Many people withdrawing money from banks for stashing at home

---

From Fazle Rashid
NEW YORK, Oct 9: The rescue package of $700 billion having failed to calm down the fury of the tempest in the financial market, the United States, like Britain, has decided to nationalise the banks. The Treasury Department is considering taking over ownership stakes in the troubled banks to restore confidence in the financial system, the New York Times (NYT) disclosed today.
The new move of recapitalisation has come in the wake of another turbulent day. The recapitalisation plan has emerged as one of the most favoured new options to rescue a 'sinking economy'. The move is being discussed on a priority basis both in the Wall Street and Washington.
In a move never seen before six of the world's most important central banks including Federal Reserve, European Central Bank and the Bank of England simultaneously unravelled yesterday an emergency interest rates cuts of half percentage point. The People's Bank of China, though not a part of the six-nation decision, also announced a cut in the interest rates. Bank of Japan welcomed the move but did not take any action. Tokyo has however conceded that it need to take more action to shield its economy from the economic tempest raging worldwide. ''The central banks acting together in the hope that this would maximise the impact of their move at a time when governments are reacting to the crisis with uncoordinated measures'', the experts said..
Britain yesterday launched a $690 billion rescue package to restore confidence among financial institutions and stave off a severe economic slowdown. Bankers greeted the move but hastened to add ' it would be several months before it was clear whether the scheme had had the desired effect'. HBSC, Standard Chartered and Abbey UK subsidiary of Santander of Spain said they will not seek government assistance.
Coordinated effort of interest cut notwithstanding, the 'stress across money markets intensified' yesterday. The interest rates cut is designed to help the sinking financial institutes gain access to funds. The funding analysts predict that credit will remain very tight, with negative effects on the economy mounting. There has been a total breakdown in mutual trust between the lenders and the borrowers since Lehman Brothers seeking protection under bankruptcy law. This has paralysed short term lending.
Gripped by fear and panic many people are withdrawing money from banks and stashing them at home. In the first six days of October, investors pulled $19 billion out of mutual fund that invest in United States stocks. What clients are looking for is safety. Clients are opting for options that are backed by the Federal government.
All these steps seemed not to have calmed the markets. Stock prices continued to fall. Down Jones industrial average was down by 2.0 per cent. The unfavourable response from the market prompted policy makers and outside experts to scramble for additional remedies to stabilise the credit banks and reassure the investors.
Stark warning behind the scrambles for solutions lies a hard reality: the financial crisis has mutated into a global downturn that economists warn will be painful and protracted and more importantly for which there is no quick cure, the New York Times said.
Four of America's best known mutual fund companies have joined a new federal programme aimed at restoring confidence in nation's money markets. Fidelity Investments, Vanguard, T. Rowe Price and Oppenheimer Funds have decided to participate in government backed programme to stabilise the hard hit credit markets.
Charles Schwab, Federated, Morgan Stanley, Putnam investments, BlackRock and JPMorgan Chase announced their intention to join the programme last week. The news of shoddy and suspected deals continue to plague the market. Bank of America has been forced to buy back as much as $4.7 billion in auction-rate securities to settle charges that it misled thousands of clients about the risky investments. And Treasury Secretary Henry Paulson has surprised and stunned the financial world by choosing Neel Kashkari his junior colleague in the Goldman Sachs to oversee the $700 billion rescue package. Neel has only six years of experience in finance and government. He is too inexperienced to shoulder the responsibility for world's financial stability, the experts in the Wall Street said.