Tuesday, September 30, 2008
US 'casino' mentality blamed for planet's meltdown
SAO PAULO, Brazil - Astounded by the U.S. government's failure to resolve the financial crisis threatening the foundations of the global free market, fingers of blame are pointing at America from around the planet.
RP can ride out US financial crisis: experts
While the financial markets in the US and Europe go through days of wild roller-coaster ride as they seek solutions to trillion dollar-worth toxic mortgages, Philippine analysts and regulators continue to hammer messages that could be summed up with this: Relax.
Markets all over the world, especially in the US, Europe, and some Asian exchanges, plunged immediately after the US congress thumbed down Monday the proposed $700 billion bailout plan that was supposed to solve the core of the mortgage problem that rippled to various financial players beyond the banking system.
Yet, the Philippine Stock Exchange, an indicator of investor sentiments, ended its Tuesday trading only 1.4 percent lower, better off than other markets, some of which ended in historic lows. The Dow Jones, an index that tracks financial performance heavy industries in the US, was down by as much as 7 percent overnight, wiping out up to $1.2 trillion in a single day. Britain's FTSE index was down 5.3 percent to a three-year low, while Asian markets, like Japan and Hongkong, were lower by 4.6 and 2.5 percent, respectively.
The immediate impact of the US Congress' vote on the bailout to the Philippines would be more of a knee-jerk reaction, analysts said. But while there will be long term consequences to the Philippines, Nestor Espenilla, Deputy Governor of the Bangko Sentral ng Pilipinas (BSP), said "It’s nothing that financial markets in the country can’t handle."
According to the BSP, about 7 Philippine banks have a total exposure of $386 million to bankrupt Lehman Brothers, one of the giant US investment banks that tumbled amidst the panic over toxic US housing debts. That accounts for less than one percent of the entire banking system, which, through the years, has been buffed up so it could withstand shocks.
“In terms of direct impact on our financial system, it’s still very minimal," Espenilla said in an interview at ABS-CBN News Channel’s News at 8. "As we’ve earlier pointed out, we are coming into this crisis relatively well-prepared in terms of capital adequacy, liquidity, and asset quality."
Jojo Gonzales, Chief Analyst of Philippine Equity, also noted in the same cable show, that there is no credit crunch in the country, unlike how it is in the US and Europe where investors and bankers are hardly transacting or lending, thus their economy is in a virtual standstill.
"To illustrate the fact that there is no credit crunch in the Philippines, the auction yesterday for Treasury Bills (indicator of cost of borrowing among banks) was two times oversubscribed. That hardly qualifies as credit crunch," Gonzales stressed.
In other words, the Filipinos will not have to go through a similar decision of whether any local players in the financial system would need to be bailed out too.
Philippine politicians will also be spared with a similar task of voting on whether taxpayers' money should be spent to stem a gaping hole that the rich have created. Unlike their US counterparts, who decided 208 to 205 in favor of thumbing down the bailout plan, the US congressmen have an upcoming elections to think about when deciding whether common Americans should shoulder the losses that high flying Wall Street executives created.
Not now but later
So far, there are anecdotal indicators of Filipino consumers spending less on their mobile phones and retail purchases. Still, according to Gonzales, there is no reason to fret, since it's the Philippine companies that are absorbing most of the US crisis impact now.
"I imagine the impact at this point is not so much on end consumers. Much of what we are seeing right now is pressure on profit margins of corporates because of inflation." Gonzales said.
Filipinos, however, would have to still keep their eye on the goings on in the financial markets abroad, especially in the US, since the consequences to the Philippines will be felt later.
One indicator would be the impact of what's happening in US financials to the credit market. The Philippines is one of the biggest debt issuers in Asia, and several Philippine companies have issued foreign debts to raise funds too. Benchmark interest rates, which banks all over the world use as guide in pricing debt instruments, will affect the cost of debt instruments that the Philippine government and companies have or will issue.
"Right now, we are just spectators watching what’s happening in the US. [And the] Philippine companies and the government don’t have to borrow right now. But 3 or 6 months from now, if the benchmark rates don’t come down, I think it will ultimately impact RP as well," Gonzales pointed out.
PJ Garcia, Chief Investment Officer of ING Bank Philippines, also noted that while some are reacting out of knee-jerk impulse, down the road there could be an impact on the fundamentals of the Philippines as well.
For one, exports volume and value could be affected as Americans, who are still the world's biggest group of consumers, hold on to their cash to cope with the credit crunch.
To Garcia, what this means to the Philippine companies is that “There will definitely be some downward revisions on growth assumptions for the next 12 to 18 months. There would have to be some review on earnings assumptions [of companies] for next year if you see a slower economic growth and lower domestic demand or, in this case, possibly slower export growth."
With the US now facing a possible recession, the impact to the Philippines will ultimately depend on how long and how deep the US economy will be in the doldrums.
The first to be hit will be the pace of our economic growth.
"It is fair to assume that the rates of [economic growth] will slow sharply," Gonzales warned.
Based on a best-case scenario of a "short and shallow" recession in the US, Gonzales projects that the local economy's growth will slow to about 4 percent this year. That's a far cry from last year's economic growth rate of more than 7 percent.
"The worse it gets in the US, the lower number you will see in the Philippines," Gonzales stressed.
Earlier, the range of estimates for economic growth in 2008 was between 4.5 to 5 percent. Gonzales noted, however, that these projections were made a couple of months back, long before Monday's shocking outcome of the US congress vote on the bailout.
"Nobody envisioned what's happening now. So there is room for those [growth] estimates to come down a bit further," Gonzales said.
Ride it out
Whether the current goings on will eventually translate to a major pinch to Filipino's income--and if ever, how much it will hurt--is yet to be seen.
Meantime, the message from analysts and regulators remain: Relax. It's all part of business and economic cycles.
According to Espenilla, these are cycles the Philippines could confidently ride out.
"In the end, these are really businesses that have ups and downs. Right now is really a clear 'down' scenario. We have the capacity to withstand this. We can ride this out."source
Markets all over the world, especially in the US, Europe, and some Asian exchanges, plunged immediately after the US congress thumbed down Monday the proposed $700 billion bailout plan that was supposed to solve the core of the mortgage problem that rippled to various financial players beyond the banking system.
Yet, the Philippine Stock Exchange, an indicator of investor sentiments, ended its Tuesday trading only 1.4 percent lower, better off than other markets, some of which ended in historic lows. The Dow Jones, an index that tracks financial performance heavy industries in the US, was down by as much as 7 percent overnight, wiping out up to $1.2 trillion in a single day. Britain's FTSE index was down 5.3 percent to a three-year low, while Asian markets, like Japan and Hongkong, were lower by 4.6 and 2.5 percent, respectively.
The immediate impact of the US Congress' vote on the bailout to the Philippines would be more of a knee-jerk reaction, analysts said. But while there will be long term consequences to the Philippines, Nestor Espenilla, Deputy Governor of the Bangko Sentral ng Pilipinas (BSP), said "It’s nothing that financial markets in the country can’t handle."
According to the BSP, about 7 Philippine banks have a total exposure of $386 million to bankrupt Lehman Brothers, one of the giant US investment banks that tumbled amidst the panic over toxic US housing debts. That accounts for less than one percent of the entire banking system, which, through the years, has been buffed up so it could withstand shocks.
“In terms of direct impact on our financial system, it’s still very minimal," Espenilla said in an interview at ABS-CBN News Channel’s News at 8. "As we’ve earlier pointed out, we are coming into this crisis relatively well-prepared in terms of capital adequacy, liquidity, and asset quality."
Jojo Gonzales, Chief Analyst of Philippine Equity, also noted in the same cable show, that there is no credit crunch in the country, unlike how it is in the US and Europe where investors and bankers are hardly transacting or lending, thus their economy is in a virtual standstill.
"To illustrate the fact that there is no credit crunch in the Philippines, the auction yesterday for Treasury Bills (indicator of cost of borrowing among banks) was two times oversubscribed. That hardly qualifies as credit crunch," Gonzales stressed.
In other words, the Filipinos will not have to go through a similar decision of whether any local players in the financial system would need to be bailed out too.
Philippine politicians will also be spared with a similar task of voting on whether taxpayers' money should be spent to stem a gaping hole that the rich have created. Unlike their US counterparts, who decided 208 to 205 in favor of thumbing down the bailout plan, the US congressmen have an upcoming elections to think about when deciding whether common Americans should shoulder the losses that high flying Wall Street executives created.
Not now but later
So far, there are anecdotal indicators of Filipino consumers spending less on their mobile phones and retail purchases. Still, according to Gonzales, there is no reason to fret, since it's the Philippine companies that are absorbing most of the US crisis impact now.
"I imagine the impact at this point is not so much on end consumers. Much of what we are seeing right now is pressure on profit margins of corporates because of inflation." Gonzales said.
Filipinos, however, would have to still keep their eye on the goings on in the financial markets abroad, especially in the US, since the consequences to the Philippines will be felt later.
One indicator would be the impact of what's happening in US financials to the credit market. The Philippines is one of the biggest debt issuers in Asia, and several Philippine companies have issued foreign debts to raise funds too. Benchmark interest rates, which banks all over the world use as guide in pricing debt instruments, will affect the cost of debt instruments that the Philippine government and companies have or will issue.
"Right now, we are just spectators watching what’s happening in the US. [And the] Philippine companies and the government don’t have to borrow right now. But 3 or 6 months from now, if the benchmark rates don’t come down, I think it will ultimately impact RP as well," Gonzales pointed out.
PJ Garcia, Chief Investment Officer of ING Bank Philippines, also noted that while some are reacting out of knee-jerk impulse, down the road there could be an impact on the fundamentals of the Philippines as well.
For one, exports volume and value could be affected as Americans, who are still the world's biggest group of consumers, hold on to their cash to cope with the credit crunch.
To Garcia, what this means to the Philippine companies is that “There will definitely be some downward revisions on growth assumptions for the next 12 to 18 months. There would have to be some review on earnings assumptions [of companies] for next year if you see a slower economic growth and lower domestic demand or, in this case, possibly slower export growth."
With the US now facing a possible recession, the impact to the Philippines will ultimately depend on how long and how deep the US economy will be in the doldrums.
The first to be hit will be the pace of our economic growth.
"It is fair to assume that the rates of [economic growth] will slow sharply," Gonzales warned.
Based on a best-case scenario of a "short and shallow" recession in the US, Gonzales projects that the local economy's growth will slow to about 4 percent this year. That's a far cry from last year's economic growth rate of more than 7 percent.
"The worse it gets in the US, the lower number you will see in the Philippines," Gonzales stressed.
Earlier, the range of estimates for economic growth in 2008 was between 4.5 to 5 percent. Gonzales noted, however, that these projections were made a couple of months back, long before Monday's shocking outcome of the US congress vote on the bailout.
"Nobody envisioned what's happening now. So there is room for those [growth] estimates to come down a bit further," Gonzales said.
Ride it out
Whether the current goings on will eventually translate to a major pinch to Filipino's income--and if ever, how much it will hurt--is yet to be seen.
Meantime, the message from analysts and regulators remain: Relax. It's all part of business and economic cycles.
According to Espenilla, these are cycles the Philippines could confidently ride out.
"In the end, these are really businesses that have ups and downs. Right now is really a clear 'down' scenario. We have the capacity to withstand this. We can ride this out."source
Monday, September 29, 2008
Dow plummets record 777 as financial rescue fails
NEW YORK - The failure of the bailout package in Congress literally dropped jaws on Wall Street and triggered a historic selloff — including a terrifying decline of nearly 500 points in mere minutes as the vote took place, the closest thing to panic the stock market has seen in years.
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The Dow Jones industrial average lost 777 points Monday, its biggest single-day fall ever, easily beating the 684 points it lost on the first day of trading after the Sept. 11, 2001, terrorist attacks.
As uncertainty gripped investors, the credit markets, which provide the day-to-day lending that powers business in the United States, froze up even further.
At the New York Stock Exchange, traders watched with faces tense and mouths agape as TV screens showed the House vote rejecting the Bush administration's $700 billion plan to buy up bad debt and shore up the financial industry.
Activity on the trading floor became frenetic as the "sell" orders blew in. The selling was so intense that just 162 stocks on the Big Board rose, while 3,073 dropped.
The Dow Jones Wilshire 5000 Composite Index recorded a paper loss of $1 trillion across the market for the day, a first.
The Dow industrials, which were down 210 points at 1:30 p.m. EDT, nose-dived as traders on Wall Street and investors across the country saw "no" votes piling up on live TV feeds of the House vote.
By 1:42 p.m., the decline was 292 points. Then the bottom fell out. Within five minutes, the index was down about 700 points as it became clear the bill was doomed.
"How could this have happened? Is there such a disconnect on Capitol Hill? This becomes a problem because Wall Street is very uncomfortable with uncertainty," said Gordon Charlop, managing director with Rosenblatt Securities.
"The bailout not going through sends a signal that Congress isn't willing to do their part," he added.
While investors didn't believe that the plan was a cure-all and it could take months for its effects to be felt, most market watchers believed it was at least a start toward setting the economy right and unlocking credit.
"Clearly something needs to be done, and the market dropping 400 points in 10 minutes is telling you that," said Chris Johnson, president of Johnson Research Group. "This isn't a market for the timid."
Before trading even began came word that Wachovia Corp., one of the biggest banks to struggle from rising mortgage losses, was being rescued in a buyout by Citigroup Inc.
That followed the recent forced sale of Merrill Lynch & Co. and the failure of three other huge banking companies — Bear Stearns Cos., Washington Mutual Inc. and Lehman Brothers Holdings Inc., all of them felled by bad mortgage investments.
And it raised the question: Which banks are next, and how many? The Federal Deposit Insurance Corp. lists more than 110 banks in trouble in the second quarter, and the number has probably grown since.
Wall Street is contending with all of it against the backdrop of a credit market — where bonds and loans are bought and sold — that is barely functioning because of fears that anyone lending money will never be paid back.
More evidence could be found Monday in the Treasury's three-month bill, where investors were stashing money, willing to accept the tiniest of returns simply to be sure that their principal would survive. The yield on the three-month bill was 0.15 percent, down from 0.87 percent and approaching zero, a level reached last week when fear was also running high.
Analysts said the government needs to find a way to help restore confidence in the markets.
"It's probably fair to say that we are not going to see any significant stability in the credit markets or the stock market until we see some sort of rescue package passed," said Fred Dickson, director of retail research for D.A. Davidson & Co.
The bailout bill failed 228-205 in the House, and Democratic leaders said the House would reconvene Thursday in hopes of a quick vote on a revised bill.
"We need to put something back together that works," Treasury Secretary Henry Paulson said. "We need it as soon as possible."
The Dow fell 777.68 points, just shy of 7 percent, to 10,365.45, its lowest close in nearly three years. The decline also surpasses the record for the biggest decline during a trading day — 721.56 at one point on Sept. 17, 2001, when the market reopened after 9/11.
In percentage terms, it was only the 17th-biggest decline for the Dow, far less severe than the 20-plus-percent drops seen on Black Monday in 1987 and before the Great Depression.
Broader stock indicators also plummeted. The Standard & Poor's 500 index declined 106.62, or nearly 9 percent, to 1,106.39. It was the S&P's largest-ever point drop and its biggest percentage loss since the week after the October 1987 crash.
The Nasdaq composite index fell 199.61, more than 9 percent, to 1,983.73, its third-worst percentage decline. The Russell 2000 index of smaller companies fell 47.07, or 6.7 percent, to 657.72.
A huge drop in oil prices was another sign of the economic chaos that investors fear. Light, sweet crude fell $10.52 to settle at $96.36 on the New York Mercantile Exchange as investors feared energy demand would continue to slide amid further economic weakness. And gold, where investors flock when they need a relatively secure investment, rose $23.20 to $911.70 on the Nymex.
Marc Pado, U.S. market strategist at Cantor Fitzgerald, said investors are worried about the spread of troubles beyond banks in the U.S. to Europe and other markets.
"Things are dying and breaking apart," he said.
The federal Office of Thrift Supervision, one of the government's banking regulators, indicated that the market was overreacting to the House vote and that its fears about the financial system are misplaced.
"There is an irrational financial panic taking place today, and we support and applaud the continuing efforts of Secretary Paulson and congressional leadership to restore liquidity and public confidence," John Reich, Director of the federal Office of Thrift Supervision, said in a statement.
The plan would have placed caps on pay packages of top executives that accepted help from the government, and included assurances the government would ultimately be reimbursed by the companies for any losses.
The Treasury would have been permitted to spend $250 billion to buy banks' risky assets, giving them a much-needed cash infusion. There also would be another $100 billion for use at the president's discretion and a final $350 billion if Congress signs off.
But Wall Street found further reason for worry overseas. Three European governments agreed to a $16.4 billion bailout for Fortis NV, Belgium's largest retail bank, and the British government said it was nationalizing mortgage lender Bradford & Bingley, which has a $91 billion mortgage and loan portfolio. It was the latest sign that the credit crisis has spread beyond the U.S. source
Sunday, September 28, 2008
Wachovia bank in talks to be bought
Wachovia Corp is in talks with rivals to be taken over, sources familiar with the situation said on Sunday, after the U.S. bank's shares fell 27 percent on Friday due to ongoing concerns about its portfolio of illiquid mortgage assets.
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Citigroup Inc is among the parties in talks with Wachovia, the two sources said, and one source said Wells Fargo & Co was also in discussions.
The New York Times said the two companies were locked in a bidding war for a possible takeover of Wachovia, citing people involved in the talks. The U.S. government, led by the Federal Reserve and the Treasury Department, is also involved in the talks, the newspaper said.
The government is resisting guaranteeing some of Wachovia's assets, as it did for Bear Stearns when it engineered that company's sale to JPMorgan Chase & Co, and is also opposed to taking over Wachovia unless its financial position deteriorates more rapidly.
Talks could go past Sunday night, the newspaper said.
Citigroup and Wells Fargo are unlikely to bid more than a few dollars a share for Wachovia, whose shares closed Friday at $10, the newspaper said. It is unclear whether Wachovia would be sold as a whole or be broken up, or how much Wachovia bondholders might lose in any transaction, it said.
A Wachovia spokeswoman declined to comment. Citigroup and Wells Fargo could not be immediately reached for comment.
Investor concern about Wachovia mounted Friday after JPMorgan said it would take a $31 billion write-down on loans it acquired when it took over Washington Mutual Inc's banking unit on Thursday.
The write-down raised worry that Wachovia might have to take much larger write-downs on a $122 billion portfolio of option adjustable-rate mortgages it largely inherited when it bought California lender Golden West Financial Corp in 2006.,source
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Citigroup Inc is among the parties in talks with Wachovia, the two sources said, and one source said Wells Fargo & Co was also in discussions.
The New York Times said the two companies were locked in a bidding war for a possible takeover of Wachovia, citing people involved in the talks. The U.S. government, led by the Federal Reserve and the Treasury Department, is also involved in the talks, the newspaper said.
The government is resisting guaranteeing some of Wachovia's assets, as it did for Bear Stearns when it engineered that company's sale to JPMorgan Chase & Co, and is also opposed to taking over Wachovia unless its financial position deteriorates more rapidly.
Talks could go past Sunday night, the newspaper said.
Citigroup and Wells Fargo are unlikely to bid more than a few dollars a share for Wachovia, whose shares closed Friday at $10, the newspaper said. It is unclear whether Wachovia would be sold as a whole or be broken up, or how much Wachovia bondholders might lose in any transaction, it said.
A Wachovia spokeswoman declined to comment. Citigroup and Wells Fargo could not be immediately reached for comment.
Investor concern about Wachovia mounted Friday after JPMorgan said it would take a $31 billion write-down on loans it acquired when it took over Washington Mutual Inc's banking unit on Thursday.
The write-down raised worry that Wachovia might have to take much larger write-downs on a $122 billion portfolio of option adjustable-rate mortgages it largely inherited when it bought California lender Golden West Financial Corp in 2006.,source
Saturday, September 27, 2008
Iran escapes sanctions in new UN resolution
Six world powers handed the UN Security Council a draft resolution on Iran's nuclear program�last night�after the United States, facing stiff Russian opposition, failed to secure agreement for new sanctions. Ambassador Alejandro Wolff of the United States, which like European powers favours more sanctions, said the draft, calling on Iran to comply with previous resolutions demanding it suspend uranium enrichment, was an important "show of unity." Russia said it was not a time to consider new...
source
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4 milk brands delisted; BFAD says products not from China
Tianjin: Chinese Premier Wen Jiabao tried to reassure the world yesterday that his government was serious about food safety in the light of a scandal over tainted milk powder. Thousands of Chinese children have become ill after drinking milk formula contaminated with melamine, which can cause kidney stones, and countries around the world...
Four milk brands were removed Saturday from the list of milk products that would be subjected to laboratory tests by the Bureau of Food and Drugs after the agency learned that the dairy products did not come from China.
Fonterra, the company that supplies Anchor Lite Milk, Anlene Milk Low Fat, Anmum Materna and Anmum Materna Chocolate in the Philippines, clarified to BFAD that its products were made in New Zealand.
The company was a former part owner of China’s San Lu Group, the company that produced the melamine-contaminated milk.
“[So we] clarified [the matter] with BFAD today (Saturday) and [we] provided evidence that Anchor, Anlene, Anmum all came from New Zealand," said Alan Fitzmmon, regional director of Fonterra.
Leticia Barbara Gutierrez, head of BFAD, said that the agency reviewed Fonterra’s evidence.
“Then we found out they were manufactured in New Zealand, so we have to delete them from the list," she said.
The Philippines has banned all milk imports from China as a precaution against the spread of melamine-contaminated baby formula that has sickened more than 53,000 Chinese, mostly infants.
Last Tuesday, Gutierrez said that a temporary ban on importation, distribution and sale of infant formula and milk products has been imposed.
She said her office has no record of baby formula imports from China, but advises consumers not to buy infant milk that may have entered the country from China illegally.
Officials nationwide have been urged to investigate whether baby formula and milk products made in China may have been smuggled into the country.
BFAD on Friday released the names of more than 50 milk brands and milk-based products that would be tested for possible melamine contamination.
In a radio interview, Gutierrez said the list that they have come out so far is still partial.
She said some more brands will be named in the next few days.
In another development, Hong Kong authorities said Chinese-made milk tablets have been found to contain traces of the industrial chemical melamine.
The Center for Food Safety said late Saturday that milk tablets produced by Inner Mongolia Li Cheng Industrial Ltd. in China were tainted with the chemical.
The center also found melamine in three Chinese-made cookie samples produced by Japan's Lotte China Foods Co.
On Thursday, Macau's Health Bureau also found that melamine in the Koala's March brand cookies made by Lotte was 24 times the safe limit main source
Four milk brands were removed Saturday from the list of milk products that would be subjected to laboratory tests by the Bureau of Food and Drugs after the agency learned that the dairy products did not come from China.
Fonterra, the company that supplies Anchor Lite Milk, Anlene Milk Low Fat, Anmum Materna and Anmum Materna Chocolate in the Philippines, clarified to BFAD that its products were made in New Zealand.
The company was a former part owner of China’s San Lu Group, the company that produced the melamine-contaminated milk.
“[So we] clarified [the matter] with BFAD today (Saturday) and [we] provided evidence that Anchor, Anlene, Anmum all came from New Zealand," said Alan Fitzmmon, regional director of Fonterra.
Leticia Barbara Gutierrez, head of BFAD, said that the agency reviewed Fonterra’s evidence.
“Then we found out they were manufactured in New Zealand, so we have to delete them from the list," she said.
The Philippines has banned all milk imports from China as a precaution against the spread of melamine-contaminated baby formula that has sickened more than 53,000 Chinese, mostly infants.
Last Tuesday, Gutierrez said that a temporary ban on importation, distribution and sale of infant formula and milk products has been imposed.
She said her office has no record of baby formula imports from China, but advises consumers not to buy infant milk that may have entered the country from China illegally.
Officials nationwide have been urged to investigate whether baby formula and milk products made in China may have been smuggled into the country.
BFAD on Friday released the names of more than 50 milk brands and milk-based products that would be tested for possible melamine contamination.
In a radio interview, Gutierrez said the list that they have come out so far is still partial.
She said some more brands will be named in the next few days.
In another development, Hong Kong authorities said Chinese-made milk tablets have been found to contain traces of the industrial chemical melamine.
The Center for Food Safety said late Saturday that milk tablets produced by Inner Mongolia Li Cheng Industrial Ltd. in China were tainted with the chemical.
The center also found melamine in three Chinese-made cookie samples produced by Japan's Lotte China Foods Co.
On Thursday, Macau's Health Bureau also found that melamine in the Koala's March brand cookies made by Lotte was 24 times the safe limit main source
Obama slams McCain for not mentioning middle class
GREENSBORO, North Carolina - Democratic presidential candidate Barack Obama on Saturday called Republican John McCain out of touch with middle-class Americans, telling supporters that his rival never once uttered the words "middle class" during their first debate.
"Through 90 minutes of debate, John McCain had a lot to say about me, but he didn't have anything to say about you," Obama told a cheering crowd at the J. Douglas Galyon Depot in downtown Greensboro. "He didn't even say the words 'middle class.' He didn't even say the words 'working people.'"
Obama debuted his post-debate attack on McCain with a campaign swing through Republican-leaning states where he thinks he can make inroads.
The Illinois senator is trying capitalize on his debate performance by taking McCain to task for not talking about any plans for helping middle class Americans in the midst of the country's financial and fiscal crisis.
"Just as important as what we heard from John McCain is what we didn't hear from John McCain," Obama said. "We talked about the economy for 40 minutes and not once did Sen. McCain talk about the struggles of middle-class families. Not once did he talk about what they are facing every day here in North Carolina and across the country."
Obama's running mate, Sen. Joe Biden of Delaware, called McCain's judgment on every important issue "wrong."
"Last night, John McCain's silence on the middle class was deafening," Biden said. "We need more than a brave soldier. We need a wise leader."
The Obama campaign tried to back up that point in its newest ad, a spot released Saturday that also notes McCain never mentioned the middle class during the debate. "McCain doesn't get it," the announcer says. "Barack Obama does."
"We need a president who will fight for the middle class every day, and that's what I will do when I'm in the Oval Office," Obama told the cheering crowd.
Obama advisers were encouraged by his performance in the foreign policy arena at the debate at the University of Mississippi but immediately started dampening expectations for future debates.
"This was supposed to be John McCain's turf, and Barack Obama owned it," Biden said.
Obama adviser David Plouffe told reporters the Democrat "spoke really to people in their homes about needing a president who is going to fight for the middle class, who is going to work on things like education and health care."
The presidential hopefuls are scheduled to debate twice more, at Belmont University in Nashville on Oct. 7 and at Hofstra University in Hempsted, New York, on Oct. 15.
The next debate will be a town hall format in which members of the audience ask questions, and Plouffe called McCain the "undisputed town hall champion." source
"Through 90 minutes of debate, John McCain had a lot to say about me, but he didn't have anything to say about you," Obama told a cheering crowd at the J. Douglas Galyon Depot in downtown Greensboro. "He didn't even say the words 'middle class.' He didn't even say the words 'working people.'"
Obama debuted his post-debate attack on McCain with a campaign swing through Republican-leaning states where he thinks he can make inroads.
The Illinois senator is trying capitalize on his debate performance by taking McCain to task for not talking about any plans for helping middle class Americans in the midst of the country's financial and fiscal crisis.
"Just as important as what we heard from John McCain is what we didn't hear from John McCain," Obama said. "We talked about the economy for 40 minutes and not once did Sen. McCain talk about the struggles of middle-class families. Not once did he talk about what they are facing every day here in North Carolina and across the country."
Obama's running mate, Sen. Joe Biden of Delaware, called McCain's judgment on every important issue "wrong."
"Last night, John McCain's silence on the middle class was deafening," Biden said. "We need more than a brave soldier. We need a wise leader."
The Obama campaign tried to back up that point in its newest ad, a spot released Saturday that also notes McCain never mentioned the middle class during the debate. "McCain doesn't get it," the announcer says. "Barack Obama does."
"We need a president who will fight for the middle class every day, and that's what I will do when I'm in the Oval Office," Obama told the cheering crowd.
Obama advisers were encouraged by his performance in the foreign policy arena at the debate at the University of Mississippi but immediately started dampening expectations for future debates.
"This was supposed to be John McCain's turf, and Barack Obama owned it," Biden said.
Obama adviser David Plouffe told reporters the Democrat "spoke really to people in their homes about needing a president who is going to fight for the middle class, who is going to work on things like education and health care."
The presidential hopefuls are scheduled to debate twice more, at Belmont University in Nashville on Oct. 7 and at Hofstra University in Hempsted, New York, on Oct. 15.
The next debate will be a town hall format in which members of the audience ask questions, and Plouffe called McCain the "undisputed town hall champion." source
Friday, September 26, 2008
Lawmakers to tackle bailout plan again Friday
Congressional leaders will try again on Friday to save a $700 billion Wall Street rescue plan after talks broke down in acrimony against the backdrop of the nation's biggest-ever bank failure.
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As negotiations over the White House's unprecedented bailout scheme degenerated into chaos when a rival Republican plan emerged, the U.S. authorities shut down Washington Mutual, the largest U.S. savings and loan bank, and sold its assets.
Democratic Rep. Barney Frank, who has played a key role in talks over the bailout plan, said negotiations would continue on Friday, but with no sign that Republicans in the House of Representatives would take part.
He said he hoped President George W. Bush and Republican presidential candidate John McCain could convince them to join the talks, where Senate and House Democrats, Senate Republicans and the Treasury Department were working together and "there aren't huge differences."
"I can't believe that House Republicans are going to continue to defy George Bush or that John McCain isn't going to try to help," said. "There is optimism."
Senior Democrats had said after the meeting that McCain gave the impression he backed the new plan, but the McCain campaign denied that he had endorsed anything.
U.S. stock futures, the dollar and Asian share markets all fell, while Treasuries rose reflecting heightened anxiety over Washington's efforts to contain the 13-month old credit crisis.
"The Congress doesn't really want the plan -- no one really wants the plan, but the alternative is too bad to contemplate," said Jan Lambregts, head of Asia research with Rabobank Global Financial Markets in Hong Kong.
Central banks in Japan, Australia and Switzerland, the euro area and Britain were back in action, pumping more cash into money markets, rattled by news of another bank failure and the bailout plan's setback.
The third-largest U.S. bank JPMorgan Chase & Co said on Thursday it bought the deposits of Washington Mutual Inc, which has seen its market value virtually wiped out because of massive amounts of bad mortgages. The government said there would be no impact on WaMu's depositors and customers. JPMorgan said it would be business as usual on Friday morning.
Had a bailout deal been reached in Congress, it might have helped the savings and loan, founded in Seattle in 1889. Efforts to find a buyer for WaMu have faltered over concerns whether the government would reach a deal to buy its toxic mortgages.
The upheaval in Washington comes after a month of turbulence marked by the government's takeover of mortgage companies Fannie Mae and Freddie Mac, the bailout of insurer AIG and the bankruptcy of investment bank Lehman Brothers.
At one point, U.S. lawmakers had appeared close to an agreement on the bailout, lifting world stock markets and sending the dollar higher.
But an emergency White House meeting between Congressional leaders, Bush, McCain and Democratic presidential candidate Barack Obama "devolved into a contentious shouting match," according to the McCain campaign's statement.
At the heart of the controversy was a new proposal by House Republicans which would scrap the legislation that had been crafted so far by the Treasury and lawmakers in favor of a rival mortgage insurance plan, put forward by conservative Republicans.
The conservative group's plan calls for the U.S. government to offer insurance coverage for the roughly half of all mortgage-backed securities that it does not already insure.
The architects of the original plan, U.S. Treasury Secretary Henry Paulson and U.S. Federal Reserve Chairman Ben Bernanke, rushed to Capitol Hill for late night meetings to urge House Republicans to get back on track.
As Thursday's meeting began, Bush warned, "We're in a serious economic crisis in the country if we don't pass a piece of legislation."
Frank, the powerful chairman of the House Financial Services Committee, said before the Bush meeting that the deal would give the money to the U.S. Treasury in installments rather than a $700 billion lump sum the Bush administration wanted.
The enormity of the deal, which would cost every man, woman and child in the United States about $2,300, led many lawmakers to ask Paulson during two days of rancorous hearings this week to take the cash in installments.
The bailout exceeds total lending by the International Monetary Fund since its inception after World War Two. The IMF has loaned $506.7 billion since 1947 to countries in crisis as far flung as Argentina, Britain, Turkey and South Korea.
Frank also said the deal would allow the government to take part-ownership of banks and ban companies that sell toxic assets to the government from paying massive "golden parachutes" to executives being fired.
The swirl of political theater and meetings in Washington followed fresh turbulence in the world economy.
Orders for costly U.S. manufactured goods plunged in August, new-home sales hit a 17-year low, while new claims for jobless benefits shot up last week.
Top U.S. industrial conglomerate General Electric Co, widely seen as a bellwether of the U.S. economy, issued a profit warning, citing "unprecedented weakness and volatility" in the financial services market.
HSBC Holdings, Europe's biggest bank, said on Friday it was cutting 1,100 jobs or 4 percent of its total workforce, because of the global financial crisis.
The crisis reverberated in Amsterdam and Brussels, where Fortis NV, the Belgian-Dutch financial services group, denied a rumor the Dutch central bank had asked a Fortis rival to support the company's liquidity position.
Fortis shares sank as much as 21 percent to 14-year lows.
In Asia, hundreds of people lined up outside the Hong Kong branches of the Bank of East Asia Ltd, some sleeping there overnight, to withdraw their savings. source
Lawmakers to tackle bailout plan again Friday
Congressional leaders will try again on Friday to save a $700 billion Wall Street rescue plan after talks broke down in acrimony against the backdrop of the nation's biggest-ever bank failure.
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As negotiations over the White House's unprecedented bailout scheme degenerated into chaos when a rival Republican plan emerged, the U.S. authorities shut down Washington Mutual, the largest U.S. savings and loan bank, and sold its assets.
Democratic Rep. Barney Frank, who has played a key role in talks over the bailout plan, said negotiations would continue on Friday, but with no sign that Republicans in the House of Representatives would take part.
He said he hoped President George W. Bush and Republican presidential candidate John McCain could convince them to join the talks, where Senate and House Democrats, Senate Republicans and the Treasury Department were working together and "there aren't huge differences."
"I can't believe that House Republicans are going to continue to defy George Bush or that John McCain isn't going to try to help," said. "There is optimism."
Senior Democrats had said after the meeting that McCain gave the impression he backed the new plan, but the McCain campaign denied that he had endorsed anything.
U.S. stock futures, the dollar and Asian share markets all fell, while Treasuries rose reflecting heightened anxiety over Washington's efforts to contain the 13-month old credit crisis.
"The Congress doesn't really want the plan -- no one really wants the plan, but the alternative is too bad to contemplate," said Jan Lambregts, head of Asia research with Rabobank Global Financial Markets in Hong Kong.
Central banks in Japan, Australia and Switzerland, the euro area and Britain were back in action, pumping more cash into money markets, rattled by news of another bank failure and the bailout plan's setback.
The third-largest U.S. bank JPMorgan Chase & Co said on Thursday it bought the deposits of Washington Mutual Inc, which has seen its market value virtually wiped out because of massive amounts of bad mortgages. The government said there would be no impact on WaMu's depositors and customers. JPMorgan said it would be business as usual on Friday morning.
Had a bailout deal been reached in Congress, it might have helped the savings and loan, founded in Seattle in 1889. Efforts to find a buyer for WaMu have faltered over concerns whether the government would reach a deal to buy its toxic mortgages.
The upheaval in Washington comes after a month of turbulence marked by the government's takeover of mortgage companies Fannie Mae and Freddie Mac, the bailout of insurer AIG and the bankruptcy of investment bank Lehman Brothers.
At one point, U.S. lawmakers had appeared close to an agreement on the bailout, lifting world stock markets and sending the dollar higher.
But an emergency White House meeting between Congressional leaders, Bush, McCain and Democratic presidential candidate Barack Obama "devolved into a contentious shouting match," according to the McCain campaign's statement.
At the heart of the controversy was a new proposal by House Republicans which would scrap the legislation that had been crafted so far by the Treasury and lawmakers in favor of a rival mortgage insurance plan, put forward by conservative Republicans.
The conservative group's plan calls for the U.S. government to offer insurance coverage for the roughly half of all mortgage-backed securities that it does not already insure.
The architects of the original plan, U.S. Treasury Secretary Henry Paulson and U.S. Federal Reserve Chairman Ben Bernanke, rushed to Capitol Hill for late night meetings to urge House Republicans to get back on track.
As Thursday's meeting began, Bush warned, "We're in a serious economic crisis in the country if we don't pass a piece of legislation."
Frank, the powerful chairman of the House Financial Services Committee, said before the Bush meeting that the deal would give the money to the U.S. Treasury in installments rather than a $700 billion lump sum the Bush administration wanted.
The enormity of the deal, which would cost every man, woman and child in the United States about $2,300, led many lawmakers to ask Paulson during two days of rancorous hearings this week to take the cash in installments.
The bailout exceeds total lending by the International Monetary Fund since its inception after World War Two. The IMF has loaned $506.7 billion since 1947 to countries in crisis as far flung as Argentina, Britain, Turkey and South Korea.
Frank also said the deal would allow the government to take part-ownership of banks and ban companies that sell toxic assets to the government from paying massive "golden parachutes" to executives being fired.
The swirl of political theater and meetings in Washington followed fresh turbulence in the world economy.
Orders for costly U.S. manufactured goods plunged in August, new-home sales hit a 17-year low, while new claims for jobless benefits shot up last week.
Top U.S. industrial conglomerate General Electric Co, widely seen as a bellwether of the U.S. economy, issued a profit warning, citing "unprecedented weakness and volatility" in the financial services market.
HSBC Holdings, Europe's biggest bank, said on Friday it was cutting 1,100 jobs or 4 percent of its total workforce, because of the global financial crisis.
The crisis reverberated in Amsterdam and Brussels, where Fortis NV, the Belgian-Dutch financial services group, denied a rumor the Dutch central bank had asked a Fortis rival to support the company's liquidity position.
Fortis shares sank as much as 21 percent to 14-year lows.
In Asia, hundreds of people lined up outside the Hong Kong branches of the Bank of East Asia Ltd, some sleeping there overnight, to withdraw their savings. source
ADVERTISEMENT
As negotiations over the White House's unprecedented bailout scheme degenerated into chaos when a rival Republican plan emerged, the U.S. authorities shut down Washington Mutual, the largest U.S. savings and loan bank, and sold its assets.
Democratic Rep. Barney Frank, who has played a key role in talks over the bailout plan, said negotiations would continue on Friday, but with no sign that Republicans in the House of Representatives would take part.
He said he hoped President George W. Bush and Republican presidential candidate John McCain could convince them to join the talks, where Senate and House Democrats, Senate Republicans and the Treasury Department were working together and "there aren't huge differences."
"I can't believe that House Republicans are going to continue to defy George Bush or that John McCain isn't going to try to help," said. "There is optimism."
Senior Democrats had said after the meeting that McCain gave the impression he backed the new plan, but the McCain campaign denied that he had endorsed anything.
U.S. stock futures, the dollar and Asian share markets all fell, while Treasuries rose reflecting heightened anxiety over Washington's efforts to contain the 13-month old credit crisis.
"The Congress doesn't really want the plan -- no one really wants the plan, but the alternative is too bad to contemplate," said Jan Lambregts, head of Asia research with Rabobank Global Financial Markets in Hong Kong.
Central banks in Japan, Australia and Switzerland, the euro area and Britain were back in action, pumping more cash into money markets, rattled by news of another bank failure and the bailout plan's setback.
The third-largest U.S. bank JPMorgan Chase & Co said on Thursday it bought the deposits of Washington Mutual Inc, which has seen its market value virtually wiped out because of massive amounts of bad mortgages. The government said there would be no impact on WaMu's depositors and customers. JPMorgan said it would be business as usual on Friday morning.
Had a bailout deal been reached in Congress, it might have helped the savings and loan, founded in Seattle in 1889. Efforts to find a buyer for WaMu have faltered over concerns whether the government would reach a deal to buy its toxic mortgages.
The upheaval in Washington comes after a month of turbulence marked by the government's takeover of mortgage companies Fannie Mae and Freddie Mac, the bailout of insurer AIG and the bankruptcy of investment bank Lehman Brothers.
At one point, U.S. lawmakers had appeared close to an agreement on the bailout, lifting world stock markets and sending the dollar higher.
But an emergency White House meeting between Congressional leaders, Bush, McCain and Democratic presidential candidate Barack Obama "devolved into a contentious shouting match," according to the McCain campaign's statement.
At the heart of the controversy was a new proposal by House Republicans which would scrap the legislation that had been crafted so far by the Treasury and lawmakers in favor of a rival mortgage insurance plan, put forward by conservative Republicans.
The conservative group's plan calls for the U.S. government to offer insurance coverage for the roughly half of all mortgage-backed securities that it does not already insure.
The architects of the original plan, U.S. Treasury Secretary Henry Paulson and U.S. Federal Reserve Chairman Ben Bernanke, rushed to Capitol Hill for late night meetings to urge House Republicans to get back on track.
As Thursday's meeting began, Bush warned, "We're in a serious economic crisis in the country if we don't pass a piece of legislation."
Frank, the powerful chairman of the House Financial Services Committee, said before the Bush meeting that the deal would give the money to the U.S. Treasury in installments rather than a $700 billion lump sum the Bush administration wanted.
The enormity of the deal, which would cost every man, woman and child in the United States about $2,300, led many lawmakers to ask Paulson during two days of rancorous hearings this week to take the cash in installments.
The bailout exceeds total lending by the International Monetary Fund since its inception after World War Two. The IMF has loaned $506.7 billion since 1947 to countries in crisis as far flung as Argentina, Britain, Turkey and South Korea.
Frank also said the deal would allow the government to take part-ownership of banks and ban companies that sell toxic assets to the government from paying massive "golden parachutes" to executives being fired.
The swirl of political theater and meetings in Washington followed fresh turbulence in the world economy.
Orders for costly U.S. manufactured goods plunged in August, new-home sales hit a 17-year low, while new claims for jobless benefits shot up last week.
Top U.S. industrial conglomerate General Electric Co, widely seen as a bellwether of the U.S. economy, issued a profit warning, citing "unprecedented weakness and volatility" in the financial services market.
HSBC Holdings, Europe's biggest bank, said on Friday it was cutting 1,100 jobs or 4 percent of its total workforce, because of the global financial crisis.
The crisis reverberated in Amsterdam and Brussels, where Fortis NV, the Belgian-Dutch financial services group, denied a rumor the Dutch central bank had asked a Fortis rival to support the company's liquidity position.
Fortis shares sank as much as 21 percent to 14-year lows.
In Asia, hundreds of people lined up outside the Hong Kong branches of the Bank of East Asia Ltd, some sleeping there overnight, to withdraw their savings. source
WaMu is largest U.S. bank failure
Washington Mutual Inc was closed by the U.S. government in by far the largest failure of a U.S. bank, and its banking assets were sold to JPMorgan Chase & Co for $1.9 billion.
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Thursday's seizure and sale is the latest historic step in U.S. government attempts to clean up a banking industry littered with toxic mortgage debt. Negotiations over a $700 billion bailout of the entire financial system stalled in Washington on Thursday.
Washington Mutual, the largest U.S. savings and loan, has been one of the lenders hardest hit by the nation's housing bust and credit crisis, and had already suffered from soaring mortgage losses.
Washington Mutual was shut by the federal Office of Thrift Supervision, and the Federal Deposit Insurance Corp was named receiver. This followed $16.7 billion of deposit outflows at the Seattle-based thrift since Sept 15, the OTS said.
"With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business," the OTS said.
Customers should expect business as usual on Friday, and all depositors are fully protected, the FDIC said.
FDIC Chairman Sheila Bair said the bailout happened on Thursday night because of media leaks, and to calm customers. Usually, the FDIC takes control of failed institutions on Friday nights, giving it the weekend to go through the books and enable them to reopen smoothly the following Monday.
Washington Mutual has about $307 billion of assets and $188 billion of deposits, regulators said. The largest previous U.S. banking failure was Continental Illinois National Bank & Trust, which had $40 billion of assets when it collapsed in 1984.
JPMorgan said the transaction means it will now have 5,410 branches in 23 U.S. states from coast to coast, as well as the largest U.S. credit card business.
It vaults JPMorgan past Bank of America Corp to become the nation's second-largest bank, with $2.04 trillion of assets, just behind Citigroup Inc. Bank of America will go to No. 1 once it completes its planned purchase of Merrill Lynch & Co.
The bailout also fulfills JPMorgan Chief Executive Jamie Dimon's long-held goal of becoming a retail bank force in the western United States. It comes four months after JPMorgan acquired the failing investment bank Bear Stearns Cos at a fire-sale price through a government-financed transaction.
On a conference call, Dimon said the "risk here obviously is the asset values."
He added: "That's what created this opportunity."
JPMorgan expects to incur $1.5 billion of pre-tax costs, but realize an equal amount of annual savings, mostly by the end of 2010. It expects the transaction to add to earnings immediately, and increase earnings 70 cents per share by 2011.
It also plans to sell $8 billion of stock, and take a $31 billion write-down for the loans it bought, representing estimated future credit losses.
The FDIC said the acquisition does not cover claims of Washington Mutual equity, senior debt and subordinated debt holders. It also said the transaction will not affect its roughly $45.2 billion deposit insurance fund.
"Jamie Dimon is clearly feeling that he has an opportunity to grab market share, and get it at fire-sale prices," said Matt McCormick, a portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati. "He's becoming an acquisition machine."
BAILOUT UNCERTAINTY
The transaction came as Washington wrangles over the fate of a $700 billion bailout of the financial services industry, which has been battered by mortgage defaults and tight credit conditions, and evaporating investor confidence.
"It removes an uncertainty from the market," said Shane Oliver, head of investment strategy at AMP Capital in Sydney. "The problem is that markets are in a jittery stage. Washington Mutual provides another reminder how tenuous things are."
Washington Mutual's collapse is the latest of a series of takeovers and outright failures that have transformed the American financial landscape and wiped out hundreds of billions of dollars of shareholder wealth.
These include the disappearance of Bear, government takeovers of mortgage companies Fannie Mae and Freddie Mac and the insurer American International Group Inc, the bankruptcy of Lehman Brothers Holdings Inc, and Bank of America's purchase of Merrill.
JPMorgan, based in New York, ended June with $1.78 trillion of assets, $722.9 billion of deposits and 3,157 branches. Washington Mutual then had 2,239 branches and 43,198 employees. It is unclear how many people will lose their jobs.
Shares of Washington Mutual plunged $1.24 to 45 cents in after-hours trading after news of a JPMorgan transaction surfaced. JPMorgan shares rose $1.04 to $44.50 after hours, but before the stock offering was announced.
119-YEAR HISTORY
The transaction ends exactly 119 years of independence for Washington Mutual, whose predecessor was incorporated on September 25, 1889, "to offer its stockholders a safe and profitable vehicle for investing and lending," according to the thrift's website. This helped Seattle residents rebuild after a fire torched the city's downtown.
It also follows more than a week of sale talks in which Washington Mutual attracted interest from several suitors.
These included Banco Santander SA, Citigroup Inc, HSBC Holdings Plc, Toronto-Dominion Bank and Wells Fargo & Co, as well as private equity firms Blackstone Group LP and Carlyle Group, people familiar with the situation said.
Less than three weeks ago, Washington Mutual ousted Chief Executive Kerry Killinger, who drove the thrift's growth as well as its expansion in subprime and other risky mortgages. It replaced him with Alan Fishman, the former chief executive of Brooklyn, New York's Independence Community Bank Corp.
WaMu's board was surprised at the seizure, and had been working on alternatives, people familiar with the matter said.
More than half of Washington Mutual's roughly $227 billion book of real estate loans was in home equity loans, and in adjustable-rate mortgages and subprime mortgages that are now considered risky.
The transaction wipes out a $1.35 billion investment by David Bonderman's private equity firm TPG Inc, the lead investor in a $7 billion capital raising by the thrift in April.
A TPG spokesman said the firm is "dissatisfied with the loss," but that the investment "represented a very small portion of our assets."
DIMON POUNCES
The deal is the latest ambitious move by Dimon.
Once a golden child at Citigroup before his mentor Sanford "Sandy" Weill engineered his ouster in 1998, Dimon has carved for himself something of a role as a Wall Street savior.
Dimon joined JPMorgan in 2004 after selling his Bank One Corp to the bank for $56.9 billion, and became chief executive at the end of 2005.
Some historians see parallels between him and the legendary financier John Pierpont Morgan, who ran J.P. Morgan & Co and was credited with intervening to end a banking panic in 1907.
JPMorgan has suffered less than many rivals from the credit crisis, but has been hurt. It said on Thursday it has already taken $3 billion to $3.5 billion of write-downs this quarter on mortgages and leveraged loans.
Washington Mutual has a major presence in California and Florida, two of the states hardest hit by the housing crisis. It also has a big presence in the New York City area. The thrift lost $6.3 billion in the nine months ended June 30.
"It is surprising that it has hung on for as long as it has," said Nancy Bush, an analyst at NAB Research LLC.
Source
ADVERTISEMENT
Thursday's seizure and sale is the latest historic step in U.S. government attempts to clean up a banking industry littered with toxic mortgage debt. Negotiations over a $700 billion bailout of the entire financial system stalled in Washington on Thursday.
Washington Mutual, the largest U.S. savings and loan, has been one of the lenders hardest hit by the nation's housing bust and credit crisis, and had already suffered from soaring mortgage losses.
Washington Mutual was shut by the federal Office of Thrift Supervision, and the Federal Deposit Insurance Corp was named receiver. This followed $16.7 billion of deposit outflows at the Seattle-based thrift since Sept 15, the OTS said.
"With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business," the OTS said.
Customers should expect business as usual on Friday, and all depositors are fully protected, the FDIC said.
FDIC Chairman Sheila Bair said the bailout happened on Thursday night because of media leaks, and to calm customers. Usually, the FDIC takes control of failed institutions on Friday nights, giving it the weekend to go through the books and enable them to reopen smoothly the following Monday.
Washington Mutual has about $307 billion of assets and $188 billion of deposits, regulators said. The largest previous U.S. banking failure was Continental Illinois National Bank & Trust, which had $40 billion of assets when it collapsed in 1984.
JPMorgan said the transaction means it will now have 5,410 branches in 23 U.S. states from coast to coast, as well as the largest U.S. credit card business.
It vaults JPMorgan past Bank of America Corp to become the nation's second-largest bank, with $2.04 trillion of assets, just behind Citigroup Inc. Bank of America will go to No. 1 once it completes its planned purchase of Merrill Lynch & Co.
The bailout also fulfills JPMorgan Chief Executive Jamie Dimon's long-held goal of becoming a retail bank force in the western United States. It comes four months after JPMorgan acquired the failing investment bank Bear Stearns Cos at a fire-sale price through a government-financed transaction.
On a conference call, Dimon said the "risk here obviously is the asset values."
He added: "That's what created this opportunity."
JPMorgan expects to incur $1.5 billion of pre-tax costs, but realize an equal amount of annual savings, mostly by the end of 2010. It expects the transaction to add to earnings immediately, and increase earnings 70 cents per share by 2011.
It also plans to sell $8 billion of stock, and take a $31 billion write-down for the loans it bought, representing estimated future credit losses.
The FDIC said the acquisition does not cover claims of Washington Mutual equity, senior debt and subordinated debt holders. It also said the transaction will not affect its roughly $45.2 billion deposit insurance fund.
"Jamie Dimon is clearly feeling that he has an opportunity to grab market share, and get it at fire-sale prices," said Matt McCormick, a portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati. "He's becoming an acquisition machine."
BAILOUT UNCERTAINTY
The transaction came as Washington wrangles over the fate of a $700 billion bailout of the financial services industry, which has been battered by mortgage defaults and tight credit conditions, and evaporating investor confidence.
"It removes an uncertainty from the market," said Shane Oliver, head of investment strategy at AMP Capital in Sydney. "The problem is that markets are in a jittery stage. Washington Mutual provides another reminder how tenuous things are."
Washington Mutual's collapse is the latest of a series of takeovers and outright failures that have transformed the American financial landscape and wiped out hundreds of billions of dollars of shareholder wealth.
These include the disappearance of Bear, government takeovers of mortgage companies Fannie Mae and Freddie Mac and the insurer American International Group Inc, the bankruptcy of Lehman Brothers Holdings Inc, and Bank of America's purchase of Merrill.
JPMorgan, based in New York, ended June with $1.78 trillion of assets, $722.9 billion of deposits and 3,157 branches. Washington Mutual then had 2,239 branches and 43,198 employees. It is unclear how many people will lose their jobs.
Shares of Washington Mutual plunged $1.24 to 45 cents in after-hours trading after news of a JPMorgan transaction surfaced. JPMorgan shares rose $1.04 to $44.50 after hours, but before the stock offering was announced.
119-YEAR HISTORY
The transaction ends exactly 119 years of independence for Washington Mutual, whose predecessor was incorporated on September 25, 1889, "to offer its stockholders a safe and profitable vehicle for investing and lending," according to the thrift's website. This helped Seattle residents rebuild after a fire torched the city's downtown.
It also follows more than a week of sale talks in which Washington Mutual attracted interest from several suitors.
These included Banco Santander SA, Citigroup Inc, HSBC Holdings Plc, Toronto-Dominion Bank and Wells Fargo & Co, as well as private equity firms Blackstone Group LP and Carlyle Group, people familiar with the situation said.
Less than three weeks ago, Washington Mutual ousted Chief Executive Kerry Killinger, who drove the thrift's growth as well as its expansion in subprime and other risky mortgages. It replaced him with Alan Fishman, the former chief executive of Brooklyn, New York's Independence Community Bank Corp.
WaMu's board was surprised at the seizure, and had been working on alternatives, people familiar with the matter said.
More than half of Washington Mutual's roughly $227 billion book of real estate loans was in home equity loans, and in adjustable-rate mortgages and subprime mortgages that are now considered risky.
The transaction wipes out a $1.35 billion investment by David Bonderman's private equity firm TPG Inc, the lead investor in a $7 billion capital raising by the thrift in April.
A TPG spokesman said the firm is "dissatisfied with the loss," but that the investment "represented a very small portion of our assets."
DIMON POUNCES
The deal is the latest ambitious move by Dimon.
Once a golden child at Citigroup before his mentor Sanford "Sandy" Weill engineered his ouster in 1998, Dimon has carved for himself something of a role as a Wall Street savior.
Dimon joined JPMorgan in 2004 after selling his Bank One Corp to the bank for $56.9 billion, and became chief executive at the end of 2005.
Some historians see parallels between him and the legendary financier John Pierpont Morgan, who ran J.P. Morgan & Co and was credited with intervening to end a banking panic in 1907.
JPMorgan has suffered less than many rivals from the credit crisis, but has been hurt. It said on Thursday it has already taken $3 billion to $3.5 billion of write-downs this quarter on mortgages and leveraged loans.
Washington Mutual has a major presence in California and Florida, two of the states hardest hit by the housing crisis. It also has a big presence in the New York City area. The thrift lost $6.3 billion in the nine months ended June 30.
"It is surprising that it has hung on for as long as it has," said Nancy Bush, an analyst at NAB Research LLC.
Source
Wednesday, September 24, 2008
Unrepentant Bush tells UN of his victories
GEORGE BUSH stood unrepentant and unbowed before the 192 member states of the United Nations general assembly to deliver a valedictory address devoted almost entirely to terrorism, which he described as an evil that must be defeated.
In his eighth and final address to a largely silent hall of world leaders on Tuesday, the US President sounded a note that has changed remarkably little since he first spoke to the general assembly in the wake of the September 11, 2001, attacks on New York and Washington.
He said the global movement of extremists remained a challenge as serious as any since the foundation of the UN in 1945: "Like slavery and piracy, terrorism has no place in the modern world."
Mr Bush took the opportunity to give an assessment of his two terms in power that contained no regrets and no apology.
Afghanistan and Iraq had been transformed, he said, "from regimes that actively sponsor terror to democracies that fight terror". Libya had renounced its backing of extremists and dropped its pursuit of nuclear weapons, and Pakistan and Saudi Arabia were now engaged in the struggle to root out extremism.
Democracy, too, had spread around the world under his watch. "From the voting booths of Afghanistan, Iraq and Liberia, to the orange revolution in Ukraine, the rose revolution in Georgia, the cedar revolution in Lebanon and the tulip revolution in Kyrgyzstan, we have seen people consistently make the courageous decision to demand their liberty. Whenever or wherever people are given the choice, they chose freedom."
In the seven years since Mr Bush launched the so-called war on terrorism in the wake of the September 11 attacks, his Administration has become among the most controversial in US history. It has been widely criticised on the world stage for flouting international law, and for ineffective handling of the aftermaths of the conflicts in Iraq and Afghanistan.
Mr Bush's speech comes at a time when many of his Administration's objectives appear to be going in reverse. The Taliban are on the rise again in Afghanistan, violence is rife in Pakistan, the Middle East peace initiative has stalled and attempts to stop Iran and North Korea from developing a nuclear capacity are wavering.
But the only hint at fallibility in Mr Bush's 21-minute speech came with the concession that "we have witnessed successes and setbacks" and a reference to the fight in Iraq as having been "difficult".
The decision to go ahead with the invasion of Iraq in 2003 in the absence of approval from the UN, which Mr Bush derided as being close to an irrelevance, constituted one of the most serious blows to the authority of the world body since its foundation.
On Tuesday morning, Mr Bush cited the UN's extraordinary "potential" to solve world problems but said it must be more transparent and accountable.
The President also spoke to the delegations seated in front of him from Russia, which he said had violated the UN charter by sending troops into Georgia. "We must stand united in our support of the people of Georgia. Young democracies around the world are watching to see how we respond to this test."
Later it emerged Russia had pulled out of a meeting on the sidelines of the UN assembly to discuss Iran's nuclear program. Russia's move, in effect, scuttled the meeting that was to debate new sanctions on Iran.
In his speech, Mr Bush singled out North Korea and Iran for their nuclear programs, calling on the UN to impose stiffened sanctions against both. He also singled out Iran and Syria for continuing to sponsor terrorism.source
In his eighth and final address to a largely silent hall of world leaders on Tuesday, the US President sounded a note that has changed remarkably little since he first spoke to the general assembly in the wake of the September 11, 2001, attacks on New York and Washington.
He said the global movement of extremists remained a challenge as serious as any since the foundation of the UN in 1945: "Like slavery and piracy, terrorism has no place in the modern world."
Mr Bush took the opportunity to give an assessment of his two terms in power that contained no regrets and no apology.
Afghanistan and Iraq had been transformed, he said, "from regimes that actively sponsor terror to democracies that fight terror". Libya had renounced its backing of extremists and dropped its pursuit of nuclear weapons, and Pakistan and Saudi Arabia were now engaged in the struggle to root out extremism.
Democracy, too, had spread around the world under his watch. "From the voting booths of Afghanistan, Iraq and Liberia, to the orange revolution in Ukraine, the rose revolution in Georgia, the cedar revolution in Lebanon and the tulip revolution in Kyrgyzstan, we have seen people consistently make the courageous decision to demand their liberty. Whenever or wherever people are given the choice, they chose freedom."
In the seven years since Mr Bush launched the so-called war on terrorism in the wake of the September 11 attacks, his Administration has become among the most controversial in US history. It has been widely criticised on the world stage for flouting international law, and for ineffective handling of the aftermaths of the conflicts in Iraq and Afghanistan.
Mr Bush's speech comes at a time when many of his Administration's objectives appear to be going in reverse. The Taliban are on the rise again in Afghanistan, violence is rife in Pakistan, the Middle East peace initiative has stalled and attempts to stop Iran and North Korea from developing a nuclear capacity are wavering.
But the only hint at fallibility in Mr Bush's 21-minute speech came with the concession that "we have witnessed successes and setbacks" and a reference to the fight in Iraq as having been "difficult".
The decision to go ahead with the invasion of Iraq in 2003 in the absence of approval from the UN, which Mr Bush derided as being close to an irrelevance, constituted one of the most serious blows to the authority of the world body since its foundation.
On Tuesday morning, Mr Bush cited the UN's extraordinary "potential" to solve world problems but said it must be more transparent and accountable.
The President also spoke to the delegations seated in front of him from Russia, which he said had violated the UN charter by sending troops into Georgia. "We must stand united in our support of the people of Georgia. Young democracies around the world are watching to see how we respond to this test."
Later it emerged Russia had pulled out of a meeting on the sidelines of the UN assembly to discuss Iran's nuclear program. Russia's move, in effect, scuttled the meeting that was to debate new sanctions on Iran.
In his speech, Mr Bush singled out North Korea and Iran for their nuclear programs, calling on the UN to impose stiffened sanctions against both. He also singled out Iran and Syria for continuing to sponsor terrorism.source
Tuesday, September 23, 2008
Iran's Ahmadinejad: US 'empire' nears collapse
UNITED NATIONS - Iran's president addressed the U.N. General Assembly Tuesday declaring that "the American empire" is nearing collapse and should end its military involvement in other countries.
Iranian President Mahmoud Ahmadinejad said terrorism is spreading quickly in Afghanistan while "the occupiers" are still in Iraq nearly six years after Saddam Hussein was ousted from power in Iraq.
"American empire in the world is reaching the end of its road, and its next rulers must limit their interference to their own borders," Ahmadinejad said.
He accused the U.S. of starting wars in Iraq and Afghanistan to win votes in elections and blamed a "few bullying powers" for trying to undermine Iran's nuclear program.
Ahmadinejad's hardline rhetoric came as no surprise and offered little in the way of compromise at the U.N., where he faces a new round of sanctions if no agreement is reached on limiting Iran's nuclear capabilities.
While he reiterated that the country's nuclear program is purely peaceful, the U.S. and others fear it is aimed at producing enriched uranium to make nuclear weapons.
Iran already is under three sets of sanctions by the U.N. Security Council for refusing to suspend uranium enrichment. Washington and its Western allies are pushing for quick passage of a fourth set of sanctions to underline the international community's resolve, but are likely to face opposition from Russia.
"A few bullying powers have sought to put hurdles in the way of the peaceful nuclear activities of the Iranian nation by exerting political and economic pressures against Iran," he said.
Ahmadinejad also lashed out at Israel on Tuesday, saying "the Zionist regime is on a definite slope to collapse, and there is no way for it to get out of the cesspool created by itself and its supporters."
The Iranian president is feared and reviled in Israel because of his repeated calls to wipe the Jewish state off the map, and his aggressive pursuit of nuclear technology has only fueled Israel's fears.
Ahmadinejad accused "a small but deceitful number of people called Zionists ... (of) dominating an important portion of the financial and monetary centers as well as the political decision-making centers of some European countries and the U.S."
Israeli President Shimon Peres reacted angrily to Ahjmadinejad's criticism. "It is again a repetition of the darkest accusations in the name of Hitler and almost anti-Semitism," Peres later told journalists.
In discussing the U.S. war in Iraq, Ahmadinejad said, "Millions have been killed or displaced, and the occupiers, without a sense of shame, are still seeking to solidify their position in the ... region and to dominate oil resources."
He suggested that the presence of U.S. and NATO forces in Afghanistan has contributed to a sharp rise in terrorism and a huge increase in the production of narcotics.
He predicted that the alliance would not be successful.
"Throughout history every force that has entered Afghanistan has left in defeat," Ahmadinejad said.
His speech came just hours after President Bush made his eighth and final appearance before the U.N. General Assembly, urging the international community to stand firm against the nuclear ambitions of Iran and North Korea.
"A few nations, regimes like Syria and Iran, continue to sponsor terror," Bush said. "Yet their numbers are growing fewer, and they're growing more isolated from the world. As the 21st century unfolds, some may be tempted to assume that the threat has receded. This would be comforting. It would be wrong."
At one point during Bush's 22-minute speech, Ahmadinejad turned to Iranian Foreign Minister Manouchehr Mottaki and gave a thumb's down.
As in past years, the United States only had a low-level note-taker present for the Iranian president's address, said Richard Grenell, spokesman for the U.S. Mission to the United Nations. The U.S. and Iran do not have diplomatic relations.
During interviews ahead of his speech Tuesday, Ahmadinejad blamed U.S. military interventions around the world in part for the collapse of global financial markets.
"The U.S. government has made a series of mistakes in the past few decades," Ahmadinejad said an interview with the Los Angeles Times. "The imposition on the U.S. economy of the years of heavy military engagement and involvement around the world ... the war in Iraq, for example. These are heavy costs imposed on the U.S. economy.
"The world economy can no longer tolerate the budgetary deficit and the financial pressures occurring from markets here in the United States, and by the U.S. government," he added.
,,,
Associated Press Writer Edith M. Lederer contributed to this report.
Sunday, September 21, 2008
Czech ambassador among 53 dead in bombing of Pakistan Marriott
ISLAMABAD: Rescuers pulled more bodies from the shell of the truck-bombed Marriott Hotel in Pakistan's capital Sunday, pushing the death toll from one of the country's worst-ever terrorist strikes to 53, including the Czech ambassador.
The hotel, a favorite spot for foreigners and the Pakistani elite - and a past target of militants - still smoldered from a fire that raged for hours after the previous day's explosion, which also wounded more than 250 people.
The targeting of the American hotel chain came at a time of growing anger in the Muslim nation over a wave of cross-border strikes on militant bases in Pakistan by U.S. forces in Afghanistan.
No group immediately claimed responsibility for the blast, though suspicion fell on Al Qaeda and the Pakistani Taliban. Analysts said the attack served as a warning from Islamic militants to Pakistan's new civilian leadership to stop cooperating with the U.S.-led fight against terrorism.
Prime Minister Yousuf Raza Gilani said the bomber had attacked the hotel only after tight security prevented him from reaching Parliament or the prime minister's office, where the president and many dignitaries were gathered for dinner.
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"The purpose was to destabilize democracy," Gilani said. "They want to destroy us economically."
However, the owner of the hotel accused security forces of a serious lapse in allowing a dump truck to approach the hotel unchallenged and not shooting the driver before he could trigger the explosives.
"If I were there and had seen the suicide bomber, I would have killed him. Unfortunately, they didn't," Sadruddin Hashwani said.
Officials said vehicles carrying construction materials are allowed to move after sunset, meaning the sight of a dump truck near the government quarters might not have aroused suspicion.
Rescue teams searched the blackened hotel room by room Sunday. But the temperatures remained high, and fires were still being put out in some parts. Officials said the main building could still collapse.
Khalid Hussain Abbasi, a rescue official, confirmed that six new bodies had been found. He said he expected more charred remains to be discovered.
Gilani said the death toll had reached "about 53" and that the Czech ambassador, Ivo Zdarek, was among the dead. Zdarek, 47, moved to Islamabad in August after four years as ambassador to Vietnam.
At least one American also died in the attack, according to the U.S. State Department. Officials in Pakistan said at least 21 foreigners were among the wounded, including Britons, Germans, Americans and several people from the Middle East.
The FBI offered to send special agents to help investigate, said a senior U.S. official, who declined to be identified because of the nature of the matter. The FBI is awaiting approval from the Pakistani government, the official said.
Television footage showed at least two bodies partially visible from the wrecked facade Sunday morning. Outside, the hotel was surrounded by burned vehicles and debris.
The bomb went off close to 8 p.m. on Saturday, when the restaurants inside would have been packed with Muslim diners breaking their daily fast during the holy month of Ramadan.
The blast left a vast crater some 10 meters, or thirty feet, deep in front of the main building, and investigators on Sunday combed the gaping hole for evidence. The bombing came just hours after President Asif Ali Zardari made his first address to Parliament, just over a kilometer, or about a half mile, away from the hotel.
Witnesses and officials said the dump truck exploded about 18 meters away from the hotel at two heavy metal barriers blocking the entrance. The explosion reverberated throughout Islamabad and shattered windows hundreds of meters away.
Zahid Ahmed, a businessman who rushed to the blast site from a nearby neighborhood, was standing near the wreckage of mangled cars across the road. "I saw dozens of casualties," he said. "People were trying to help, but it was such a depressing sight that I cannot describe it," he said, shaking his head.
The minister of the Interior, Rehman Malik, said it was unclear who was behind the attack. But the authorities had received intelligence that there might be militant activity linked to Zardari's address to Parliament, and security had been tightened, he said.
President George W. Bush said the attack was "a reminder of the ongoing threat faced by Pakistan, the United States and all those who stand against violent extremism."
A recent series of suspected U.S. missile strikes and a rare American ground assault in Pakistan's northwest have signaled Washington's impatience with Pakistan's efforts to clear out militants. But the cross-border operations have drawn protests from the Pakistani government, which warned they would fan militancy.
The hotel, a favorite spot for foreigners and the Pakistani elite - and a past target of militants - still smoldered from a fire that raged for hours after the previous day's explosion, which also wounded more than 250 people.
The targeting of the American hotel chain came at a time of growing anger in the Muslim nation over a wave of cross-border strikes on militant bases in Pakistan by U.S. forces in Afghanistan.
No group immediately claimed responsibility for the blast, though suspicion fell on Al Qaeda and the Pakistani Taliban. Analysts said the attack served as a warning from Islamic militants to Pakistan's new civilian leadership to stop cooperating with the U.S.-led fight against terrorism.
Prime Minister Yousuf Raza Gilani said the bomber had attacked the hotel only after tight security prevented him from reaching Parliament or the prime minister's office, where the president and many dignitaries were gathered for dinner.
Multimedia
Video: Dozens dead in bombing in Pakistan
» View
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Pakistani president pledges reforms
Today in Asia - Pacific
Czech ambassador among 53 dead in bombing of Pakistan Marriott
Milk-induced illness found in Hong Kong
His Hanoi prison now a museum, McCain fades from memories there
"The purpose was to destabilize democracy," Gilani said. "They want to destroy us economically."
However, the owner of the hotel accused security forces of a serious lapse in allowing a dump truck to approach the hotel unchallenged and not shooting the driver before he could trigger the explosives.
"If I were there and had seen the suicide bomber, I would have killed him. Unfortunately, they didn't," Sadruddin Hashwani said.
Officials said vehicles carrying construction materials are allowed to move after sunset, meaning the sight of a dump truck near the government quarters might not have aroused suspicion.
Rescue teams searched the blackened hotel room by room Sunday. But the temperatures remained high, and fires were still being put out in some parts. Officials said the main building could still collapse.
Khalid Hussain Abbasi, a rescue official, confirmed that six new bodies had been found. He said he expected more charred remains to be discovered.
Gilani said the death toll had reached "about 53" and that the Czech ambassador, Ivo Zdarek, was among the dead. Zdarek, 47, moved to Islamabad in August after four years as ambassador to Vietnam.
At least one American also died in the attack, according to the U.S. State Department. Officials in Pakistan said at least 21 foreigners were among the wounded, including Britons, Germans, Americans and several people from the Middle East.
The FBI offered to send special agents to help investigate, said a senior U.S. official, who declined to be identified because of the nature of the matter. The FBI is awaiting approval from the Pakistani government, the official said.
Television footage showed at least two bodies partially visible from the wrecked facade Sunday morning. Outside, the hotel was surrounded by burned vehicles and debris.
The bomb went off close to 8 p.m. on Saturday, when the restaurants inside would have been packed with Muslim diners breaking their daily fast during the holy month of Ramadan.
The blast left a vast crater some 10 meters, or thirty feet, deep in front of the main building, and investigators on Sunday combed the gaping hole for evidence. The bombing came just hours after President Asif Ali Zardari made his first address to Parliament, just over a kilometer, or about a half mile, away from the hotel.
Witnesses and officials said the dump truck exploded about 18 meters away from the hotel at two heavy metal barriers blocking the entrance. The explosion reverberated throughout Islamabad and shattered windows hundreds of meters away.
Zahid Ahmed, a businessman who rushed to the blast site from a nearby neighborhood, was standing near the wreckage of mangled cars across the road. "I saw dozens of casualties," he said. "People were trying to help, but it was such a depressing sight that I cannot describe it," he said, shaking his head.
The minister of the Interior, Rehman Malik, said it was unclear who was behind the attack. But the authorities had received intelligence that there might be militant activity linked to Zardari's address to Parliament, and security had been tightened, he said.
President George W. Bush said the attack was "a reminder of the ongoing threat faced by Pakistan, the United States and all those who stand against violent extremism."
A recent series of suspected U.S. missile strikes and a rare American ground assault in Pakistan's northwest have signaled Washington's impatience with Pakistan's efforts to clear out militants. But the cross-border operations have drawn protests from the Pakistani government, which warned they would fan militancy.
A terrorism expert, Evan Kohlmann, said the attack was almost certainly the work of either Al Qaeda or the Pakistani Taliban.
"It seems that someone has a firm belief that hotels like the Marriott are serving as 'barracks' for Western diplomats and intel personnel, and they are gunning pretty hard for them," Kohlmann said.
The Marriott blast could prompt diplomats and aid groups in Islamabad, some of whom already operate under tight security, to re-evaluate whether nonessential staff and family members should stay. UN officials met Sunday to discuss the security situation and, for now, made no decision to change their measures, said Amena Kamaal, a spokeswoman.
Zardari condemned the "cowardly attack" afterward in an address to the nation. "Make this pain your strength," he said. "This is a menace, a cancer in Pakistan which we will eliminate. We will not be scared of these cowards."
Pakistan's army chief, General Ashfaq Parvez Kayani, joined the chorus of condemnation Sunday, calling the attack "heinous" and saying the army stands "with the nation in its resolve to defeat the forces of extremism and terrorism."
Despite the tough talk by top officials, it was unclear what kind of response the government would mount. Pakistan has been in a state of political turmoil for months, and from Washington's perspective, at least, the new civilian government has so far shown little interest in pursuing a campaign against the militants.
The Islamabad Marriott has been attacked by militants at least twice in the past, including in a suicide attack in January 2007 that killed a policeman.
"The Marriott is an icon," said Abdullah Riar, formerly an aide to the assassinated former prime minister, Benazir Bhutto, Zardari's wife. "It's like the twin towers of Pakistan. It's a symbolic place in the capital of the country, and now it has melted down."
The country's deadliest suicide bombing, on Oct. 18, 2007, targeted Bhutto, who survived. It killed about 150 people in Karachi during celebrations welcoming her home from exile. Bhutto was assassinated in a subsequent attack on Dec. 27, 2007.
Pakistan Marriott blast shows signs of al-Qaeda
ISLAMABAD, Pakistan - Taliban militants based near the Afghan border and their al-Qaeda allies are the most likely suspects behind a massive truck bombing at Islamabad's Marriott Hotel, officials and experts said Sunday. At least 53 died in the explosion, including two U.S. Defense Department employees and the Czech ambassador.
The truck sat burning and disabled at the hotel gate for at least 3 1/2 minutes as nervous guards tried to douse the flames before they, the truck and much of the hotel forecourt vanished in a fearsome fireball on Saturday night, according to dramatic surveillance footage released Sunday.
The attack on the American hotel chain during Ramadan, among the deadliest terrorist strikes in Pakistan, will test the resolve of its pro-Western civilian rulers to crack down on growing violent extremism which many here blame on the country's role in the U.S.-led war on terror.
While no group has claimed responsibility, the scale of the blast and its high-profile target were seen by many as the signature of media-savvy al-Qaeda.
Interior Ministry chief Rehman Malik said "all roads lead to FATA" in major Pakistani suicide attacks — referring to Federally Administered Tribal Areas, where U.S. officials worry that Osama bin Laden and al-Qaeda No. 2 Ayman al-Zawahri are hiding.
Mahmood Shah, a former government security chief for Pakistan's tribal areas, said that while the attack had "all the signatures" of an al-Qaeda strike, homegrown Taliban militants probably had learned how to execute an attack of such magnitude.
Al-Qaeda was providing "money, motivation, direction and all sort of leadership and using the Taliban as gun fodder," he suggested.
A Pakistani intelligence official, speaking on condition of anonymity because he is not authorized to speak on the record to media, said investigators were examining just that theory.
Pakistani Prime Minister Yousuf Raza Gilani said the attack was an attempt to "destabilize democracy" in Pakistan, which this year emerged from nine years of military rule, and destroy its already fragile economy.
Gilani also claimed that the bomber attacked the hotel only after tight security prevented him from reaching Parliament or the prime minister's office, where President Asif Ali Zardari and many dignitaries were gathered for dinner.
However, the owner of the hotel accused security forces of a serious lapse in allowing a dump truck to approach the hotel unchallenged and not tackling the driver more clinically.
"If I were there and had seen the suicide bomber, I would have killed him. Unfortunately, they didn't," Sadruddin Hashwani said.
The bomb went off close to 8 p.m. Saturday, when the restaurants inside would have been packed with Muslim diners breaking their daily fast during the holy month of Ramadan.
The explosion wrecked a favorite spot for foreigners as well as the Pakistani elite that has been targeted twice before by militant bombings. The building — one of the few places outside the diplomatic district where U.S. diplomats were permitted to socialize — was still smoldering 24 hours after blast, which also wounded more than 260 people.
Anti-American feeling is running particularly high following a series of strikes by U.S. forces based in Afghanistan on Islamic militants nested in Pakistan's tribal belt.
U.S. Embassy spokesman Lou Fintor said there was no evidence that Americans were the target.
Still, he confirmed that two Defense Department employees were among the dead and that a third American — a State Department contractor — was missing.
Three U.S. Embassy employees and an embassy contractor were injured, Fintor said.
IntelCenter, a group which monitors and analyzes extremist communications, said senior al-Qaeda leader Mustafa Abu al-Yazid threatened attacks against Western interests in Pakistan in a video timed to the recent anniversary of the Sept. 11, 2001, attacks in the United States.
Malik, the interior minister, declined a reported offer of U.S. assistance in the investigation, saying Pakistani agencies could cope.
Rescue teams searched the blackened hotel room by room Sunday, finding several more bodies, and Gilani said the death toll had risen to 53. A Danish diplomat was also listed as missing and rescue workers said they expected to find more human remains.
Officials confirmed that Czech Ambassador Ivo Zdarek was also among the dead. Zdarek, 47, only moved to Islamabad in August after four years as ambassador to Vietnam.
Malik said one Vietnamese citizen was also killed. The wounded also included Britons, Germans, and several people from the Middle East.
Malik told a news conference that the bomb contained an estimated 1,300 pounds of military-grade explosives as well as artillery and mortar shells and left a crater 60 feet wide and 24 feet deep in front of the main building.
The government released footage from a hotel surveillance camera showing the heavy truck turning left into the gate at speed, ramming a metal barrier and jolting to a halt about 60 feet away from the hotel.
Guards nervously came forward to look, then scattered after an initial small explosion.
Several guards tried repeatedly to douse flames spreading through the cab of the truck as traffic continued to pass on the road behind. There was no sign of movement in the truck and the footage played didn't show the final blast.
Officials said vehicles carrying construction materials are allowed to move after sunset, meaning the sight of a dump truck near the government quarters might not have aroused suspicion.
The bombing came just hours after Zardari made his first address to Parliament since becoming president, less than a mile away from the hotel.
It drew condemnations from around the world, including from Bush, whose administration has pressured Pakistan to do more to put more pressure on militants using Pakistani soil to support the increasingly deadly insurgency in Afghanistan.
A recent series of suspected U.S. missile strikes and a rare American ground assault in Pakistan's northwest have signaled Washington's impatience with Pakistan's efforts to clear out militants. But the cross-border operations have drawn protests from the Pakistani government, which warned they would fan militancy.
The Marriott blast could prompt diplomats and aid groups in Islamabad to re-evaluate whether nonessential staff and family members should stay. U.N. officials met Sunday to discuss the security situation and, for now, made no decision to change their measures, said Amena Kamaal, a spokeswoman.
Zardari, who on Sunday was headed to New York to lead a delegation to the United Nations and was expected to meet with Bush during the week, spoke out against the cross-border strikes in his speech to Parliament. He condemned the "cowardly attack" afterward in an address to the nation.
Pakistan's powerful army chief, Gen. Ashfaq Parvez Kayani, joined the condemnation Sunday, calling the attack "heinous" and saying the army stands "with the nation in its resolve to defeat the forces of extremism and terrorism."
The army has staged offensives against insurgents in the nation's northwest that have drawn revenge attacks by Taliban militants.
The country's deadliest suicide bombing was on Oct. 18, 2007, and targeted ex-Prime Minister Benazir Bhutto — Zardari's wife — who survived. It killed about 150 people in Karachi during celebrations welcoming her home from exile.
Bhutto was assassinated in a subsequent attack on Dec. 27, 2007.
The last big attack in Islamabad was a suicide car bombing in June outside the Danish Embassy that killed six people in apparent revenge for the publication in Denmark of cartoons depicting the Prophet Muhammad. Al-Qaeda took responsibility.
The truck sat burning and disabled at the hotel gate for at least 3 1/2 minutes as nervous guards tried to douse the flames before they, the truck and much of the hotel forecourt vanished in a fearsome fireball on Saturday night, according to dramatic surveillance footage released Sunday.
The attack on the American hotel chain during Ramadan, among the deadliest terrorist strikes in Pakistan, will test the resolve of its pro-Western civilian rulers to crack down on growing violent extremism which many here blame on the country's role in the U.S.-led war on terror.
While no group has claimed responsibility, the scale of the blast and its high-profile target were seen by many as the signature of media-savvy al-Qaeda.
Interior Ministry chief Rehman Malik said "all roads lead to FATA" in major Pakistani suicide attacks — referring to Federally Administered Tribal Areas, where U.S. officials worry that Osama bin Laden and al-Qaeda No. 2 Ayman al-Zawahri are hiding.
Mahmood Shah, a former government security chief for Pakistan's tribal areas, said that while the attack had "all the signatures" of an al-Qaeda strike, homegrown Taliban militants probably had learned how to execute an attack of such magnitude.
Al-Qaeda was providing "money, motivation, direction and all sort of leadership and using the Taliban as gun fodder," he suggested.
A Pakistani intelligence official, speaking on condition of anonymity because he is not authorized to speak on the record to media, said investigators were examining just that theory.
Pakistani Prime Minister Yousuf Raza Gilani said the attack was an attempt to "destabilize democracy" in Pakistan, which this year emerged from nine years of military rule, and destroy its already fragile economy.
Gilani also claimed that the bomber attacked the hotel only after tight security prevented him from reaching Parliament or the prime minister's office, where President Asif Ali Zardari and many dignitaries were gathered for dinner.
However, the owner of the hotel accused security forces of a serious lapse in allowing a dump truck to approach the hotel unchallenged and not tackling the driver more clinically.
"If I were there and had seen the suicide bomber, I would have killed him. Unfortunately, they didn't," Sadruddin Hashwani said.
The bomb went off close to 8 p.m. Saturday, when the restaurants inside would have been packed with Muslim diners breaking their daily fast during the holy month of Ramadan.
The explosion wrecked a favorite spot for foreigners as well as the Pakistani elite that has been targeted twice before by militant bombings. The building — one of the few places outside the diplomatic district where U.S. diplomats were permitted to socialize — was still smoldering 24 hours after blast, which also wounded more than 260 people.
Anti-American feeling is running particularly high following a series of strikes by U.S. forces based in Afghanistan on Islamic militants nested in Pakistan's tribal belt.
U.S. Embassy spokesman Lou Fintor said there was no evidence that Americans were the target.
Still, he confirmed that two Defense Department employees were among the dead and that a third American — a State Department contractor — was missing.
Three U.S. Embassy employees and an embassy contractor were injured, Fintor said.
IntelCenter, a group which monitors and analyzes extremist communications, said senior al-Qaeda leader Mustafa Abu al-Yazid threatened attacks against Western interests in Pakistan in a video timed to the recent anniversary of the Sept. 11, 2001, attacks in the United States.
Malik, the interior minister, declined a reported offer of U.S. assistance in the investigation, saying Pakistani agencies could cope.
Rescue teams searched the blackened hotel room by room Sunday, finding several more bodies, and Gilani said the death toll had risen to 53. A Danish diplomat was also listed as missing and rescue workers said they expected to find more human remains.
Officials confirmed that Czech Ambassador Ivo Zdarek was also among the dead. Zdarek, 47, only moved to Islamabad in August after four years as ambassador to Vietnam.
Malik said one Vietnamese citizen was also killed. The wounded also included Britons, Germans, and several people from the Middle East.
Malik told a news conference that the bomb contained an estimated 1,300 pounds of military-grade explosives as well as artillery and mortar shells and left a crater 60 feet wide and 24 feet deep in front of the main building.
The government released footage from a hotel surveillance camera showing the heavy truck turning left into the gate at speed, ramming a metal barrier and jolting to a halt about 60 feet away from the hotel.
Guards nervously came forward to look, then scattered after an initial small explosion.
Several guards tried repeatedly to douse flames spreading through the cab of the truck as traffic continued to pass on the road behind. There was no sign of movement in the truck and the footage played didn't show the final blast.
Officials said vehicles carrying construction materials are allowed to move after sunset, meaning the sight of a dump truck near the government quarters might not have aroused suspicion.
The bombing came just hours after Zardari made his first address to Parliament since becoming president, less than a mile away from the hotel.
It drew condemnations from around the world, including from Bush, whose administration has pressured Pakistan to do more to put more pressure on militants using Pakistani soil to support the increasingly deadly insurgency in Afghanistan.
A recent series of suspected U.S. missile strikes and a rare American ground assault in Pakistan's northwest have signaled Washington's impatience with Pakistan's efforts to clear out militants. But the cross-border operations have drawn protests from the Pakistani government, which warned they would fan militancy.
The Marriott blast could prompt diplomats and aid groups in Islamabad to re-evaluate whether nonessential staff and family members should stay. U.N. officials met Sunday to discuss the security situation and, for now, made no decision to change their measures, said Amena Kamaal, a spokeswoman.
Zardari, who on Sunday was headed to New York to lead a delegation to the United Nations and was expected to meet with Bush during the week, spoke out against the cross-border strikes in his speech to Parliament. He condemned the "cowardly attack" afterward in an address to the nation.
Pakistan's powerful army chief, Gen. Ashfaq Parvez Kayani, joined the condemnation Sunday, calling the attack "heinous" and saying the army stands "with the nation in its resolve to defeat the forces of extremism and terrorism."
The army has staged offensives against insurgents in the nation's northwest that have drawn revenge attacks by Taliban militants.
The country's deadliest suicide bombing was on Oct. 18, 2007, and targeted ex-Prime Minister Benazir Bhutto — Zardari's wife — who survived. It killed about 150 people in Karachi during celebrations welcoming her home from exile.
Bhutto was assassinated in a subsequent attack on Dec. 27, 2007.
The last big attack in Islamabad was a suicide car bombing in June outside the Danish Embassy that killed six people in apparent revenge for the publication in Denmark of cartoons depicting the Prophet Muhammad. Al-Qaeda took responsibility.
Saturday, September 20, 2008
Economists see financial bailout as necessary
WASHINGTON - The economy could suffer a massive hangover from the government's efforts to rescue the financial system in the form of a soaring debt burden. But the alternatives look infinitely worse.
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The $700 billion the administration is seeking from Congress as the upper bounds of what it will need to take a mountain of bad loans off the books of financial firms is certainly an eye-popping figure.
To get the funds to buy up the bad mortgage loans that have threatened to bring the financial system to its knees, the government will have to borrow. And that borrowing will come at a time when the federal budget deficit is already soaring.
The deficit for this budget year, which ends on Sept. 30, is expected to rise to $407 billion, a figure that is more than double the $161.5 billion imbalance for 2007, reflecting what the economic slowdown and this year's $168 billion economic stimulus program are already doing to the government's books.
The Bush administration is estimating that the deficit for the budget year that begins Oct. 1, which will cover the new president's first year in office, will hit $482 billion, a record in dollar terms.
And that forecast doesn't include the $200 billion the administration committed to spending two weeks ago when it took over the nation's two biggest mortgage companies, Fannie Mae and Freddie Mac.
And it doesn't have any of the $700 billion the administration is seeking to soak up the bad mortgage-backed securities that have been at the heart of the severe credit crisis the country has been struggling with since August 2007.
The legislation Congress passed this summer that gave the authority to rescue Fannie and Freddie boosted the limit on the national debt by $800 billion to $10.6 trillion.
The legislation the administration is now seeking to authorize the financial system bailout, according to a draft obtained by The Associated Press, would boost that debt limit to $11.3 trillion, up another $700 billion.
It is the rapidly rising debt that is cause for concern. The government is already spending more than $400 billion a year just to pay interest on the national debt. The higher that debt goes, the higher the government's borrowing costs and the less it has to spend on other programs.
Republican John McCain and Democrat Barack Obama are both running for president, making campaign promises about what new programs they will implement once in office, promises that could be severely constrained by the costs of a financial bailout.
The escalating borrowing also means that the government is competing with the private sector for loans, driving up interest rates. And then there is the matter of the country's large trade imbalances which mean the United States has to borrow $2 billion a day from foreigners.
Will foreigners still want to lend as much to the United States if there are concerns that all the borrowing could weaken the dollar's value against other currencies.
But even with all these threats, economists said the government has to take decisive action because the alternative of letting the financial system slide into even deeper problems which could jeopardize the routine loans that businesses and consumers need was simply not an option.
"It was critical to arrest the downward slide in financial markets," said Sung Won Sohn, an economist at California State University, Channel Islands.
The dire situation was dramatically demonstrated this past week when the Federal Reserve, working with the central banks of other nations, poured billions of dollars into the financial system without any significant impact because of the fear keeping banks from lending.
The financial system has already been staggered with $500 billion in losses from the mortgage mess and the International Monetary Fund has estimated the ultimate price could be $1 trillion.
What the administration's plan would do is at least establish a price for the mortgage-backed securities, which at the moment no one wants to own.
Officials who have briefed Congress on Treasury Secretary Henry Paulson's plan have suggested that one approach would be for the government to buy the toxic debt through a reverse auction process in which companies wanting to unload their mortgage-backed securities would propose a price to the government — say 50 cents on the dollar — and those offering the lowest price would win the bid.
By establishing a price for assets no one currently wants to buy, it could allow a market to develop and allow financial firms to get on with the effort of taking their losses and getting the damaged assets off their books.
"This could go a long way toward solving these problems," said Mark Zandi, chief economist at Moody's Economy.com, who has written a book on the mortgage meltdown.
And the final cost to the government?
No one knows for sure, but Zandi said if the experience with cleaning up all the assets left over from the savings and loan mess is any guide, it should be less than the $700 billion that the administration is seeking.
In the S&L crisis, the government was able to recoup about two-thirds of its initial costs when it sold the assets it had obtained from the failed S&Ls.
"Obviously there is a big upfront cost to taxpayers," Zandi said, "but the ultimate cost may be measurably lower."
(This version CORRECTS SUBS graf 9 to correct to $700 billion, sted 1.3 trillion.)
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The $700 billion the administration is seeking from Congress as the upper bounds of what it will need to take a mountain of bad loans off the books of financial firms is certainly an eye-popping figure.
To get the funds to buy up the bad mortgage loans that have threatened to bring the financial system to its knees, the government will have to borrow. And that borrowing will come at a time when the federal budget deficit is already soaring.
The deficit for this budget year, which ends on Sept. 30, is expected to rise to $407 billion, a figure that is more than double the $161.5 billion imbalance for 2007, reflecting what the economic slowdown and this year's $168 billion economic stimulus program are already doing to the government's books.
The Bush administration is estimating that the deficit for the budget year that begins Oct. 1, which will cover the new president's first year in office, will hit $482 billion, a record in dollar terms.
And that forecast doesn't include the $200 billion the administration committed to spending two weeks ago when it took over the nation's two biggest mortgage companies, Fannie Mae and Freddie Mac.
And it doesn't have any of the $700 billion the administration is seeking to soak up the bad mortgage-backed securities that have been at the heart of the severe credit crisis the country has been struggling with since August 2007.
The legislation Congress passed this summer that gave the authority to rescue Fannie and Freddie boosted the limit on the national debt by $800 billion to $10.6 trillion.
The legislation the administration is now seeking to authorize the financial system bailout, according to a draft obtained by The Associated Press, would boost that debt limit to $11.3 trillion, up another $700 billion.
It is the rapidly rising debt that is cause for concern. The government is already spending more than $400 billion a year just to pay interest on the national debt. The higher that debt goes, the higher the government's borrowing costs and the less it has to spend on other programs.
Republican John McCain and Democrat Barack Obama are both running for president, making campaign promises about what new programs they will implement once in office, promises that could be severely constrained by the costs of a financial bailout.
The escalating borrowing also means that the government is competing with the private sector for loans, driving up interest rates. And then there is the matter of the country's large trade imbalances which mean the United States has to borrow $2 billion a day from foreigners.
Will foreigners still want to lend as much to the United States if there are concerns that all the borrowing could weaken the dollar's value against other currencies.
But even with all these threats, economists said the government has to take decisive action because the alternative of letting the financial system slide into even deeper problems which could jeopardize the routine loans that businesses and consumers need was simply not an option.
"It was critical to arrest the downward slide in financial markets," said Sung Won Sohn, an economist at California State University, Channel Islands.
The dire situation was dramatically demonstrated this past week when the Federal Reserve, working with the central banks of other nations, poured billions of dollars into the financial system without any significant impact because of the fear keeping banks from lending.
The financial system has already been staggered with $500 billion in losses from the mortgage mess and the International Monetary Fund has estimated the ultimate price could be $1 trillion.
What the administration's plan would do is at least establish a price for the mortgage-backed securities, which at the moment no one wants to own.
Officials who have briefed Congress on Treasury Secretary Henry Paulson's plan have suggested that one approach would be for the government to buy the toxic debt through a reverse auction process in which companies wanting to unload their mortgage-backed securities would propose a price to the government — say 50 cents on the dollar — and those offering the lowest price would win the bid.
By establishing a price for assets no one currently wants to buy, it could allow a market to develop and allow financial firms to get on with the effort of taking their losses and getting the damaged assets off their books.
"This could go a long way toward solving these problems," said Mark Zandi, chief economist at Moody's Economy.com, who has written a book on the mortgage meltdown.
And the final cost to the government?
No one knows for sure, but Zandi said if the experience with cleaning up all the assets left over from the savings and loan mess is any guide, it should be less than the $700 billion that the administration is seeking.
In the S&L crisis, the government was able to recoup about two-thirds of its initial costs when it sold the assets it had obtained from the failed S&Ls.
"Obviously there is a big upfront cost to taxpayers," Zandi said, "but the ultimate cost may be measurably lower."
(This version CORRECTS SUBS graf 9 to correct to $700 billion, sted 1.3 trillion.)
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Bush team, Congress negotiate $700B bailout
WASHINGTON - The Bush administration asked Congress on Saturday for the power to buy $700 billion in toxic assets clogging the financial system and threatening the economy as negotiations began on the largest bailout since the Great Depression.
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The rescue plan would give Washington broad authority to purchase bad mortgage-related assets from U.S. financial institutions for the next two years. It does not specify which institutions qualify or what, if anything, the government would get in return for the unprecedented infusion.
Democrats are pressing to require that the plan help more strapped borrowers stay in their homes and to condition the bailout on new limits on executive compensation.
Congressional aides and administration officials are working through the weekend to fill in the details of the proposal. The White House hoped for a deal with Congress by the time markets opened Monday; top lawmakers say they would push to enact the plan as early as the coming week.
"We're going to work with Congress to get a bill done quickly," President Bush said at the White House. Without discussing specifics, he said, "This is a big package because it was a big problem."
The proposal is a mere three pages long, but it gives sweeping powers to the government to dispense gigantic sums of taxpayer dollars in a program that would be sheltered from court review.
"It's a rather brief bill with a lot of money," said Sen. Chris Dodd, D-Conn., the Banking Committee chairman. "We understand the importance of the anticipation in the markets, but we also know that what we're doing is going to have consequences for decades to come. There's not a second act to this — we've got to get this right."
Lawmakers digesting the eye-popping cost and searching for specifics voiced concerns that the proposal offers no help for struggling homeowners or safeguards for taxpayers' money.
The government must bail out the financial system "because if we don't, it will have a tremendous impact on American consumers, homeowners, taxpayers and the rest," House Speaker Nancy Pelosi, D-Calif., said in San Francisco.
But, she added, "We cannot deal with this unless this bailout helps families stay in their homes."
Senate Majority Leader Harry Reid, D-Nev. said "we cannot allow ourselves to be in denial about the threat now facing the world economy. From all indications, that threat is real, and the consequences of inaction could be catastrophic. Every single American has a stake in preventing a global financial meltdown."
The proposal would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion to make room for the massive rescue.
"The American people are furious that we're in this situation, and so am I," the House's top Republican, Ohio Rep. John A. Boehner, said in a statement. "We need to do everything possible to protect the taxpayers from the consequences of a broken Washington."
Signaling what could erupt into a brutal fight with Democrats over add-on spending, Boehner said "efforts to exploit this crisis for political leverage or partisan quid pro quo will only delay the economic stability that families, seniors, and small businesses deserve."
Bush said he worried the financial troubles "could ripple throughout" the economy and affect average citizens. "The risk of doing nothing far outweighs the risk of the package. ... Over time, we're going to get a lot of the money back."
He added, "People are beginning to doubt our system, people were losing confidence and I understand it's important to have confidence in our financial system."
Neither presidential candidate took a position on the proposal. GOP nominee John McCain said he was awaiting specifics and any changes by Congress.
Democratic rival Barack Obama used the party's weekly radio address to call for help for Main Street as well as Wall Street.
Their language reflected a tricky balance that politicians in both parties are trying to strike, just six weeks before Election Day: Back a plan that doles out hundreds of billions to companies that made bad bets and still identify with the plight of middle-class voters.
Besides mortgage help and executive compensation limits, Democrats are considering attaching middle-class assistance to the legislation despite a request from Bush to avoid adding items that could delay action. An expansion of jobless benefits was one possibility.
Bush sidestepped questions about the chances of adding such items, saying that now was not the time for posturing. "I think most leaders would understand we need to get this done quickly, and you know, the cleaner the better," he said about legislation being drafted.
Treasury officials met congressional staff for about two hours on Capitol Hill on Saturday. Discussions centered on how the plan would work, and Democrats proposed adding the executive compensation limits and new foreclosure-prevention measures. Details of those changes were not available Saturday. Bush and Treasury Secretary Henry Paulson conferred by phone for about 20 minutes in the afternoon, gauging how the negotiations were unfolding.
Among the key issues up for negotiation is which financial institutions would be eligible for the help. The proposed legislation doesn't make it clear, leaving open the question of whether hedge funds or pension funds could qualify.
On Saturday night, Treasury released a fact sheet stating that eligible financial institutions "must have significant operations in the U.S." unless Paulson determines, after consulting with Federal Reserve Chairman Ben Bernanke, that "broader eligibility is necessary to effectively stabilize financial markets."
The proposal does not require that the government receive anything from banks in return for unloading their bad assets. But it would allow Treasury to designate financial institutions as "agents of the government," and mandate that they perform any "reasonable duties" that might entail.
The government could contract with private companies to manage the assets it purchased under the rescue.
Paulson says the government would in essence set up reverse auctions, putting up money for a class of distressed assets — such as loans that are delinquent but not in default — and financial institutions would compete for how little they would accept.
ADVERTISEMENT
The rescue plan would give Washington broad authority to purchase bad mortgage-related assets from U.S. financial institutions for the next two years. It does not specify which institutions qualify or what, if anything, the government would get in return for the unprecedented infusion.
Democrats are pressing to require that the plan help more strapped borrowers stay in their homes and to condition the bailout on new limits on executive compensation.
Congressional aides and administration officials are working through the weekend to fill in the details of the proposal. The White House hoped for a deal with Congress by the time markets opened Monday; top lawmakers say they would push to enact the plan as early as the coming week.
"We're going to work with Congress to get a bill done quickly," President Bush said at the White House. Without discussing specifics, he said, "This is a big package because it was a big problem."
The proposal is a mere three pages long, but it gives sweeping powers to the government to dispense gigantic sums of taxpayer dollars in a program that would be sheltered from court review.
"It's a rather brief bill with a lot of money," said Sen. Chris Dodd, D-Conn., the Banking Committee chairman. "We understand the importance of the anticipation in the markets, but we also know that what we're doing is going to have consequences for decades to come. There's not a second act to this — we've got to get this right."
Lawmakers digesting the eye-popping cost and searching for specifics voiced concerns that the proposal offers no help for struggling homeowners or safeguards for taxpayers' money.
The government must bail out the financial system "because if we don't, it will have a tremendous impact on American consumers, homeowners, taxpayers and the rest," House Speaker Nancy Pelosi, D-Calif., said in San Francisco.
But, she added, "We cannot deal with this unless this bailout helps families stay in their homes."
Senate Majority Leader Harry Reid, D-Nev. said "we cannot allow ourselves to be in denial about the threat now facing the world economy. From all indications, that threat is real, and the consequences of inaction could be catastrophic. Every single American has a stake in preventing a global financial meltdown."
The proposal would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion to make room for the massive rescue.
"The American people are furious that we're in this situation, and so am I," the House's top Republican, Ohio Rep. John A. Boehner, said in a statement. "We need to do everything possible to protect the taxpayers from the consequences of a broken Washington."
Signaling what could erupt into a brutal fight with Democrats over add-on spending, Boehner said "efforts to exploit this crisis for political leverage or partisan quid pro quo will only delay the economic stability that families, seniors, and small businesses deserve."
Bush said he worried the financial troubles "could ripple throughout" the economy and affect average citizens. "The risk of doing nothing far outweighs the risk of the package. ... Over time, we're going to get a lot of the money back."
He added, "People are beginning to doubt our system, people were losing confidence and I understand it's important to have confidence in our financial system."
Neither presidential candidate took a position on the proposal. GOP nominee John McCain said he was awaiting specifics and any changes by Congress.
Democratic rival Barack Obama used the party's weekly radio address to call for help for Main Street as well as Wall Street.
Their language reflected a tricky balance that politicians in both parties are trying to strike, just six weeks before Election Day: Back a plan that doles out hundreds of billions to companies that made bad bets and still identify with the plight of middle-class voters.
Besides mortgage help and executive compensation limits, Democrats are considering attaching middle-class assistance to the legislation despite a request from Bush to avoid adding items that could delay action. An expansion of jobless benefits was one possibility.
Bush sidestepped questions about the chances of adding such items, saying that now was not the time for posturing. "I think most leaders would understand we need to get this done quickly, and you know, the cleaner the better," he said about legislation being drafted.
Treasury officials met congressional staff for about two hours on Capitol Hill on Saturday. Discussions centered on how the plan would work, and Democrats proposed adding the executive compensation limits and new foreclosure-prevention measures. Details of those changes were not available Saturday. Bush and Treasury Secretary Henry Paulson conferred by phone for about 20 minutes in the afternoon, gauging how the negotiations were unfolding.
Among the key issues up for negotiation is which financial institutions would be eligible for the help. The proposed legislation doesn't make it clear, leaving open the question of whether hedge funds or pension funds could qualify.
On Saturday night, Treasury released a fact sheet stating that eligible financial institutions "must have significant operations in the U.S." unless Paulson determines, after consulting with Federal Reserve Chairman Ben Bernanke, that "broader eligibility is necessary to effectively stabilize financial markets."
The proposal does not require that the government receive anything from banks in return for unloading their bad assets. But it would allow Treasury to designate financial institutions as "agents of the government," and mandate that they perform any "reasonable duties" that might entail.
The government could contract with private companies to manage the assets it purchased under the rescue.
Paulson says the government would in essence set up reverse auctions, putting up money for a class of distressed assets — such as loans that are delinquent but not in default — and financial institutions would compete for how little they would accept.
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