Bush says government intervention not only warranted, but "essential"; Dow Jones up 3.62%.
By JERUSALEM POST STAFFbush bailout 224 88(photo credit: )
Global stock markets soared higher on Friday after news of a possible US government plan to rescue banks from toxic mortgage debt raised a collective sense of hope amid the world's worst financial crisis in decades.
President George W. Bush said Friday that US government intervention in financial markets is not only warranted but "it is essential" to calm nervous consumers and to halt the worst financial crisis in decades.
"America's economy is facing unprecedented challenges. We're responding with unprecedented measures," Bush said in a Rose Garden statement. Standing alongside were Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and Christopher Cox, chairman of the Securities and Exchange Commission.
"This is a pivotal moment for America's economy," Bush said. He said that a financial contagion that began with sub-prime home mortgages has "spread throughout our financial system" and "led to an erosion of confidence that has frozen many financial transactions," including ones to ordinary consumers and small businesses.
"We must act now to protect our nation's health from serious risk," he said.
He said steps being envisioned by the administration - which Paulson said earlier Friday could entail "hundreds of billions" of dollars - was not without risk.
"Signifcant amounts of taxpayer dollars are on the line," Bush said. Even so, he added, "We expect this money will eventually be paid back."
It was the third time this week that Bush has spoken on the financial crisis in an effort to calm jittery consumers and markets.
He pledged to work in a bipartisan way with the Democratic-controlled Congress on a systemwide proposal to improve the health of US financial institutions.
He spoke after the administration said it would safeguard assets in money market mutual funds and temporarily banned short-selling of financial company stocks, a trading technique that bets on stocks declining in value. The Treasury Department has asked Congress to give it sweeping power to buy up toxic debt that has unhinged Wall Street.
Bush also has authorized Treasury to tap up to $50 billion from a Depression-era fund to insure the holdings of eligible money market mutual funds. And the Federal Reserve announced it will expand its emergency lending program to help support the $2 trillion in assets of the funds.
In New York, Wall Street erupted after the opening bell as the Dow Jones industrial average rose 399.21, or 3.62 percent, to 11,418.90. Broader stock indicators also surged. The Standard & Poor's 500 index rose 53.16, or 4.41%, to 1,259.67, and the Nasdaq composite index rose 98.81, or 4.49%, to 2,297.91.
European exchanges, which had spent nearly all of this week drowning in declines responded with their own ferocity to the possible plan, surging as battered bank stocks rebounding along with them.
The news of a likely US lifeline, along with new changes to short-selling in the US, Britain and Ireland, also helped push markets higher, analysts said.
Early Friday, the US Securities and Exchange Commission took the dramatic step of temporarily banning the routine practice of betting against company stocks, announcing the move on its Web site.
The commission said it was acting in concert with Britain's Financial Services Authority in taking emergency action to "prohibit short selling in financial companies" to protect the integrity of the securities market and boost investor confidence.
"The short-term changes to short selling are certainly giving markets and regulators room to breathe," said Keith Bowman, equity analyst Hargreaves Lansdown Stockbrokers. "But there are going to be a significant number of hurdles to overcome for this temporary measure to prove useful at solving the fundamental problems over the long term."
Another factor were moves by the European Central Bank, Swiss National Bank and Bank of England to offer up more cash Friday. The three banks put a combined $90 billion into money markets in a lockstep move.
London's FTSE jumped more than 8.7%, led higher by the Royal Bank of Scotland whose shares gained some 39%. In Paris, the CAC-40 Index was up up 7.7% while shares in Oslo rose nearly 8%.
In Frankfurt, the DAX index sprung more than 5% higher with shares of Commerzbank AG and Deutsche Bank AG leaping 22.7% and nearly 19.5%, respectively.
The Irish Stock Exchange responded with its biggest burst in Dublin trading history, rising more than 25 % in the first hour. The financials-heavy index soon settled back on profit-taking, but remained up more than 12%.
Irish regulators also banned short-selling on the stocks of the country's four largest financials: Allied Irish Banks, Bank of Ireland, Irish Life & Permanent and Anglo-Irish Bank Corp.
Russia's stock exchanges saw trading halted twice after a volatile session saw stocks shoot higher. They later resumed trading late in the day. Both RTS and MICEX bourses twice called a halt to trading after shares gained sharply, breaching technical limits.
The dollar-denominated RTS climbed by 22.7% on Friday, while the MICEX soared by 31.4%.
Both indexes were closed on Wednesday for two days after the MICEX suffered one-day losses on a scale not seen since Russia's 1998 financial collapse.
Austria's ATX surged past 11% in afternoon trade after opening about 8% higher earlier Friday. In Madrid, the SMSI was up nearly 7.2% while Swedish shares climbed 7.5% higher in Stockholm. In Belgium, shares gained 8.9% on the Euronext Bel-20.
Across Asia, similar spikes were seen around the region. Hong Kong's Hang Seng Index surged a stunning 9.6% to 19,327.73, while Japan's Nikkei 225 average rose 3.8% to 11,920.86.
In China, the Shanghai benchmark jumped 9.5% - its biggest gain ever - after the government eliminated a tax on share purchases and said it was buying shares in state-owned banks.
The global turnaround came after investors took to heart word that the US government was seeking the power to rescue banks by buying distressed assets at the heart of the financial system turmoil that's brought down Wall Street giants Lehman Brothers, Merrill Lynch and Bear Stearns.
Details of the plan were still being worked out, but US Treasury Secretary Henry Paulson emerged from a nighttime meeting on Capitol Hill Thursday to say he hoped to have a solution "aimed right at the heart of this problem."
"It definitely gives investors a light at the end of the tunnel," said Daniel McCormack, a strategist for Macquarie Securities in Hong Kong. "The solution is of such a magnitude that it could eventually fix the problems ... That's hugely important at the moment because that's what markets are focused on."
Oil prices rose above $100 a barrel before retreating Friday as investors waited for details of a US government plan that could help ease a credit crisis that has roiled global markets.
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