Make us your home page

Today’s top headlines delivered to you daily.

(View our Privacy Policy)

Crisis goes global; new plan emerges

WASHINGTON — With financial markets in near-meltdown on Monday, governments around the world scrambled to find new ways to infuse vast amounts of cash into banks and even directly to companies to help resuscitate the global financial system.

The Federal Reserve was weighing a plan Monday night that would in effect make it a major funder of a wide range of U.S. businesses facing imminent cash shortages. The Fed also said Monday that it would push $900-billion into the U.S. banking system, a sixfold increase in its program of lending money to banks.

Just three days after the $700-billion U.S. financial bailout was approved, it looked like a pebble tossed into a churning sea. The Dow swung wildly, dipping 800 points at one point and down 369.88 at closing, below 10,000 for the first time since 2004. The bailout plan seems to have done little to reassure investors, particularly in Europe. Global stock markets plunged as the banking crisis spread and investors feared dire consequences for the world economy.

"People are realizing that the Paulson plan is not going to be nearly enough. It's not because the plan is ill-conceived. It looks like it's the right thing to do, but the problem is just growing astronomically," said Martin Evans, a professor of economics at Georgetown University.

Robert Zoellick, president of the World Bank, said the global financial system may have reached a "tipping point" — the moment when a crisis cascades into a full-blown meltdown and becomes extremely difficult for governments to contain.

The mushrooming problems "will trigger business failures and possibly banking emergencies," he said, threatening to reverse years of prosperity that financed economic growth in developed and emerging countries through a global system that made credit widely available.

Even before bankers on Wall Street reached their desks on Monday, European stocks were plunging. Volatility reached the highest level in two decades, and oil prices fell below $90 for the first time since February.

The ripple effects from Europe and the United States were amplified as they spread to stock markets in Russia, Brazil, Indonesia and the Middle East. These countries had little to do with the subprime crisis but were vulnerable to a sudden halt in the flow of money.

"Global economic malaise" is setting in, said Sean Snaith, a University of Central Florida economist. He predicted tourism in Florida would suffer as the dollar gets stronger, and U.S. vacations and spending sprees stop feeling so cheap to European and Canadian travelers.

Under the radical proposal being discussed with the Treasury Department, the Fed could buy vast amounts of the unsecured short-term debt that companies rely on to finance their day-to-day activities.

The central bank would come closer than ever to lending directly to businesses, a potential move that underscores the growing sense of urgency in a climate where lending has virtually dried up.

Investors are worried about what that evaporation of credit will do to an already weakened global economy, and the Fed plan is intended to renew the flow. The central bank would buy unsecured commercial paper, short-term IOUs issued by banks, businesses and municipalities.

The market for that kind of debt has all but shut down in the last week, with many major corporations unable to borrow for longer than a day at a time. The volume of such debt totaled about $1.6-trillion as of Oct. 1, down 11 percent from three weeks earlier.

A healthy world economy relies on the easy flow of such short-term loans among banks, businesses and consumers, a stream that has been choked as banks become more fearful of giving out cash.

Buying commercial paper through the new entity would increase risks for the Treasury, and ultimately taxpayers, while potentially relieving companies of the downside risk of bad behavior, financial experts said.

Opposing views

"Life as we once knew it is gone. It's not going to ever come back." — Peter Bugbee, 54, of Safety Harbor, who plans to cash out his stocks and use the money to pay off the mortgages of several investment properties he owns.

"Life as we once knew it is gone. It's not going to ever come back." — Peter Bugbee, 54, of Safety Harbor, who plans to cash out his stocks and use the money to pay off the mortgages of investment properties

"For me, today was a buying opportunity." — Tom Botelho, 56, a Seminole machinist who increased his holdings in GE and other stocks.

Crisis goes global; new plan emerges 10/06/08 [Last modified: Tuesday, October 7, 2008 11:26am]
Photo reprints | Article reprints

© 2017 Tampa Bay Times


Join the discussion: Click to view comments, add yours

  1. Pinellas legislators talk governor's race, policy at delegation breakfast


    If anybody was expecting state Sen. Jack Latvala, R-Clearwater, to quit being coy and and announce his bid for the 2018 governor's race to the friendly crowd at Clearwater Regional Chamber of Commerce's annual legislative delegation breakfast Wednesday, they left disappointed.

  2. DOT shows alternatives to former Tampa Bay Express toll lanes


    TAMPA — State transportation officials are evaluating at least a half-dozen alternatives to the controversial Tampa Bay interstate plan that they will workshop with the community for the next 18 months.

    Florida Department of Transportation consultant Brad Flom explains potential alternatives to adding toll lanes to Interstate 275 during a meeting Wednesday at DOT's Tampa office. Flom presented seven diagrams, all of which swapped toll lanes for transit, such as light rail or express bus, in the I-275 corridor from downtown Tampa to Bearss Ave. [CAITLIN JOHNSTON | Times]
  3. Florida Orchestra and Tampa Bay Master Chorale scrap search for a joint conductor


    TAMPA — After a yearlong effort, the Master Chorale of Tampa Bay and the Florida Orchestra have abandoned their search for a conductor capable of leading both groups.

    Doreen Rao conducts a concert with the Buffalo Philharmonic Chorus and Orchestra in December 2010. Photo by Enid Bloch.
  4. New in theaters July 4 weekend: 'Despicable Me 3,' 'Baby Driver,' 'The House,' 'The Beguiled'


    OPENING Thursday:


    One of Hollywood's most successful animation franchises isn't about "me" anymore; it's about them.

    Gru (Steve Carell) squares off against Balthazar Bratt (Trey Parker) in Despicable Me 3.
  5. Uhurus cancel Baker protest


    Jesse Nevel's campaign had planned to stage an anti-Rick Baker protest outside the St. Petersburg Yacht Club this evening while Baker held a fundraiser inside.

    Now, that's not happening.

    Jesse Nevel's Uhuru-affiliated campaign postpones protest