Congress Rejects Rescue Plan

Congress Rejects Rescue Plan; Equities & USD Selloff
by Korman Tam
9/29/2008 5:40:00 PM
The dollar's fortunes reversed sharply, falling from near the 107-level against the yen to plunge to the 104-handle after it was announced that the House of Representatives voted against the $700 billion bailout plan by a vote of 228 to 205. The failure to pass the Administration's plan to purchase toxic assets off banks' balance sheets was incredibly disappointing to markets and heightens uncertainty over the outlook for the financial sector and raises the risk for the economy to plunge into a prolonged recession. US equity bourses succumbed to panic selling falling to multi-year lows, with the Dow Jones posting steep losses of 6.71% while both the Nasdaq and S&P500 plunged by over 9.14% and 8.49%, respectively. According to Congressional staffers, the earliest date for another vote to take place will be on Thursday.

US Treasury Secretary Paulson said there has been significant turmoil in the financial markets in recent days but remains committed to continue to work with regulators to protect both the financial system and economy. Paulson said the banking system was holding up very well considering the pressure, adding that he will continue to work with lawmakers as the effort to stabilize the banking system was too important to fail. He also expressed a sense of urgency, saying in spite of the "significant tools in the Treasury's tool kit", they are insufficient in bailing out the financial sector.

Global central banks continued to pump liquidity into the financial system with another bout of coordinated intervention. The Fed announced that it would be injecting another $630 billion in an effort to prevent the credit markets from locking up. In coordination with the ECB, BoE, BoJ and SNB, the Fed will bolster its swap lines to facilitate liquidity to flow more freely.