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Bush offers mother of all bailouts

It’s the mother of Govt-sponsored bailouts for global banks and financial majors reeling under the weight of bad debts and threatening to sink the world economy, reports Sandeep Singh.

business Updated: Sep 20, 2008 01:52 IST
Sandeep Singh

It’s the mother of government-sponsored bailouts for global banks and financial majors reeling under the weight of bad debts and threatening to sink the world economy.

<b1>The current crisis was sparked by Lehman Brothers — once one of the four pillars of Wall Street — going bankrupt, while Merrill Lynch and AIG were bought over by Bank of America and others.

Already at $1 trillion (Rs 46 lakh crore) — roughly the size of India’s GDP — a new White House package came as a lifeline on Friday for sinking markets.

“Legislation is urgently needed to help unclog markets,” said US President George W Bush. “Government intervention is not only warranted, but essential.”

Bush’s comments followed US treasury secretary and former Goldman Sachs chairman Henry Paulson saying lawmakers and officials were thrashing out a comprehensive bailout to restore fast-eroding investor confidence.

Markets the world over smiled again. Russia shot up 20 per cent, China rose 9.5 per cent and, at the time of writing, Brazil was up 9 per cent.

Mirroring this, the Sensex rose 5.5 per cent, with real estate, IT and oil and gas leading the gains.

This optimism is riding the $900 billion (Rs 41.4 lakh crore) the US has pumped into the system already for damage control.

Central banks in Europe, Canada and Japan pooled in another $180 billion (Rs 8.28 lakh crore) to stabilize the global financial system.

Economists said there was a liquidity problem before financial institutions and the US package would help them get around it in the short term. But it may not be enough.

"The package will have some success," said Abheek Barua, chief economist, HDFC Bank. "But to think that the crisis is over would be optimistic."

It's not just the US leadership that's worried. Prime Minister Manmohan Singh took stock of the situation on Friday at a specially convened meeting of the Cabinet Committee of Economic Affairs and asked his colleagues to remain "alert".