World financial crisis

Markets rise in hope of US bailout vote

Article published on the 2008-10-01 Latest update 2008-10-01 15:35 TU

A board shows economic indices in Japan
(Photo: Reuters)

Wall Street tipped lower Wednesday, despite gains in much of Asia and Europe, ahead of the second Congress debate of the US financial bailout plan later in the day. Europe's top four economic powers are to meet on Saturday to discuss the financial crisis, as the French government denies a report that the Caisse d'Epargne bank may go under.

In Paris the Cac-40 rose and then fell on Wednesday, while Wall Street seems unstable.

Central banks in Japan, Britain and the EU continue to inject emergency funds into the system. The European Commission on Wednesday approved the British government's rescue plan for mortgage-lender Bradford & Bingley.

The head of the EU's finance ministers' committee, Jean-Claude Juncker has announced that France, Britain, Germany and Italy will meet on Saturday to discuss the crisis.

Juncker told France's Europe 1 radio that there is "no threat" to the European bank system and predicted one per cent growth in the Eurozone next year, down from previous forecasts of 1.5 per cent.

French Employment Minister Laurent Wauquiez reacted to a report in the Canard Enchainé weekly that the Caisse d'Epargne bank is on the verge of collapse by describing it as "completely destructive".

The bank also denied the claim that it is dangerously overexposed because of its interests in two subsidiaries, property group Nexity and investment bank Natixis.

But the banking crisis has already hit European shores, according to Bob McKee, the chief economist at Independent Strategy, a consultancy in London.

"There is something like a trillion dollars of bad asssets in the system globally, and in the mortgage part of it, we estimate it at about $700 billion worth of bad assets," McKee told RFI.

"Of that, probably over $300 billion are held by European banks, so of all the bad assets that are being converted into bonds from the US mortgage market, about 40 per cent have ended up on the balance sheet of European banks," he added.

 US President George Bush signed a 600-billion-dollar (420-billion-euro) stop-gap budget to fund government operations until March 2009, following the failure of Congress to pass a budget for next year.

Republican presidential candidate John McCain and Democrat Barack Obama return to Washington on Wednesday to vote in the Senate on the bailout package.

Both have suggested boosting a federal insurance programme, the FDIC, to reduce the burden on taxpayers.