US Congress bailout rejection stuns world

WASHINGTON – The US Congress rejection of a US$700 billion financial bailout sent shockwaves around the world yesterday hitting European banks, putting global markets into a new spin and policy makers on the edge of despair.

As governments struggled to save French-Belgian bank Dexia and markets again swung wildly, leaders around the world expressed alarm at events in Washington and on international markets. British Prime Minister Gordon Brown said he had sent a message to the White House to underline “the importance that we attach to taking decisive action”.New Japanese premier Taro Aso said: “We should not let the world financial system collapse.”Australian Prime Minister Kevin Rudd said that he and other US allies would press Washington to take action after what he called the “bad development” of the vote in the US House of Representatives.Treasury Secretary Henry Paulson warned US lawmakers they had to act fast after his plan was dramatically rejected by the House of Representatives on Monday.”Markets around the world are under stress,” said Paulson, architect of the proposal under which the US government would buy up to US$700 billion of bad mortgage-related assets from banks, wiping dodgy debts from their balance sheets to free them up to start lending again.”We need to get something done,” he added.”This is much too important to simply let fail.”Paulson and other top US officials were summoned to the White House after the House voted 228-205 against the plan.Many lawmakers blamed the looming presidential election on November 4 for the failure of the plan which has proved unpopular with the public.David Obey, a Democrat from Wisconsin state, said: “Evidently some of those guys would rather lose an economy than lose an election.”In the fallout, French-Belgian bank Dexia was rescued with injections totalling 6,4 billion euros (9.2 billion dollars) from governments in France, Belgium and Luxembourg, the three countries which saved the giant Fortis bank at the weekend.French President Nicolas Sarkozy held a pre-dawn crisis meeting with his economic team yesterday.A senior official in Sarkozy’s office said: “Banks are in trouble in Germany, Belgium and Great Britain.We feel a bit surrounded.”Officials and commentators used the language of disaster to describe the possible impact of further delay in US action on the world economy and especially the global interbank lending system.Central banks again pumped out huge sums to keep global banking liquid with the European Central Bank renewing one-day loans of US$30 billion (20.8 billion euros) and the Japanese central bank injected US$28,8 billion.France and Ireland reassured people with deposits in banks that their money was safe, echoing similar statements across Europe.Japan’s economic ministers voiced hope the United States would take action to halt the Wall Street meltdown.The rejection “has a significant impact on not only the US economy but the world economy,” said Kaoru Yosano, the minister for economic and fiscal policy.There was speculation the world’s top central banks may choose co-ordinated interest rate cuts to try to prevent credit flows drying up.London stocks fell sharply in initial trading but later rallied for a gain of 0.27 per cent, Frankfurt was down 0.81 perc ent and Paris 0.52 per cent and heavy falls across Asia with a 4.1 per cent drop in Tokyo, except in Hong Kong where there was a closing rise of 0.8 per cent.The rescue for French-Belgian bank Dexia followed the weekend part nationalisation of Fortis with 11,2 billion euros.British bank Bradford & Bingley was rescued through part takeover by Spanish Santander and part nationalisation.The rescues were seen around the world as danger signs the crisis is now biting deep in Europe and threatens every part of the globe.In New York, investment firm executive Marc der Kinderen said that collapsing trust in US financial institutions was potentially the most damaging aspect of the crisis.”There is absolutely no trust, no faith in the system as a whole,” der Kinderen told AFP.”Banks are the infrastructure of finance, like a highway system, and right now, every ramp to the highway system has effectively been shut down.”Nampa-AFPBritish Prime Minister Gordon Brown said he had sent a message to the White House to underline “the importance that we attach to taking decisive action”.New Japanese premier Taro Aso said: “We should not let the world financial system collapse.”Australian Prime Minister Kevin Rudd said that he and other US allies would press Washington to take action after what he called the “bad development” of the vote in the US House of Representatives.Treasury Secretary Henry Paulson warned US lawmakers they had to act fast after his plan was dramatically rejected by the House of Representatives on Monday.”Markets around the world are under stress,” said Paulson, architect of the proposal under which the US government would buy up to US$700 billion of bad mortgage-related assets from banks, wiping dodgy debts from their balance sheets to free them up to start lending again.”We need to get something done,” he added.”This is much too important to simply let fail.”Paulson and other top US officials were summoned to the White House after the House voted 228-205 against the plan.Many lawmakers blamed the looming presidential election on November 4 for the failure of the plan which has proved unpopular with the public.David Obey, a Democrat from Wisconsin state, said: “Evidently some of those guys would rather lose an economy than lose an election.”In the fallout, French-Belgian bank Dexia was rescued with injections totalling 6,4 billion euros (9.2 billion dollars) from governments in France, Belgium and Luxembourg, the three countries which saved the giant Fortis bank at the weekend.French President Nicolas Sarkozy held a pre-dawn crisis meeting with his economic team yesterday.A senior official in Sarkozy’s office said: “Banks are in trouble in Germany, Belgium and Great Britain.We feel a bit surrounded.”Officials and commentators used the language of disaster to describe the possible impact of further delay in US action on the world economy and especially the global interbank lending system.Central banks again pumped out huge sums to keep global banking liquid with the European Central Bank renewing one-day loans of US$30 billion (20.8 billion euros) and the Japanese central bank injected US$28,8 billion.France and Ireland reassured people with deposits in banks that their money was safe, echoing similar statements across Europe.Japan’s economic ministers voiced hope the United States would take action to halt the Wall Street meltdown.The rejection “has a significant impact on not only the US economy but the world economy,” said Kaoru Yosano, the minister for economic and fiscal policy.There was speculation the world’s top central banks may choose co-ordinated interest rate cuts to try to prevent credit flows drying up.London stocks fell sharply in initial trading but later rallied for a gain of 0.27 per cent, Frankfurt was down 0.81 perc ent and Paris 0.52 per cent and heavy falls across Asia with a 4.1 per cent drop in Tokyo, except in Hong Kong where there was a closing rise of 0.8 per cent.The rescue for French-Belgian bank Dexia followed the weekend part nationalisation of Fortis with 11,2 billion euros.British bank Bradford & Bingley was rescued through part takeover by Spanish Santander and part nationalisation.The rescues were seen around the world as danger signs the crisis is now biting deep in Europe and threatens every part of the globe.In New York, investment firm executive Marc der Kinderen said that collapsing trust in US financial institutions was potentially the most damaging aspect of the crisis.”There is absolutely no trust, no faith in the system as a whole,” der Kinderen told AFP.”Banks are the infrastructure of finance, like a highway system, and right now, every ramp to the highway system has effectively been shut down.”Nampa-AFP