US Treasury officials warn that stock market will fall by a third if bail-out plan fails
The American stock market could suffer a devastating crash with shares losing a third of their value if Hank Paulson's financial bail-out plan fails, US Treasury officials have warned.
By Tim Shipman in Washington, Edmund Conway in London and Philip Sherwell in Oxford, Mississippi
Last Updated: 7:30PM BST 27 Sep 2008
US Treasury officials warn that stock market will fall by a third if bail-out plan fails
Officials close to Mr Paulson are privately painting a far bleaker portrait of the fragility of the global economy than that advanced by President Bush Photo: BLOOMBERG
The financial system could face a meltdown of 1929-proportions in the early days of next week unless US politicians succeed in their efforts for a $700bn rescue scheme, experts added.
The warning came as Republicans and Democrats met in Washington to attempt to seal agreement on the contentious plan, aimed at preventing the US economy from slumping into a long-lasting recession.
Renegade Republicans under pressure to join congressional Democrats in supporting the legislation were warned that they will be responsible for causing an "amazing catastrophe" if they continue to oppose the plans, which would see taxpayers buy up the bad debts of failing banks.
Officials close to Mr Paulson are privately painting a far bleaker portrait of the fragility of the global economy than that advanced by President George W Bush in his televised address last week.
One Republican said that the message from government officials is that "the economy is dropping into the john." He added: "We could see falls of 3,000 or 4,000 points on the Dow," the New York market that currently trades at around 11,000. "That could happen in just a couple of days.
"What's being put around behind the scenes is that we're looking at 1930s stuff. We're looking at catastrophe; huge, amazing catastrophe. Everybody is extraordinarily scared. It's going to be really, really nasty." London investors have warned that the FTSE could suffer falls of as much as 1,000 points - a fifth of its value, if the deal falls through.
Peter Spencer, economic adviser to the Ernst & Young Item Club, said: "It would be disastrous. At this stage, you just This is the time you just have to bail people out and ask questions later. It is very difficult to see how the US banking system would survive without that package.
"This has the potential to make [the stock market crash of] 1929 look like a walk in the park." Last night, the White House and the Democrats were pushing to finalise a bill by Sunday night to avoid further turbulence when the Asian markets open. The first votes could take place between Sunday and Wednesday.
In a measure of the growing complexity of the negotiations, by Saturday morning Mr Paulson's plan, originally three pages long but grown to 42 pages as a result of concessions to Democrats last week, had swelled further to 102 pages.
But the White House and the Democrats are locked in tough negotiations with Republicans in the House of Representatives, who warn that the Treasury Secretary's proposal is socialism by the back door. They want an insurance scheme for banks which would spread the cost to private enterprise.
Michael Cohrs, head of global banking at Deutsche Bank said: "Ensuring stability in the US markets is important for us all. The bail-out will not solve all of the problems but if doesn't happen it will be yet another negative. There's a psychology to a crisis and more bad news compounds the problems."
The talks were again complicated by the politics of the presidential race, as Republican John McCain again sought to gain a political edge over his Democratic rival Barack Obama by flying straight to Washington after their debate clash, a reprisal of the move that Democrats blamed for the breakdown of negotiations on Thursday.
McCain campaign spokesman, Tucker Bounds, told The Sunday Telegraph: "Sen McCain has headed straight back to DC to work on a bipartisan and bicameral solution to this crisis. That's in contrast to Barack Obama who will go off and hold his election rallies around the country. Only one candidate is putting the country first."
David Axelrod, Mr Obama's senior strategist, mocked Mr McCain's decision. He said: "The last time McCain arrived back in Washington, there seemed to be an agreement on the bail-out and it got blown apart, so I'm not sure his return is really such a great thing for the American people.
"We're not going to turn this into a circus to try and promote Senator Obama's campaign. The stakes are too high for that."
During the debate, in Oxford, Mississippi, both candidates stopped short of providing a ringing endorsement of the rescue plan. Asked directly whether he intends to vote for it, Mr McCain said: "I hope so."
Mr Obama said: "We haven't seen the language yet. I do think there is constructive work being done." He called the financial crisis "a final verdict on eight years of failed economic policies promoted by President Bush and supported by Senator McCain."
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Goodness gracious, it fell by 1,000 points in about 2 days and no one jumped out of a window.
It happens in a BEAR MARKET beset by utter lack of governance and rampant FRAUD. |
