Stocks See-SawBy Reuters - | Posted 2008-09-24 Email Print
Federal Reserve Chairman Ben Bernanke offered his bleakest outlook since a credit crisis set in last year, saying global markets were under "extraordinary stress" and threatening an already weak U.S. economy. Lawmakers have made clear they would not approve the proposal without changes, including more protections for taxpayers and restrictions on the pay of executive at companies that unload their bad assets.
The U.S. dollar fell and global stocks see-sawed as unease about the bailout kept investors on edge and boosted safe havens like short-term U.S. Treasuries.
"The resistance we're seeing in Washington is understandable but frightening at the same time. The longer this drags on and the more bickering we see, the more frightening it is," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.
Wrangling over the bailout overshadowed news of plans for Buffett's Berkshire Hathaway Inc to invest $5 billion in embattled banking titan Goldman Sachs Group Inc, which is transforming itself into a traditional bank. Goldman's shares rose 4 percent.
Japan's third-largest bank, Sumitomo Mitsui Financial Group Inc, also plans to invest in Goldman, Japanese media reported. Already this week, Japanese financial firms have bought Lehman assets and a stake in Morgan Stanley as they take advantage of global upheaval to expand abroad.
Sumitomo has had a long relationship with Goldman.
"I am to some effect betting on the fact that the government will do the rational thing and act properly," Buffett, one of the world's richest men and preeminent investors, told CNBC television.
But he added markets remained in a "dangerous situation."
Concern that banks remain reluctant to lend to one another triggered a surge in demand for U.S. Treasury bills, helping to drive the interest rate on one-month bills below zero. "There's a tremendous amount of anxiety whether this (bailout) bill will get passed," said Thomas di Galoma, head of U.S. government bonds at Jefferies & Co.
Other nations braced for fallout from the crisis. Business confidence weakened in Germany, France and Italy in September, surveys showed, stoking fears that the euro zone is sinking into recession as the effects of U.S. financial market turmoil spread.
But EU Economic and Monetary Affairs Commissioner Joaquin Almunia said the European Union does not need a U.S.-style plan to buy up toxic assets with public money to restore confidence. "The situation we face here in Europe is less acute," Almunia told the European Parliament.
U.S. lawmakers mulling the size and content of the bailout will consider an FBI investigation of potential mortgage fraud involving firms and senior executives at the heart of the financial crisis.
The FBI is investigating Fannie Mae, Freddie Mac, Lehman and AIG, expanding its inquiry into corporate mortgage fraud, law enforcement officials said Wednesday.
(Reporting by James Vicini, Mark Felsenthal, Gertrude Chavez-Dreyfuss, Dan Burns, Richard Cowan and Steven C. Johnson, Editing by John Wallace/Jeffrey Benkoe)
© Thomson Reuters 2008 All rights reserved