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Stand by for Black Monday
Jonathan Prynn, Evening Standard26 Sep 2008
The City is bracing itself for a "Black Monday" meltdown after President Bush admitted he had failed to land a bank bail-out deal.
Senior market figures said the FTSE-100 could fall by between 600 and 1,000 points when the stock market opens next week if no deal is forthcoming.
The frightening prospect of a collapse to match the 1987 crash was raised as George Bush confirmed that he had not yet been able to persuade senior Republicans to back his $700 billion rescue plan.
In a terse statement from in front of the White House, the President said: "We've got a big problem and we've got to move quickly."
He admitted there were still disagreements about the $700 billion plan, engineered by his Treasury Secretary Hank Paulson.
But Mr Bush said he remained hopeful that an agreement can still be reached, adding: "We will get a package done, we will rise to the occasion."
American politicians now effectively have three days of frantic negotiations to save the world's financial system from a seizure that could cast the global economy into a deep recession.
Bryan Johnston, investment director at brokers Bell Lawrie, said: "If Paulson's plan fails we will see a collapse in the markets and taxpayers will effectively pick up the tab."
Mr Johnston added: "I cannot believe the posturing among US politicians but I believe after taking it to the wire the plan will be voted through because it cannot really afford to fail.
"However, nothing is certain anymore and if it did fail, we could see 1000 point falls on the FTSE on Monday and we would be out of a job while the banking system would freeze up completely."
Other senior market figures said the fall on the FTSE-100 would be at least 600 points while the Dow in New York could fall by 1000 points. There were also worrying signs in the City that wealthy investors are starting to lose faith in the entire banking system.
Brokers and fund managers say small but increasing numbers of clients are taking their deposits out of banks and putting them into "safer" investments such as short-term government bonds.
One said the cash is also being used to snap-up bargains in the London property market.
Mr Johnston continued: "It is incredible to believe we are seeing worried clients ringing up asking if RBS will go bust, which would have been inconceivable just a few weeks ago."
The price of gold - a traditional safe haven - jumped four per cent today to $911.15 an ounce. The FTSE-100 was down 96.9 points at 5100.
Mr Bush's latest update on the talks came as leading Democrat and Republican politicians engaged in a bitter "blame game" following the collapse of talks over the proposed rescue.
Each side took to the airwaves on America's agenda-setting early morning TV shows hours after the negotiations broke down in acrimony.
Details also emerged of the desperate pleading by senior government officials as the talks turned hostile.
Treasury Secretary Paulson was reported to have gone down on one knee before House Speaker Nancy Pelosi to beg for an agreement. She is said to have replied: "I didn't know you were a Catholic."
Barney Frank, the Democrat chairman of the House financial services committee, said a Republican "ideological war" was the cause of the impasse.
But Senator Richard Shelby, an Alabama Republican who appeared on the same breakfast TV show, said many Republicans disliked Mr Paulson's rescue package.
He said: "Basically, I believe the Paulson proposal is badly structured. It does nothing for the stressed mortgage payer. It does a lot for three or four or five banks."
The negotiations came to an impasse when leading Republicans refused to back the deal despite earlier apparent cross-party agreement.
The two presidential candidates, John McCain and Barack Obama, even attended an extraordinary summit with Mr Bush at the White House.
After what was described as a "shouting match" in the Cabinet Room, a crest-fallen Mr Bush is reported to have said: "If money isn't loosened up, this sucker could go down."
Democrats blamed conservative politicians, and Mr McCain in particular, for a last-minute ambush of the deal. One aide described the tense, 45-minute White House meeting as "a full-throated discussion".
Mr Obama said a deal would eventually be reached but added: "I think there's still some work that needs to be done. I think there's going to have to be some discussions between the President, Treasury Secretary, House Republicans, perhaps Senate Republicans... to figure out what exactly they want additionally to see to make this thing work."
But after the meeting Mr McCain's campaign issued a statement saying: "The plan... put forth by the administration does not enjoy the confidence of the American people as it will not protect the taxpayers and will sacrifice Main Street in favour of Wall Street."
The Republicans have proposed an alternative that would not involve the US taxpayer being saddled with such huge debts.
This would have the US government provide insurance for purchasers of "toxic" mortgage debt rather than buying them outright.
But this has been rejected as unworkable by Mr Paulson. The bad feeling is in sharp contrast to rising optimism yesterday when Democrats said they were prepared to back the plan.
They have called on President Bush to put more pressure on his own party today to get it through.
Q&A
Isn't the $700bn bail-out cut and dried?
It almost was. Competing deals and demands for tweaks to the original plan got in the way. Now the assumption is that they will work something out over the weekend to announce before stockmarkets open on Monday.
What happens if they can't agree?
If you believe US Treasury Secretary Hank Paulson, financial Armageddon, potentially. Bank shares in particular will sink across the globe as investors decide that the credit crunch is going to get much worse and last for much longer than previously thought. A new crisis seems to emerge each day - today it was the collapse of Washington Mutual - Monday could be a whole new issue.
Are more banks going under?
That seems inevitable at this point. Attempts by the Bank of England and the US Federal Reserve to pump cash into the system to get the engines working don't seem to be succeeding. The hope remains that the giant US bail-out scheme where the government buys up bad mortgage debt will be the rescue the financial system needs.
Where is safe to invest?
UK government bonds. The larger building societies. The main high street banks. The government will cover the first £35,000 of any savings in a company with a UK banking licence in any case.
What about shares?
The people who do best out of the stockmarket are those who buy when everyone else is fearful. But if you aren't an experienced investor, now is not the time to dabble in individual shares.
Will there be interest rate cuts soon to ease the situation?
Even if there are, it seems increasingly likely that banks won't pass those cuts on. Mortgages are going to get more expensive, not less. SIMON ENGLISH
Reader views (22)
This is to PAUL, MANCHESTER.... What you wrote has to be "THE" MOST IDIOTIC thing I have heard today. Do the USA a favor and stay in Manchester!
- Lisa, Massachusetts, USA, 29/09/2008 19:43
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This is for Paul, manchester. That has got to be "THE" most IDIOTIC STATEMENT I have seen today. Stay in Manchester. We don't want your kind here!
- Lisa, Massachusetts, USA, 29/09/2008 19:35
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The B&B 'nationalisation' characteristically does not include its profitable components. Once again profit is privatised and loss is socialised as corporate welfare.
- Jack, London UK, 29/09/2008 08:25
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I do not want my children and grandchildren to pay for this. I the USA would go to the borrower who is in default and pay his/her loan, have the borrower pay gov. back, banks get their money, people stay in their homes.
The package banks want to sell the gov. will be attached to the worst areas in the nation, that is if it is associated to real property. In the S&L bailout the books were cooked, no property to the loan, we can not redeem on that now can we!
No this bailout can not happen. Let the bankers jump!
- Mag4paul, USA, 29/09/2008 03:54
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I hope this crash happens... I ve been waiting for it a long time.. I ve never witnessed a crash. It would be nice if I can witness this one and see the damage for myself. Then is the damage is as bad as I thought, then I start investing in the new cycle.
- Paul, manchester, 29/09/2008 02:49
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And the worse part of all this is the tired Titanic comparisons that people insist on trotting out. Stop it already.
- Srs, London, 28/09/2008 23:44
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Paulson gets on knee and beg. How pathetic.
- Frank, Los Angeles, California, 26/09/2008 22:10
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There are not many major currencies other than the Dollar, Sterling Pound or Euro. So if they all three became weak and untrustworthy it would be catastrophic for the world finance/insurance/pension/legal/taxation/ systems and some civil disorder and chaos would follow. A fall in the index equities would be short term bliss by comparison. Enjoy a calm weekend.
- Nick London, London UK, 26/09/2008 21:41
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Just like the Captain of the Titanic it was full steam ahead, "Iceberg" what "iceberg", we are going down ........but wait no room in the lifeboats. This is no joke and the people who are left picking up the pieces after this huge disaster... thats right the good old tax payer who also borrows cash to make ends meet and who puts trust in a FAIR banking system only to find the leaders are the brothers of the Sheriff of Nottingham and we all pray that Robin Hood will make an entrance
What happens now ... yes there will be a huge run on the banks and hold on this ride is going to be tough and some won't make it.
If your lucky enough to have over £35k in the bank and the bank goes down you are only covered at the moment for the first £35k after that "whistle" for it?.
The massive "Black hole" they were looking for is here, and money must be funny in a rich man's world, "viva the revolution"?
Finally,
A change of Leadership both sides of the "pond" won't fix this only the goodwill of Joe Public will as one person said on this page "WE WILL ALL BE AFFECTED".... Good luck..... and Merry Christmas, It's only 12 weeks away?
- J.L., Scarborough . N.Yorkshire., 26/09/2008 20:29
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So what, all it really means is the spiv's, politicians and bankers involved will never work again. Who really cares, just less scroungers on the public pay roll and less freeloaders. Welcome to the Blair/Brown Nu-world order. Not what they imagined, so be careful what you wish for.
- Mike, London, 26/09/2008 18:49
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At the moment the majority of mortgage losses are those lent to the ordinary working class, liars and criminals.
As this crisis deepens and an increasing number of presently smug, I am alright Jacks and Jills, end up losing their jobs. Thereby putting themselves at risk of default on their mortgages. We shall have more people finally understanding how bad this problem is amongst the ever increasing cries for help.
Unfortunately, if concerted action to bailout the lending organisations is not taken now. The rapidly descending vortex as financial institutions collapse one by one, will be too powerful to halt.
An extremely large number of companies who have borrowed money in the normal course of their business, not greedy. Are going to hit a merciless brick wall when it comes to renewing their loan agreements. Many will go bankrupt.
Jobs, pensions, benefit payments and even your children's futures are at stake here. Governments are going to run out of cash. You have been warned.
Believe me it will be so bad, Gordon Brown is too scared to even think about it, let alone dare to mention.
Like George Bush and his pals in the US. He did nothing so stop runaway house prices. In fact by removing housing from the official inflation index. He made it impossible for the BofE to increase interest rates when they should have been. Wars in Afghanistan and Iraq gobble up huge amounts of money. The US and the UK are not in good shape.
If I was you, I would pray for some good news.
- Harry H, London UK, 26/09/2008 18:32
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Dubya's economic nouse is inherited. Remember his old man's "Read my lips - No more Taxes"?
- Michael, brightlingsea england, 26/09/2008 18:23
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This bailout would only delay the inevitable Unfortunately we have to go through the pain and then we will emerge leaner, hopefully smarter and maybe less greedy all round Aspirations must be lowered from banks to governments to councils to the housing market greedy landlords,expensive wars, aid to corrupt countries, expensive green 'initiatives' get real it just has to stop people are still in denial; the only reason this bailout plan has been put forward is to allow the merry go round to go on for a bit longer. And ridiculous headlines like 'Black Monday' looming are less than helpful markets will go down...normalize, and about time But we will survive, life goes on, it always has
- Sheila, london uk, 26/09/2008 17:57
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You reap what you sow. Hopefully this harsh lesson will teach the greedy "bankers".
- Frank, Home Counties, England., 26/09/2008 17:00
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The taxpayers will pick up the bill either way. At least if the bill goes through there will be less pain involved.
- H M, London, 26/09/2008 16:40
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Americans will say "Thanks, but no thanks" to Hank "the Hammer" Paulson. Obama's attempt to pass through a consensus agreement for agreement's sake was pathetic. It is down to McCain and the congressional Republicans to stand up for the taxpayers' interests. The lame duck administration will have no choice but to follow suit.
- Jack Street, London, 26/09/2008 13:38
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No wonder David Cameron is edging closer to Barack Obama and copying his slogan. After McCain's wrecking tactics I don't suppose the Tories want to identify too closely with him.
- Val Daniels, Mijas Costa. Spain, 26/09/2008 13:22
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No wonder David Cameron is edging closer to Barack Obama and copying his slogan. After McCain's wrecking tactics I don't suppose the Tories want to identify too closely with him.
- Val Daniels, Mijas Costa. Spain, 26/09/2008 13:22
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Well done McCain. His instincts are correct This is a lousy plan which will only delay the recession by a few months Shame on all the City commentators for not supporting him; Lets hope the American electorate will come November
- Sheila, london uk, 26/09/2008 13:12
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No,sorry it is socialiasm coming to the aid of amerika.
Bush said many times, .it will never happen..........how wrong he was.
- Jaberwokie3, switzerland, 26/09/2008 13:06
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To all these people whos are accusing this deal to favour the rich, We all are in this crisis. This crisis is affecting everybody not just the rich. With the collapse of more and more banks, WE ALL WILL GET AFEECTED and things will go worse. Having just recently visiting the USA, they urgently need this deal to be signed!!!!
- Ss, Surrey, 26/09/2008 12:42
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This is not 'saving the world' - this is the ordinary masses bailing out the rich few, without their permission. The people of America are smarter than to fall for this, and that's why these talks have collapsed.
- Marie Collins, Enfield, 26/09/2008 10:43
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