It looks like it might be second time lucky for TARP, after the US Senate voted to approve a new and improved version of the $700bn Wall Street bail-out scheme. Treasury Secretary Hank Paulson has sexed it up by throwing in some extra tax breaks for families and businesses, and extending the level of savings protection from $100,000 to $250,000 – and sure enough it passed by 74 votes to 25. But the bill still has to make it through the House of Representatives – and on both sides of the Atlantic, the chorus of TARP carpers seems to be growing...
Yesterday zillionaire financier (and pound-killer) George Soros told Reuters that the plan was ‘ill-conceived’, and said the Treasury would be better off taking direct equity stakes in banks instead. The global powers-that-be also seem unconvinced by the idea. The response of all the major markets has been pretty muted since the news emerged – European markets are slightly up today, but Asian markets all closed down. And in Europe, a French plan to establish a Europe-wide €300bn rescue fund has apparently been given short shrift by the UK and Germany (and even France is against the idea of buying up dodgy securities, as TARP will do).
On the other hand, European finance chiefs have to do something. The alternative to concerted action is that every government does their own thing – and as the case of Ireland is proving, that can cause big problems. Since the Irish government decided to guarantee all deposits this week, savers are piling their funds into Irish banks – which is bad news for every other bank in Europe (unless, like Northern Rock, you’ve been nationalised already). Now European finance ministers are angrily crying foul, and muttering darkly about competition law infringements.
And there’s clearly more bad news to come. One reason for today’s lacklustre response to TARP’s success is another string of gloomy data, particularly on manufacturing output. In the UK, the Chartered Institute of Purchasing and Supply’s purchasing managers’ index has fallen to its lowest level since 1992, despite the fall in sterling (which normally boost exports, by making them cheaper). Some factories, including Ford, are even cutting back to a four-day week to adjust to slowing demand. And the picture is just as gloomy in the US and the Eurozone – showing that a nasty recession is now pretty much inevitable.
But let’s not be too gloomy. At least interest rate cuts are now pretty much inevitable. And even more excitingly, renowned investment guru Anthony Bolton today called the bottom of the stock market, saying that in some sectors – notably media and retail – stocks are now so cheap that he’s started buying them up with his own money. If it’s good enough for him...
In today's bulletin:
M&S tightens belt as sales slide again
Europe cool on US bail-out plan
House prices in fastest fall since 1991
Retail therapy for high street gloom
Apple's 'other Steve' on its inner geek