[DEBATE] : IMF adds to pressure on Congress to approve bail-out

[Riaz K Tayob]

IMF adds to pressure on Congress to approve bail-out

* Graeme Wearden and Andrew Clark in New York
* guardian.co.uk,
* Wednesday October 01 2008 11:15 BST


Stock exchange

London and Asian shares have recouped some of their recent losses.
Photograph: Alex Grimm/Reuters

The International Monetary Fund has added to the growing pressure on the
US Congress to approve the Wall Street bail-out, as stockmarkets rose on
optimism that a deal will be hammered out this week.

Dominique Strauss-Kahn, managing director of the IMF, warned last night
that the US must take urgent steps to protect its economy from the
ongoing financial crisis.

"We're right at the moment where action is needed," warned Strauss-Kahn.
"A non-perfect plan is better than no plan at all," he added, in an
interview with Reuters in Washington.

The prospect of a deal this week sent shares up in London this morning,
where the FTSE 100 continued yesterday's bounce-back. After leaping by
92 points in early trading it slipped slightly by 11am, when it was up
48.1 at 4950.5, a gain of 1%. Asia was also more buoyant, where Japan's
Nikkei recovered some of yesterday's heavy losses to close almost 1%
higher. Hong Kong's Hang Seng index gained 0.75%.

The House of Representatives sent shockwaves around the world on Monday
when it voted down the $700bn (£390bn) rescue plan, under which the US
government would cleanse the banking sector's balance sheets.

With politicians worldwide demanding action, the US Senate is due to
buck convention and vote on an amended version of the rescue plan this
evening – before the lower house has given its approval. In an effort to
win Congress's backing, it now includes a clause to raise the
government's guarantee on savings from $100,000 to $250,000.

But in a sign of the problems facing the financial industry, JP Morgan
warned that Europe's banks will take fresh asset writedowns totalling
€28.4bn (£22.5bn) before the end of this year

The research note predicted the following writedowns:

• Lloyds TSB (including HBOS): £4.5bn
• Deutsche Bank: £3.6bn
• UBS : £2.1bn
• Barclays: £2.9bn
• Société Générale: £2.1bn

Strauss-Kahn demanded that Europe draw up contingency plans in case its
own banking system needs to be rescued. Unlike in America, there is no
single regulator overseeing the system.

"Developing a contingency plan does not mean it's announcing a lot of
trouble coming. But they're not totally immune … and so they need to
organize," he added.

But the president of the European Central Bank, Jean-Claude Trichet, has
rejected the idea that Europe should organise its own bail-out.

"We are not a fully fledged federation with a federal budget," Trichet
pointed out. "Each country has to mobilize its own efforts."

He also echoed calls for rapid action on the bail-out.

"It has to go, for the sake of the US and for the sake of global
finance," Trichet said.

Both presidential candidates have also called for a new push to get the
rescue plan through.

On the campaign trail yesterday, Barack Obama warned of "catastrophic"
consequences unless a deal is reached soon.

"We cannot risk another week or another month where American businesses
are afraid to extend credit and lend money," he said.

There was also renewed optimism on Wall Street that the treasury would
eventually be able to hoover up "toxic" mortgage-related assets.

"Cooler heads are prevailing - we'd had a little bit of panic at the
close yesterday," said Anthony Conroy, head trader at BNY ConvergEx in
New York. "There's anticipation that some sort of deal will be passed by
Congress in the next day or two."

The US public has blamed the shambolic handling of the bail-out plan on
both Congress - whose approval rating has fallen to 10% - and president
George Bush, who is accused of caring about "fat cats" rather than
ordinary people.

http://www.guardian.co.uk/business/2008/oct/01/banking.useconomy