It’s becoming fairly clear that the $ 700 billion bailout hasn’t done much to cure the problems in the financial systems:
The financial system, which had recently shown glimmers of improvement, is unraveling again.
After a few weeks in which credit started flowing more freely through banks, giving relief to financial markets, prices continued to plummet yesterday for all but the safest investments, dragged down by fears of a deeper and longer recession than even many pessimists had expected.
Investors were so eager to move money into ultra-safe U.S. Treasury debt yesterday that they were effectively paying the government to hold on to their cash.
Meanwhile, the stock market fell nearly 7 percent yesterday, as measured by the Standard & Poor’s 500-stock index, now at its lowest level since 1997. Financial companies have been particularly hard hit, especially Citigroup, whose shares lost half their value this week.
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The relapse in the markets poses a predicament for economic policymakers at the Treasury Department and Federal Reserve, who have used extraordinary tactics to try keeping the financial system glued together. The Treasury has injected more than $200 billion into banks, while the Fed is lending directly to companies by buying their short-term debt.
These were among the steps that helped achieve a measure of healing in recent weeks, particularly in making banks more confident about lending to each other. Financial indicators show that conditions remain better than they were in October, but now, confronted with the prospect of a deep recession, investors are bracing for a new round of damage to financial companies.
Citigroup was a major concern yesterday, but the misery on financial markets had no single cause. In Washington, talks broke down over a government rescue of major automakers, raising the specter of massive job losses. The broader economic picture also darkened with a report yesterday that more Americans filed for unemployment insurance benefits last week than in any week since 1992.
“The economic news continues to be quite bleak,” said Peter Cardillo, chief market economist with New York-based Avalon Partners. “We have a market that is pricing in a global recession that will probably last longer than most people anticipated.”
And investors are coming to grips with the limitations of the government’s response. Treasury secretary Henry M. Paulson Jr. said this week that he would not seek the remaining $350 billion of the $700 billion rescue package Congress approved last month, instead leaving the balance for the Obama administration to use come January.
Paulson also said last week that he would not be using any of the bailout money to buy up troubled assets from the books of banks, so hope has dissipated that the market for complex mortgage securities will start functioning soon. Investors had hoped that government purchases would jump-start that market by establishing new prices that could open the door for the return of regular buying and selling.
They’ll be writing history books about this one, that’s for sure.
The only question is whether they’ll be writing about the Panic of 2008 or the Great Depression of 2008-13.
> so hope has dissipated that the market for complex mortgage securities will start functioning soon.
This just baffles me. They want to get even deeper into the [crap]? Why? So that we can all continue to pretend that we’re rich?
Name me one program that the government was involved in that one can clearly say it was a success? If your answer was none, well you’re right!!
This $700Billion bailout is big business and Congress/White House way of securing their future.
The American people aren’t stupid, they know that Subprime which made up only 2% of the average banks and investment firms portfolio can’t effect them this badly. By claiming bankruptcy they scam our money and don’t have to pay creditors.
I say let the banks and investment firms go belly up along with AIG. Why should we spend our hard earn dollars on a failed business model??
The Automakers with their $14million salaried executives desire to fail, they make crappy cars and it would be to everyones advantage if they got bought out by a Japanese or German Automaker. They don’t deserve a bailout or deserve to go to bankruptcy. Maybe the senior management of these Big3 can take Automaking 101 lessons from the Japanese and Germans.
Folks: We’re looking at nothing less than a long-overdue CULTURAL adjustment. The “good old American way… buy it with plastic”, won’t work anymore. Economists have led us down that path as a way to stimulate the economy through stimulating demand. Once people start buying, goes their siren song, everybody goes back to work. That dog don’t hunt (anymore). We need policys based on making everyone who wants to work as productive as we can. That’s how Henry Ford and others of his time started the century of American prosperity. Productivity comes from people who are healthy, educated and have tools. Health care and education sound like two of the democrat’s big themes, and investment (through savings) sounds like the GOP. Both are right, but federal programs for these objectives will produce as dismal a result as have the government’s participation, directly or indirectly, in housing (where our current mess encountered its tipping point). A better approach is to set a very high tax rate (say, 33% for everybody) and exempt money spent on education, health care, or saved. Time to put away the plastic and start saving for the rainy day…. ooops! it’s already here !