FinancialRethink

Members of the American Congress voted down the $700 billion financial rescue package. Perhaps the first thing on their agenda should be re-branding, with a name like “The Re-launch plan”, which we could all get behind.

It is inconceivable, in light of the seriousness of the instability of the financial system that the Congress negative decision can be allowed to stand. There are now signs that the Senate are going to back a revised version of the plan and this in turn should back the reluctant Congress to follow suit when they are back in town.

It is, of course, essential that the men and women of Congress be made to go sit in a room with wet towels on their heads until they find a solution and do so at once. They have to forget that they are either Republicans or Democrats and remember that they are Americans with a common interest.

We are all looking over the yawning precipice into the nightmare of chaos. We have the seen the first results when Wall Street lost an almost $1 trillion of its value. This is the single biggest drop in value since the present modern style markets were put in place. More days of such drops taking place and we are looking at 1929 type territory.

There have been bumps in this downward trend over the last days, and it is assumed all will be well when the American plan is finally in place. However, and I hate to be a harbinger of bad tidings, there is the reality to face that dictates the reality is still bloody awful and that will mean values will, long term, go down.

Across the world there have been bank rescues, takeovers and consolidations and customer guarantees put in place in the last hours and days, at last count in 8 countries. These are the UK, Ireland, Germany, Iceland, Holland, Belgium, Luxembourg and, of course the USA.

The next part of the doomsday scenario would be for another few big banks to go belly up leading to big, non-financial corporations hitting a brick wall. If this happens we are in for a decade of no growth as was the case in Japan in the recent past.

The thing to remember is that some of these banks in trouble or at risk are huge and solid, with diversified asset bases and no problems of a normal type when measured in normal times, but, in this strange mad world of topsy-turvy economics, suddenly coming under suspicion of imminent failure.

Virtually no one had expected Congress to reject the rescue package, and in fact everyone was so certain that it would be passed that the refusal to pass it was a double negative. The impact on the long-term confidence of the markets around the world will be huge.

How scared should we be? Absolute fear has gripped the markets to such an extent that panic is now seen as an instrument of policy. Everyone must keep calm and we can and will get through this storm, but if the political leaders are not able to get their house in order in short order we are going to see a lot more blood on the carpet, and some of it will be in the form of our own long-term financial security.

With every passing hour of this unparalleled meltdown of our collective financial feel good factor there will be more businesses at risk, more jobs lost and more houses will be re-possessed.

Investments are being decimated and we need to be making sure the financial lifeboats are manned and operational, we have plenty of time for recriminations and punishment later.

In the meantime the politicians must be made to realize that they have to act to find a solution and swim together or they are doomed to sink separately.