US tries to calm markets as indices dive further

06 October 2008 17:23  [Source: ICIS news]

WASHINGTON (ICIS news)--US Treasury and other federal financial officials sought to calm American and global markets on Monday as stock market indices plummeted on concerns that the $700bn (€511bn) bailout bid may fail.

 

At midday on Monday, the bellwether Dow Jones Industrial Average was down by about 500 points, taking the index to below 10,000 for the first time in four years.

 

The Treasury Department said in a statement that “conditions in US and global financial markets remain extremely strained” and that the 20-year-old multi-agency intervention team led by the Treasury is taking a range of actions “to address the current challenges and restore confidence and stability” to markets.

 

The Treasury said that the president’s working group on financial markets will move “in forceful and coordinated ways across regulatory and supervisory agencies in the US and throughout the world” to restore normal credit market functioning.

 

The statement said that the Treasury and its partners in the working group will take steps within days to implement bailout provisions with the $700bn rescue facility approved by Congress and signed by President George Bush last Friday.

 

In addition to the Treasury, the working group includes key US financial regulators in the Federal Reserve Board (the US central bank), the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC).

 

Among the steps to be taken, the Treasury said, will be action as needed by the Federal Deposit Insurance Corporation (FDIC) to step in to prevent bank failures that might pose “a systemic risk” to the financial system.

 

The statement said that the FDIC, along with the working group member agencies, will act “to protect depositors, guarantee liabilities, facilitate orderly wind downs, mergers or adopt other stabilising measures”.

 

The Federal Reserve, the Treasury said, “is committed to using all of the tools at its disposal to provide the increased liquidity that is now required for the effective functioning of financial markets”.

 

As the Treasury was making its statement, the Fed announced it is making $150bn worth of credit available to banks.

 

The department also said that federally sponsored secondary mortgage market giants Freddie Mac and Fannie Mae have been authorised to “provide critical additional funding to our mortgage markets” by increasing their purchases of mortgage-backed securities.

 

The SEC and CFTC have launched what the Treasury termed dozens of investigations “to vigorously protect investors and maintain the integrity of our capital markets”.

 

In an apparent move to calm both average citizens and financial sector executives, the Treasury said that “we must also remind investors and lenders that we have a resilient and diverse economy and workforce” and that “we have faced economic and financial market challenges in the past”.

 

“Each time we have worked through them and emerged with stronger financial institutions and regulatory policies,” the Treasury said. “While it will take time and a lot of hard work, we are confident that this time will be no different.”

 

($1 = €0.73)

 

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By: Joe Kamalick
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