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G7 to meet on world financial crisis
(Agencies)
Updated: 2008-10-10 08:36 UNCLE SAM AS SHAREHOLDER? The Treasury's bank recapitalization plan was an option included in the $700 billion rescue plan approved last week in which the government will buy bad loans from financial institutions in the hope that it will jump-start lending. Until now, US policy has focused on a contentious plan to buy up distressed assets from banks. But many analysts have said that a US government move to shore up the capital position of hobbled banks would be a more direct way to break the logjam in credit markets that has shut down new borrowing for consumers and businesses. The United States would be following the lead of Britain, which said on Wednesday it was prepared to inject 50 billion pounds ($87 billion) of taxpayer money into its banks. US markets faced additional uncertainty after a ban on short-selling of financial stocks expired at midnight on Wednesday. Financial stocks came under withering pressure. The S&P financial index dropped almost 12 percent. Short-sellers bet on falling stock prices and have been blamed for driving share prices lower, though advocates of the tactic say they were first to point out underlying weakness in financial firms. Shares in General Motors Corp shares fell to their lowest level since 1950 as concerns mounted that an industry decline that started in the United States was spreading to faster-growing markets overseas. The 31 percent drop in GM shares added to the gloom about a recessionary spiral in the US economy. "Part of it is continual fear of economic contraction, which is driving deflationary fears, and you take down General Motors and people are looking at the ripple effect," said Greg Orrell, portfolio manager of the OCM Gold Fund in Livermore, California. |
