Washington
17 March 2008
The U.S. government is using all tools at its disposal to stem a deepening financial crisis and reassure markets after one of America's largest investment banks was bought out to rescue it from the brink of bankruptcy. Meanwhile, new statistics point to a further weakening of the U.S. economy. Meanwhile, U.S. stocks were mostly lower Monday as Wall Street reacted to a government-supported buyout of financially stricken Bear Stearns - one of the world's largest investment banks. Asian stocks are little changed in early trading Tuesday. From Washington, VOA's Michael Bowman reports.
After months of slashing interest rates, the Federal Reserve has taken the unusual step of helping craft the sale of the struggling investment bank, Bear Stearns, to JPMorgan Chase for a tiny fraction of what the company's market value was just days ago.
Bear Stearns, which had been severely punished by the continuing sub-prime mortgage crisis gripping the United States, is being sold for just $2 a share, less than a tenth of the firm's market price from Friday.
Financial analyst Peter Dunay of New York-based Leeb Capital Management says the fall of Bear Stearns is the latest sign of U.S. economic upheaval.
"We have a lot of problems here. You have consumers loaded with debt, and now we are discovering the major financial institutions are carrying too much debt," he said.
The Federal Reserve will partner with JPMorgan Chase to guarantee the debt obligations of Bear Stearns, which last week saw panicked customers withdraw huge amounts of cash in what amounted to a run on the bank.
In addition Sunday, the U.S. Central Bank again cut the interest rate it charges commercial banks to borrow money. Further rate cuts could be forthcoming at the Fed's regular meeting scheduled for Tuesday.
Amid high volatility in U.S. markets, the White House is attempting to reassure the financial community. President Bush met with Treasury Secretary Henry Paulson at the White House, and told reporters that strong action is being taken in the face of what he termed "challenging times."
"Our capital markets are functioning efficiently and effectively. We obviously will continue to monitor the situation, and when need be we will act decisively in a way that continues to bring order to the financial markets. In the long run, our economy is going to be fine," said Mr. Bush.
Many economists believe the U.S. economy is in recession, and fear that the fissures being exposed in America's banking system could make a bleak situation worse.
Former Federal Reserve Governor Alice Rivlin says the central bank has no choice but to do whatever it can to help improve banks' financial positions and stem an emerging sense of panic among investors.
"The Federal Reserve is doing everything it can to make sure that this is not the beginning of a long avalanche of catastrophe," said Rivlin.
Meanwhile, the Federal Reserve reports U.S. industrial production fell 0.5 percent in February. That was the biggest drop in factory output in four months, and further evidence of trouble in America's overall economic health.
On a more positive note, the Commerce Department reports America's current account deficit narrowed by nine percent in 2007. The current account measures not only the trade deficit, but also investment flows between the United States and other nations.