Tomorrow will likely decide a large part of the fate for American economic system as we know it; fears of new corporate bankruptcies range from General Motors, which has maxed out its contracting line of credit to pay for operating expenses in the face of the global credit market freeze-up, to Wachovia Corp, one of the largest banks in the United States, which is searching for a merger partner to avoid financial ruin. Signs point to Citigroup as the most likely candidate to scoop up the retail banker, which would allow Citigroup to compete with other large consumer banks, but investors are still wary. Wachovia stock well 27% on Friday, and has tumbled even further in after hours trading.
Unfortunately, the hopes and (mainly) fears of Wall Street rest on Washington,
which seems to be balking at the irony of its new-found importance. Despite partisan squabbling, the bail out package is progressing slowly to a vote tomorrow. The economic crisis, which has seen the death of the massive Lehman Brother’s investment house and Washington Mutual, and the near total collapse of AIG, Fannie Mae, and Freddie Mac, has created a unique moment in American politics, forcing a Republican President, George W. Bush no less, to unite with a Democratic Congress and completely derailing a presidential campaign, with all parties attempting to force a reluctant Republican minority into supporting a landmark bail-out package, total $700 billion dollars, in the hopes of stopping what some fear could become an avalanche of corporate collapses continuing into October, possibly spreading beyond our own borders.
Foreign investors, in the meantime, continue to bite their nails, now no longer concerned only with their investments in America, but also afraid of the American financial meltdown spreading to their nations. European markets have grown skittish, as their close ties to their American counterparts threatens to drag them down alongside us in a whirlpool of risk and faulty mortgages. Their eyes, too, rest on Congress’ bail out proposal to save the day, their concerns echoing many of our own. In Asian, the situation is similar, with Japan’s Nikkei 225 Index, which was approximately 16,436 points at this time last year, according to Yahoo! Finance, but has slowly fallen to 11,893 points, ending down on Friday.
For now, all we can do is wait for Capitol Hill to give us word on what it plans to do about this million, billion, and trillion dollar maelstrom. And if they do pass this measure, which it looks like they will, all we can do is hope that Henry Paulson is a very smart man.
– Fernando Arrue