans and 95 Democrats voted no. President Bush is expected to make a statement following the failure to agree the rescue package. Treasury Secretary Henry Paulson said agreement of a new deal is vital. Meanwhile, Congress does not meet again until Thursday and a further vote is unlikely before the weekend.
There was more banking upheaval throughout Monday. As well as B&B in the UK, the fourth largest bank in the US – Wachovia – is to be bought by Citigroup. Benelux banking giant Fortis was partially nationalised.
Mr Paulson said that the financial crisis was much too critical to let the plan fail. However, opponents – mostly Republicans – had concerns about the plan’s detail and the speed required to approve it.
Without the bail-out plan banks will be left to sort out their own mortgage debts, and more will be at risk of going bust. With such uncertainty, very few in the capital markets will be prepared to back banks, and things will only continue their spiral downwards.
It’s a fairly bleak outlook right now.
