US Congress said no to $700 billion being pumped into the rotting corpse of the US banking system, and by this action has plunged the world into a period of anxiety and instability in the market, the exact factors we do not want at present.
But why should taxpayers keep pumping money into the banking system is a reasonable response by an American public that is seeing record level's in its foreclosures and business failures.
The Fed instead has made available according to reports "existing currency swaps with foreign central banks by $330 billion..to $620 billion to make more dollars available worldwide."
"The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities."
The Fed's expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, causing stocks to plunge and forcing European governments to rescue four banks over the past two days alone.
``Today's blast of term liquidity will settle the funding markets down, and allow trust to slowly be restored between borrowers and lenders,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. On the other hand, ``the Fed's balance sheet is about to explode.''
What is at the heart of this massive collapse is the complete failure by US and European government to regulate the sub-prime markets and monitor the issuing of these totally unrealistic mortgages to people who could not pay the loans if interest rates went up.
Panic stations?
No why should we! We are all screwed. This rollercoaster is going to be rough and long.
The winner?
Gordon! Prime Minister Gordon Brown is now the net winner in this mess, playing the economic "guru" on the world stage despite as chancellor overseeing the explosion of housing inflation and the introduction of a staggering sixty seven new forms of taxation.
What next?
Who knows! The government cannot keep bailing out the banks, today we hear that the HBOS/LLoyds TSB merger is at risk with the share price of HBOS dropping 29 per cent with one analyst saying to Bloombergs:
"HBOS isn't a done deal until Lloyds' shareholders vote for it," said Leigh Goodwin, an analyst at Fox-Pitt Kelton Ltd. in London, who has an ``underperform'' rating on the stock. ``There's a part of the market that thinks that if the deal didn't go through, HBOS would need to be rescued.''
``The market price is reflecting doubt,'' said Derek Chambers, an analyst at Standard & Poor's Equity Research Ltd. in London. ``If the Lloyds TSB management moves away from HBOS in the hope of making a different acquisition, their credibility would not be that great.''
What happens if the government runs of money?
More money will need to be printed putting pressure on sterling the credit rating agencies (Moody's, S&P) will reduce the rating of UK sovereign debt. Result: Treasury will have to increase interest rates to attract money in competition with China, Russia and Brazil, whose ratings are soaring based on government surpluses.
If interest rates go up we will be deeper in the brown stuff!
The stock market and bond market will totally crash. Corporate profits will plummet. Unemployment will skyrocket.
An Indian warship has exchanged fire with a pirate "mother vessel" off the hijacking-plagued Horn of Africa, leaving the ship ablaze in the Gulf of Aden, an official said Wednesday.
