The US House of Representatives is poised to vote again on the bill that would authorise the government to buy up to USD700bn in toxic mortgage ass
The US House of Representatives is poised to vote again on the bill that would authorise the government to buy up to USD700bn in toxic mortgage assets, with congressional leaders saying that a combination of sweeteners added to the bill and changing attitudes among the electorate is likely to persuade at least some of the doubters to switch sides.
Following Monday’s shock defeat of the bill in the House, with both liberal Democrats and conservative Republicans saying they were unable to approved the bailout bill in its existing form, the legislation has been amended to meet some of their complaints, such as an increase in the level of federally-guaranteed bank deposits, and received a number of extraneous but popular measures such as changes to the alternative minimum tax that would reduce the burden upon middle-class taxpayers.
A revised version of the legislation passed the US Senate by 75 votes to 24 on Wednesday and lawmakers from both parties as well as Bush administration officials cautiously believe that the changes, as well as the dramatic slide of equity markets following Monday’s vote and the continuing trickle of bad news about US and international banking institutions, may win over enough doubters to see the bill passed.
Yesterday the Securities and Exchange Commission ignored pleas from hedge fund organisations and other market participants and extended its temporary ban on the short selling of financial stocks until three days after the bailout legislation comes into force or October 17, whichever is the earlier.
The SEC also said that some of the measures it has introduced, such as a requirement on market participants to reveal some short positions and new rules clamping down on ‘naked’ shorting, would continue beyond October 17 through permanent rule changes, following to consultation with affected firms.
Critics such as the Managed Funds Association say that the ban on shorting of financial stocks – which include IT giant IBM – has widened the bid-offer spread on affected stocks and caused much of the market for convertible bonds to seize up because participants cannot hedge their positions by short selling the stock in question.
In Europe, a row has broken out between the UK and Ireland over the latter’s decision to put in place a comprehensive EUR400m guarantee of all bank deposits in Irish banks. The British government and financial institutions are worried that the measure, which contrasts with the UK’s current maximum guarantee of the first GBP35,000 of deposits with each bank covered, may already be leading to a flight of capital across the Irish Sea.
French president Nicolas Sarkozy has backed away from his comments earlier in the week which seemed to be calling for a EUR300bn rescue plan for banks throughout the European Union, following widespread criticism from other EU governments such as Germany’s. “I deny the sum and the principle [of the rescue scheme],” Sarkozy said on Thursday after his reported remarks launched a barrage of criticism.
“We do not have a federal budget, so the idea that we could do the same as what is done on the other side of the Atlantic doesn’t fit with the political structure of Europe,” said European Central Bank president and fellow Frenchman Jean-Claude Trichet.
Against the backdrop of often-heated political debate about how to respond to the crisis, Standard & Poor’s has revealed that September was the worst month for emerging markets since August 1998. All 52 markets were down, resulting in a USD4.1trn loss in equity during September, of USD5.8trn for the third quarter and of USD10.5trn so far in 2008.
According to Howard Silverblatt of Standard & Poor’s Index Services, emerging markets lost 18.76 per cent in September, compared with an average for developed markets of 14.80 per cent. The US continued to perform better than most with a loss of 9.29 per cent. So far this year all 26 developed markets measured by S&P lost ground while 25 of 26 emerging markets fell. Jordan is the only country up for the year with a gain of 0.96 per cent.
With the combined impact of the fall in equity prices and short selling restrictions in many markets particularly hitting managers of long/short funds and arbitrage strategies, analysts are forecasting that the performance of hedge funds in September could be the worst on record.
