Britannia Radio

Full comment on the American bailout must await full details later 
this week.  But here are preliminary comments together with the world 
markets response to all the multi-faceted crises facing the Global 
economy.

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Financial crisis:
Points to Ponder

FINANCIAL TIMES - Leader   29.9.08
Backing Paulson’s bank bail-out

The good news is that, after much brinkmanship, agreement has arrived 
on the outlines of a bail-out plan for the troubled US financial 
system. The bad news remains the need for such a rescue. Self-
evidently, big lessons have to be learnt from the scale of the calamity.

It is easy to sympathise with Republicans who oppose bail-outs on 
principle and Democrats who object to the generous treatment of those 
whose folly and greed created the current financial mess. But seizure 
of the credit s system is now on the cards. That is not a danger a 
sane person should run.

This scheme is indeed imperfect, but it is also the only one on 
offer. A sufficiently large number of members of Congress, from both 
sides, seem to have recognised this grim reality. They have not given 
Hank Paulson, US Treasury secretary, the $700bn blank cheque he 
demanded so importunately. But he has got most of what he wanted.

According to the outline, more oversight will be exercised over the 
administration than Mr Paulson desired. The money is also to come in 
tranches, not all at once. The bill requires the government to use 
its role as owner of distressed mortgage-backed securities to slow 
the rate of home foreclosures. It also allows the government to take 
equity stakes in companies seeking assistance. Furthermore, the 
notion of providing insurance against losses on “toxic” mortgage-
backed securities, favoured by Republican members of Congress, is 
included.

This then is a mishmash, inevitably so when an unpopular bill had to 
be put together in a hurry, so close to an election. But will the 
panic in money markets last week at least be alleviated by the 
scheme? The answer has to be: nobody knows; but it may not be, at 
least with the sums on offer.
It would almost certainly be cheaper and more effective for the 
government to follow Warren Buffett’s lead in his remarkable deal 
with Goldman Sachs. Purchase of preference shares, on such terms, 
would recapitalise banks more effectively than Mr Paulson’s desire to 
buy tainted assets at above-market prices. It would also be more 
intrusive. But institutions needing a rescue should expect intrusion. 
It is a pity there was not much more intrusion in the run-up to the 
crisis.

Make no mistake: the need for the scheme is a disaster. But failing 
to produce any rescue would risk an even bigger one. This is not even 
the best plan, but it is the one on offer. It must be tried and 
modified if necessary. But regulation of this industry also needs to 
be reformed from top to bottom. Anything less would be the biggest 
scandal of all.
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TELEGRAPH   29.9.08  @ 9.08 am
FTSE 100 falls, pound hit
The FTSE 100 fell this morning, dragged lower by banking shares, as 
the nationalisation of Bradford & Bingley in the UK and Belgian-Dutch 
bank Fortis prompted heavy selling of the financial sector.

By Telegraph Staff

The index of leading UK shares fell in early trading, with shares in 
Royal Bank of Scotland, which paid £19bn for ABN Amro together with 
Fortis and Spain's Santander at the height of the credit boom last 
year, sliding 6pc. HBOS and Barclays were both also down 3pc.

On currency markets, the pound slumped three cents against the dollar 
to $1.8148 as foreign-exchange traders increased their bets against 
the UK economy.

In Europe, shares in Germany and France fell 1.8pc and 1.5pc as 
European bourses followed a trend that started in the Far East. Stock 
markets in Asia had earlier fallen on doubts that the US bail-out can 
prevent further financial chaos.

The tentative American agreement between Congress leaders, announced 
just hours before Asian markets opened, initially lifted shares 
across much of Asia but the rally soon lost steam.

In afternoon trading share indices in Tokyo, Sydney and Hong Kong 
were down between 1pc and 3pc, while Bombay fell 2.6pc in morning 
trading. Shanghai was closed for the start of a week-long national 
holiday.

Dealers said the proposed US financial rescue package, which is 
designed to mop up toxic debts from struggling banks, offers no 
guarantee of an end to the credit crunch that has ravaged global 
markets.
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