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A ‘monster of fear' on Wallstreet

As banks fail across the world, a £385 billion plan to bail out Wall Street and rebuild economic confidence, has been shouted down by the United States Congress, sending shares plunging. The removal of these troubled assets would have freed up the financial sector, which has been badly hit by the credit crunch....

Under the rescue plan, the American Government was to commit £385 billion of taxpayer's money to buying up bad debts and restoring confidence in the global economic markets, which are currently in turmoil.

The plan, following a series of talks between the US Government and lawmakers, needed approval from both houses of Congress in order to go through, but was rejected by 228 to 205 votes in the lower house of the United States Congress.

Despite having the backing of both presidential candidates, Barack Obama and John McCain, there were 133 Republicans and 95 Democrats voting against the plan, which had been widely attacked in the run-up to the vote.

Republicans were quick to blame House Speaker Nancy Pelosi for the bill's failure, saying a pre-vote speech in which she criticized the Bush administration's handling of the economy had turned Republican votes against the bailout.

Many objected to the idea of taxpayer's money being used to prop up banks, especially those seen as indulging in reckless lending. Others thought it not the place for the state to intervene in the markets.

The USA Republican Party was strongly opposed to the idea, and two thirds of them refused to back it. Meanwhile, Democratic leaders in the House were backing the plan, and some are already pledging to try to talk round some of their members who vetoed the plan, to try and get it passed.

Traders on the floor of the New York stock exchange were shocked when it was announced that the plan had failed. At a time when banks across the globe are failing- including US giant Wachovia, the UK's Bradford & Bingley and Europe's Benelux banking giant Fortis- it was expected by many on the floor to be passed.

Shares on Wall Street plunged within seconds of the announcement and suffered their worst one-day fall since the 1987 crash yesterday, September 29^th. The Dow Jones Industrial Average fell by 778 points to 10365.45, which was the largest one-day point drop on record, and equated to a fall of 6.98 per cent.

More than £64 billion was wiped off the value of blue chip stocks. Shares in other countries also fell; France's key index lost five per cent whilst Germany's main market dropped four per cent.

At the White House, President Bush was resuming talks with his economic team, including Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson, to determine the next steps. It is likely that a reworked version of the bill will be put forward, but this is not expected until Thursday, October 2^nd, at the earliest.

President Bush told Fox News, "I'm confident that this rescue plan along with other measures taken by the Treasury Department and the Federal Reserve will begin to restore strength and stability to America's financial system and overall economy.

"And I'm confident in that in long run, America will overcome these challenges and remain the most dynamic and productive economy in the world," President Bush added.

Given the current economic turmoil that has now gone global, a plan needs to be made quickly in order to maintain what little strength and confidence there is left in the market.

One New York stock exchange trading manager said, "There is a monster of fear out there."

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Picture by Tudou Mao