Fear of US economy slipping into recession not yet over
Thursday, 16 October 2008
From Fazle Rashid
NEW YORK, October 15: Gloom once again descended on the Wall Street after a day's reprieve.
The Dow Jones industrial average fell 76.62 points yesterday after recording the highest surge in past 75 years a day before. The fear of the US economy slipping into recession is not yet over.
The fear is that the financial rescue will add to an already swelling federal budget deficit and force the treasury to borrow heavily from the capital markets, the New York Times (NYT) in a report said today. Federal Reserve Chairman Ben Bernanke admitted the government's massive intervention may not be enough to pull the economy from the morass. "Our strategy will be to continue to adopt new developments," he said.
"We will not step down until we have achieved our goals of repairing and reforming our financial systems, thereby restoring prosperity," the Fed chairman was quoted as saying.
Everything the government has done is not going to prevent further deterioration in the economy, the chief economist at the PNC Bank said
The bail-out plans in Europe and America are vastly different. European strategy bars banks from paying dividends on common stock until the government got back its money. The banks would keep loans flowing to business and individuals. Washington has allowed banks to pay dividends.
European banks are being required to put government representatives on their boards. American government will not have seats on the board of the beneficiary banks nor will they have voting power.
The US banks receiving equity infusion from the government will have to follow some general rules on paying their top five executives. The Golden Parachutes (golden handshake) will be for the time being discontinued.
The treasury plans to slash eight-figure pay packages given to the Wall Street executives that have enraged the Americans who have been hit hard by the greed and follies of the so-called invincible executives of the Wall Street.
The Wall Street observers say that the banks will innovate new rules and find other creative ways of paying their executives as they deem fit. Under the US government's take-it or leave-it offer, Bank of America (including Merrill Lynch which it is acquiring), JP Morgan Chase, Citigroup and Wells Fargo will each get $25 billion. Goldman Sachs, Morgan Stanley will get $10 billion. All banks will receive government fund on the same term. Banks taking loans will be under the watchful eyes of the treasury department. The US financial institutions which are eligible for equity help but have not decided yet have been asked to decide by November 14.
Consumers' fear that a severe economic recession is only days away has led to slashing in expenditure. A growing body of statistical and anecdotal evidence suggests that demand for television, computers, cameras and other electronics has fallen sharply, analysts said. MasterCard reported that spending on electronics and home appliances has dropped by 13.8 per cent.
Even hospital industry has been hit hard by the credit crunch. The hospital industry is among those struggling with credit scarcity that the bailout plan is meant to alleviate. Hospitals are not immune, said the chief executive officer (CEO) of healthcare financial management. He noted that hospitals like any other business relied on credit for building projects and to maintain overall liquidity. Many hospitals say they are already witnessing an increase in the their bad-debt. This money they expect to get from the patients but will not get. Stubbornly high interbank lending rates indicate that tensions remain in money market even though the US, the UK and other European governments have pledged to inject capital directly into banks and guarantee various types of bank debt.
Banks remain wary about absorbing more loans and forced take-overs of the struggling US and European institutions that have whittled down the roster of available lenders. This week's swath of global bank rescue and recapitalisations could help loosen the credit markets though the effects of those moves take time to become evident, analysts said.
The chief executives of America's nine largest banks were summoned for a meeting at the Treasury Department. They were given a one-page document making many to raise their eye brows. The document demanded that the banks agree to sell shares to the government. Henry Paulson asked all to sign the paper before leaving. There were some mild protests but eventually they all capitulated thus setting in motion the largest government intervention in the American banking system. Bankers thought they had little but to go along with the government plan.
NEW YORK, October 15: Gloom once again descended on the Wall Street after a day's reprieve.
The Dow Jones industrial average fell 76.62 points yesterday after recording the highest surge in past 75 years a day before. The fear of the US economy slipping into recession is not yet over.
The fear is that the financial rescue will add to an already swelling federal budget deficit and force the treasury to borrow heavily from the capital markets, the New York Times (NYT) in a report said today. Federal Reserve Chairman Ben Bernanke admitted the government's massive intervention may not be enough to pull the economy from the morass. "Our strategy will be to continue to adopt new developments," he said.
"We will not step down until we have achieved our goals of repairing and reforming our financial systems, thereby restoring prosperity," the Fed chairman was quoted as saying.
Everything the government has done is not going to prevent further deterioration in the economy, the chief economist at the PNC Bank said
The bail-out plans in Europe and America are vastly different. European strategy bars banks from paying dividends on common stock until the government got back its money. The banks would keep loans flowing to business and individuals. Washington has allowed banks to pay dividends.
European banks are being required to put government representatives on their boards. American government will not have seats on the board of the beneficiary banks nor will they have voting power.
The US banks receiving equity infusion from the government will have to follow some general rules on paying their top five executives. The Golden Parachutes (golden handshake) will be for the time being discontinued.
The treasury plans to slash eight-figure pay packages given to the Wall Street executives that have enraged the Americans who have been hit hard by the greed and follies of the so-called invincible executives of the Wall Street.
The Wall Street observers say that the banks will innovate new rules and find other creative ways of paying their executives as they deem fit. Under the US government's take-it or leave-it offer, Bank of America (including Merrill Lynch which it is acquiring), JP Morgan Chase, Citigroup and Wells Fargo will each get $25 billion. Goldman Sachs, Morgan Stanley will get $10 billion. All banks will receive government fund on the same term. Banks taking loans will be under the watchful eyes of the treasury department. The US financial institutions which are eligible for equity help but have not decided yet have been asked to decide by November 14.
Consumers' fear that a severe economic recession is only days away has led to slashing in expenditure. A growing body of statistical and anecdotal evidence suggests that demand for television, computers, cameras and other electronics has fallen sharply, analysts said. MasterCard reported that spending on electronics and home appliances has dropped by 13.8 per cent.
Even hospital industry has been hit hard by the credit crunch. The hospital industry is among those struggling with credit scarcity that the bailout plan is meant to alleviate. Hospitals are not immune, said the chief executive officer (CEO) of healthcare financial management. He noted that hospitals like any other business relied on credit for building projects and to maintain overall liquidity. Many hospitals say they are already witnessing an increase in the their bad-debt. This money they expect to get from the patients but will not get. Stubbornly high interbank lending rates indicate that tensions remain in money market even though the US, the UK and other European governments have pledged to inject capital directly into banks and guarantee various types of bank debt.
Banks remain wary about absorbing more loans and forced take-overs of the struggling US and European institutions that have whittled down the roster of available lenders. This week's swath of global bank rescue and recapitalisations could help loosen the credit markets though the effects of those moves take time to become evident, analysts said.
The chief executives of America's nine largest banks were summoned for a meeting at the Treasury Department. They were given a one-page document making many to raise their eye brows. The document demanded that the banks agree to sell shares to the government. Henry Paulson asked all to sign the paper before leaving. There were some mild protests but eventually they all capitulated thus setting in motion the largest government intervention in the American banking system. Bankers thought they had little but to go along with the government plan.