Stocks struggle ahead of crucial bailout vote
10/03/2008
Asian markets fell as investors sought safer investments ahead of the U.S. House vote on a bank rescue plan.
Stock markets in Asia followed Wall Street lower Friday as nervous investors waited on the outcome of the U.S. House of Representatives' vote on a $700 billion bank bailout plan intended to bolster the ailing U.S. financial system.
U.S. lawmakers rejected an earlier version of the bill on Monday, sending stocks tumbling around the world. But members of the House are under renewed pressure to approve the revised plan, backed by U.S. President George W. Bush and Treasury chiefs, after the U.S. Senate passed it by a large majority on Wednesday.The banking world has been in turmoil in recent weeks with many institutions scrambling for survival as credit has dried up and many have been left holding "toxic" subprime debt following the collapse in U.S. house prices.In the latest development Friday, troubled U.S. bank Wachovia announced it would merge with Californian banking giant Wells Fargo in a deal valued at approximately $15.1 billion.The merger will include all of Wachovia's banking operations, Well Fargo said.Wachovia had looked set to be sold to Citigroup in a deal brokered by the Federal Government.Japan's Nikkei Exchange closed the week down 215.05 points, or about 1.9 percent at 10,939.71 -- a new three-year low.Hong Kong's Hang Seng dropped 2.9 percent to 17,682.40 and key indexes across the region were all down.European markets were flat in morning trading, though London's FTSE 100, Paris' CAC and Frankfurt's DAX had all crept into positive territory by 1050 GMT.Wall Street took a beating on Thursday with the three major indices all down at least three percent. The Dow Jones industrial average fell 348 points, 3.2 percent, recovering a bit from a drop of 391 points earlier. The Standard & Poor's 500 index lost 4 percent and the Nasdaq composite lost 4.5 percent."There's still concern about whether or not the House will pass the bill and, even if they do, whether it will be effective," Ron Kiddoo, chief investment officer at Cozad Asset Management, told CNNMoney.The core of the Senate financial bailout bill is a plan to buy troubled assets from banks, but the proposal includes a number of new provisions aimed at ordinary people struggling under the credit crunch.The changes -- including $110 billion in tax breaks and raising the limit at which bank desposits are guaranteed from $100,000 to $250,000 -- were intended to attract more votes from the House -- especially from Republicans, two-thirds of whom voted against that version.But the bill also includes some odd sweeteners -- so-called "pork-barrel legislation" -- such as an excise tax exemption for a very specific type of arrow used by child archers, a $478 million tax incentive scheme to encourage movie companies to continue producing films in the U.S, and measures to allow employers to provide benefits to employees who commute to work by bike."I think most Americans who are either concerned about the bailout package or concerned about the economy are going to be wondering why a provision benefitting wooden arrow manufacturers is catching a ride on the package," Steve Ellis of watchdog group Taxpayers for Common Sense told CNN.In a White House statement, U.S. President Bush urged lawmakers to back the plan. "With the improvements the Senate has made, I believe members of both parties in the House can support this legislation," Bush said. "The American people expect -- and our economy demands -- that the House pass this good bill this week and send it to my desk."Congressman Barney Frank, chief Democratic negotiator of the bill in the House, told CNN the bill had a better chance of getting passed the second time around."The reality has hit some members," Frank said, adding later, "The main change is reality -- it's not possible now to scoff at the predictions of doom if we don't do anything.""We believe we'll have a better chance to pass this bill than the one that failed [Monday]," said a spokesman for lead House Republican, John Boehner.House Speaker Nancy Pelosi said in a press conference Thursday that House members were reviewing the Senate bill and would not bring it to the floor unless they were sure they had the votes to get it passed."I'm optimistic we'll take the bill to the floor," she said, rejecting calls from lawmakers for further amendments to be made to the bill. "I don't think any changes here will do what we need to do now, which is send a message of confidence to the markets that Congress will act."Meanwhile, European Union leaders were set to hold summit talks in Paris on Saturday to address the continent's deepening economic problems. On Friday France's national statistics agency said the country had entered a recession with negative equity expected in the third and fourth quarters of 2008.French government spokesman Luc Chatel said Wednesday that the financial system had "run out of steam. Therefore we need to find solutions to restructure a capitalism that is adapted to today's era."The summit will include French President Nicolas Sarkozy, British Prime Minister Gordon Brown, German Chancellor Angela Merkel and Italian Prime Minister Silvio Berlusconi.Also expected to attend are Eurogroup President and Prime Minister of Luxembourg Jean-Claude Juncker, European Commission President Jose Manuel Barroso, and European Central Bank President Jean Claude Trichet.Banking shares have fallen significantly in recent days and on Wednesday EU Commission President Barroso urged European governments to work together in a bid to shore up financial systems hit by the credit crisis.
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