In These New Times

Julia Collewe

Guardian 

26th September, 2008

Stockmarkets were plunged into turmoil today after talks on a $700bn (£380bn) rescue for the US financial sector descended into chaos and the country’s largest savings and loans company Washington Mutual collapsed.

The FTSE 100 index in London fell 90.2 points to 5106.8 points in early trading, a fall of 1.74%. Asian stockmarkets also slid, with Japan’s Nikkei down nearly 1%.

Federal regulators closed WaMu early this morning and seized its assets in the largest banking failure in US history, then sold much of the company to JP Morgan Chase for $1.9bn. The deal will create the largest bank in the country, surpassing Bank of America. It is the second time the authorities have called on JP Morgan after the investment bank took over Bear Stearns in a rescue orchestrated by the US Federal Reserve in March.

Last night US lawmakers came close to reaching a final agreement on the bail-out, but an emergency White House meeting between Congressional leaders and George Bush “devolved into a contentious shouting match,” according to a statement from the John McCain campaign. The meeting was attended by the two presidential candidates, McCain and Barack Obama.

Adding to the gloom in Britain, it emerged today that the UK’s biggest bank HSBC is laying off 1,100 people worldwide – 4% of its global banking and market operations – including 500 in the UK.

Washington Mutual held $188bn in deposits as of June, far more than any bank that has ever failed. The bank, which was founded in Seattle in 1889, has seen its share price virtually wiped out after it made thousands of mortgage loans that its borrowers cannot repay, saddling it with billions of dollars in bad debts.

The deal was orchestrated by Sheila Bair, chairman of the Federal Deposit Insurance Corp, on terms that preserve Washington Mutual’s deposits and avoid what could have been a huge drain on the insurance fund that protects deposits of up to $100,000.

The Fed expanded its foreign exchange swaps facilities with the European Central Bank and the Swiss National Bank to pump billions of dollars of liquidity into the banking system. The Bank of England said it would lend $30bn of funds for one week and auction £40bn on Monday.

This morning on Asian stock markets, Japan’s Nikkei fell 0.94% to 11893.16. Taiwan’s stock market fell 2.2% to 5929.63 while Hong Kong’s Hang Seng fell 1% to 18741.51 and Singapore’s Straits Times lost 1.2% to 2415.45