Searching for the Big One

Am I the only person that had doubts about Congress passing the $700bn Rescue Plan yesterday? The markets obviously didn’t see it coming, with  the Dow losing 7% of it’s value!

The silly thing is that the revised bill thrashed out over the weekend was actually quite a good plan, with the Banks ultimately bearing most of the costs.

Most US politicians though are scared by anything that smacks of socialism - and this Bill certainly had some elements that possibly had a socialist edge.

But this is not the first ’socialist’ tactic that has been suggested over the past few weeks. The saving of Freddie and Fanny; the Fed supporting AIG - these are all ’socialist’ projects, but in the new world financial order, most of the world’s banking is going to find itself in some kind of Government partnership for the next few years.

I believe that the Bill in some form will be adopted - possibly with a cut in funding to $500bn.

We have another year of Banks failing and consolidating before the finance sector bottoms out. Even Banks with liquid assets are at risk - lack of confidence can destroy an otherwise healthy business and I believe that is happening to National City. Even though NC has plenty of Capital and relatively low exposure to mortgage assets, the market is dropping it like a stone!

Non-banking businesses are now starting to feel the effects of the credit crunch, with credit and loans almost non-existent for renewal and expansion. This of course means that business will begin to stagnate and the current crisis will spread across the rest of the business world.

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