EU Leaders First to Back Banks
Growing Chorus in United States of Government and Economic Leaders Calls for Following Suit
As a result of the downturn, developed countries are not expected to help 28 countries facing twin shocks of rising food and fuel prices, said former U.S. diplomat and trade negotiator Robert Zoellick.
"For the poor, the costs of the crisis could be lifelong," he said.
How Will the Markets Respond?
Market analysts hoped for a better week on Wall Street in response to the increasingly aggressive bailout package and particularly to moves in Europe to shore up banks.
"There is probably a lot of optimism based on this past Friday. So the markets may reflect the disappointment of the G7 not coming out with some profound, coherent, exact, precise program," said Wall Street Journal Washington, D.C., bureau chief John Bussey. "They are for making sure there is enough capital in the system freeing up money markets; assuring that bank deposits are safe; getting banks lending to each other again and lending to individuals. My suspicion is that as the week wears on, the markets will metabolize that and be a little more encouraged."
UBS Securities floor trading director Art Cashin said today on "This Week" that the bulk of the problem can be attributed to Lehman Brothers' collapse.
"In hindsight it's pretty clear that it was a drastic error to let Lehman go under, it spilled over into the money markets after that, when the money markets froze up they stop buying commercial paper, which is the lifeline for much of American business," he said. "The stock market is merely the sideshow in this circus, it is the financial system that's there -- to use a different metaphor, we're just the thermometer, it's the patient, it's the banking system that's got to get put back together and it's got to get put back together fast."
Sorkin said the fact that the bailout plan is changing swiftly is bound to be unsettling for investors.
"What started with a $700 billion rescue bill to buy bad assets from financial firms, has now morphed into a plan allowing the government to take partial ownership in those firms, partially nationalizing private banks," Sorkin said. "That's an idea the administration opposed at the start of the crisis.
"In a way, the $700 billion plan was very clear until last week. Once the market started tanking, all sorts of uses for the $700 billion plan started arising. And everyone now has a different idea on how to use that money. So I think that there is a real question about how to use that money and whether that's gonna get things kick started again."
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