U.S. bailout plan becomes law but markets still fall

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U.S. bailout plan becomes law but markets still fall

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CTV News: John Vennavally-Rao on a grim outlook

As the financial sector in the U.S. struggles to get back on its feet, Canadians are concerned the longer the American economy takes to recover, the more likely it is to cause an economic backlash in Canada.

CTV Newsnet: BNN's Linda Sims, on stock moves post bailout bill

Despite the approval of the 700 billion dollar bailout rescue package in the U.S., markets around the world are feeling the effects of the fallen U.S. economy, as stocks on world markets continue to drop.

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CTV.ca News Staff

Date: Fri. Oct. 3 2008 6:55 PM ET

Capping a harrowing week on the markets, jitters over the effectiveness of a newly-passed U.S. government bailout for Wall Street pulled North American stock indexes lower Friday afternoon.

Toronto's S&P/TSX composite index shed 97.19 points to 10,803.35 after strong gains by commodity stocks pushed the index up by more than 400 points earlier in the day.

In New York, the Dow Jones industrial average dropped157. 47 points to finish the week at10,325.38.

Earlier in the day, the Dow had jumped 165.59 points. Meanwhile, the Nasdaq composite index lost 29.33 points and fell to 1,947.39 at the day's end.

The drops came after U.S. President George Bush passed into law a historic plan that will create a US$700 billion lifeline for Wall Street's embattled financial services firms.

Bush signed the bill not long after the U.S. House of Representatives passed the bill 263-171 Friday afternoon.

According to some analysts, the downward trend will continue despite the law's passing.

"We have concerns behind this bill," BNN's Linda Sims told CTV Newsnet Friday, adding that investors still have many questions about the bailout.

"How long is it going to take for it to take effect, is it really going to free up credit markets the way everybody hopes it will, and is it going to avoid what is increasingly looking like a nasty recession?"

Chyanne Fyckes, with Stone Asset Management, said the markets were up earlier in the day because people were looking for bargains.

"You're going to get these rallies in here, but I still think you're going to see further downside," Fyckes said.

On Friday, the Canadian Imperial Bank of Commerce (CIBC) announced it was reducing its exposure to the U.S. residential mortgage market by selling off part of its structured credit portfolio.

The US$1.05-billion deal, which was made with Cerberus Capital Management LP, covers residential mortgage-backed securities and related collateralized debt obligations.

CIBC chief executive Gerry McCaughey said the Cerberus investment will "significantly limit" the bank's future exposure to the U.S. residential real estate market.

Meanwhile, in the U.S., Wachovia Corp. announced it will be acquired by Wells Fargo & Co. in a US$15.1 billion all-stock deal.

The deal, which will be done without U.S. government assistance, wipes out a previous plan Wachovia had to sell its banking operations to rival Citigroup.

The Citigroup deal would have been done with government help.

Overseas, Japan's benchmark Nikkei 225 stock average fell 216.62 points Friday, or 1.9 per cent, to 10,938.14 -- the lowest since May 18, 2005.

In Hong Kong, the Hang Seng index slid 2.9 per cent to 17,682.40, while key indices in Australia, Singapore, India, Malaysia and Thailand also fell.

Only Taiwan was able to record gains on its financial market Friday.

The FTSE 100 index was up 0.4 per cent in mid-afternoon trading in London. Germany's DAX was up 0.5 per cent and the Paris CAC-40 gained 0.5 per cent.

With files from The Associated Press

Comments are now closed for this story

Dave
said

History repeats.....

As with most economic catastrophies greed is ALWAYS the major contributing factor.
Three hundred years back England was the economic centre of the world....if any doubts occur about what the effects of unbridled greed does look up on the internet about the South Sea Bubble of 1720....

Nothing new under the sun !

John, Mississauga
said

HUH??? All markets are DOWN today? Bill passeed and stocks end up day lower! Not even a spending bill of 700$ billino can keep the market up! Find it halarious that at times like these, the NDP concern themselves with such frivolous issues like arts spending.

Ches
said

If according to prime minister Harper our economy is just fine why am I and thousands of other retired Canadians losing money on our mutual funds which is supposed to help us in our retirement years?????/

Loran, Fredericton
said

Where to begin. First and foremost lets call a spade a spade and identify greed. Unrelenting greed on the part of the few at the expense of the many. But, in all fairness, this has happened over and over again for eons and continues today. I agree that while a free market is allowed to ramble on without serious checks and balances, the greedy will always take advantage and in the process, weaken the entire system. We saw this in 29 and it is happening again today. This time though, perhaps the politicians, who only think of themselves, will rise to the occasion and stop the bleeding. But, if history is any indicator, the system will fall, regroup, and rise again only to a different set of greedy persons. There is entirely to much in the hands of to few and when this happens, the inevitable will happen. I only hope that most of us are around after the mushroom cloud clears. Nuff said.

RM
said

Socialism marches on! Can someone tell me the government can do effectively while not paying ten times the cost that the private sector can? The problem with government tinkering in the market is that politicians don't do what best for the market, they do what's best to get them re-elected. This crisis is a bubble (just like the dot com) and it must be allowed to brust and return the market to stability.

Robin the Hood
said

The trend is still down though!.. for each rise the previous days crash was deeper. Hope we're nearing the bottom as the market was 33% down from its all time high just last June. In other words lets hope its goes up relatively fast as well even though I suspect this may be wishful thinking as the increase will take a year or two or even 3 at best. The TSX is too heavily weighted in the cyclicals making it very volatile as compared to the Dow or EU markets. The relative good state of our banks shows that the market is undervalued now which should be a positive once investors decide to put their brains back in their heads. Fear in the TSX is a far bigger motivator than greed as compared to US exchanges it seems.

Lisa T.Bay
said

Hasn't anyone figured out yet that the whole economic crisis was a well thought out, orquestrated event! The roots started back in 2000. Someone should ask the about the "Ameuro" (like the Euro, but in America!) ... I don't want to see the Stock market crash anymore then the next person, but joe public needs to understand that they are beig manipulated by fear it is and has always been out of the control of the general population. We are heading for big changes in the years to come and the Canadains are going to be just as much affected as the americans.

Capitalism is evidently killing us
said

Strange how pure capitalist believe there should be no over-sights or regulations & allow free markets determine the course our country takes. Now we are realizing the true horror we are facing under the capitalist idealogues vision. Socialisim is killing us?? Well, not today, my friend.

Nick in Gatineau
said

Here in Canada, there are laws that govern Banks, Mortgages, Investments, Insurance, taxes, etc... All are managed by their respective agencies and departments.

So when a financial institution sells you a product or charges a fee, it does so with the approbation of the government agency or department that regulates it (For financial insitutions - OSFI). The laws have to be upheld at all times. That is a FACT.

Corporate Governance is fast becoming the weapon of choice for those who take part of the culture of entitlement. you can create all the financial instruments you want as long as they are accurate.

Financial Institutions have been disclosing record profits for several years in a row now so why, from 1 quarter to the next, did they go from record profits to the brink of bankruptcy ? And what happened to the cash that has been previously given to them by the Bank of Canada (another government agency) ? What are the repayment terms ?

Vahan
said

I have to agree with the Pye Chartt. The sky is far from falling. Sure there are problems and "corrections" and the US lame duck President is trying to save his buddies, such as Paulson some loses on the market. While the V.P candidate for the republicans tries to paint herself as a "Joe sixpack" she claims to have lost $20,000.00 on the market. That is a lot of empties needed to return for refund "where applicable". I recently read from a very smart Montreal economist and McGill University prof, and he put it all in perceptive.The economy may not be in the best shape, but it is far from broken. He mentioned that 97% of mortgages are still good, the U.S dollar has risen since the beginning of the year and has pointed to more good signs. Take all the pictures of stock brokers pulling their hair out with a grain of salt. Media needs to sell a product and shock sells. Bush wants to protect his rich buddies and they have the soap box until the next election. One hand washed the other. Honestly he is spending billions on a stupid war and wants to distract. Weren't we smart not to have jumped in. Being left of centre (Canadian spelling is funny) is sometimes a good thing.

Socialism is killing us
said

Socialists ...don't get it. Whatever happens its the governments fault. They refuse to understand and take personal responsibility yet they hold the government responsible for things they are not responsible for. So be it. You can't teach these things to some people. It is this sort of screwy thinking that pervades these Liberal types who get warm and fuzzy when BIG BROTHER is running the show.

Prof. Pye Chartt
said

To "James":

The sky isn't falling. We're not headed into a depression. (The first step is a recession.) Market corrections make for a lot of media and armchair pundit drama, but they're a natural course to a problem (credit crisis) that is being worked out.

The settling of housing prices in Canada has to do with basic overvaluation, not the inability of people here to get mortgages, or, people being out of work. A little fear goes a long way. The American real estate market will bounce back...after the pain.

Put your head back on, and take a pill. Stop twisting every economic turn into disaster (ie. current commodity demand/pricing).

Mario, London.
said

I agree with "Nick in Gatineau"'s statements completely. The government is not some uncontrollable force acting against us as portrayed by conservatives.

It seems the scare tactic that the State is an evil boogyman out to get us is entrenched in their ideology.

Yet, these same people don't mind providing unlimited funding for policing/armed forces which is controlled by the State. Where is the consistency?

BTW, I love l'Outaouais and hope to be there in a couple of weeks (Park de la Gatineau in the fall is wonderful).

James
said

...Harper can't be much of a Prime Minister if he can't see all the signs around him of the Canadian econmomy in dire straits. Auto industry - down, commodity induxtries - down, banking industry - down, but not admitting it. ...

Vahan
said

It is great to see people finally waking up to the Made in China disaster that is hitting us all. Sure bad debts have a lot to do with the meltdown, but most middle class north Americans being sucked dry and jobless could have helped prop up the losses with decent manufacturing jobs. It is simple, North Americans are proud of the job they do, the products they produce and the money is pushed back into our economy. Our manufacturing sector needs to bring these jobs back or get taxed for the imports at higher rates. Local employees spend on local products.A circle that is beneficial for everyone. All unionized employees should boycott the BoxMarts and be careful what they purchase. Yes it is hard to find things not Made in China, but keep digging it is possible to find things Made in Canada or U.S.

Bill in Toronto
said

How did Harper lie James? He's trying to reassure Canadians so we don't get shot into a frenzy like our cousins to the south. The media perpetuates this. I think seeing as Warren Buffett recently stated that an amount in the trillions is actually needed to solve this mess, we should take another action: Send the people responsible for this to international courts in The Hague and charge them with fraud, criminal conspiracy, or financial terrorism. This should be at minimum a 10 year sentence in a non-pampered prison cell given the scale and depth of this crisis. In this country, Harper does a good job being tough on crime, but he needs to include white-collar crimes in that agenda and start taking these leeches seriously. If not, we will continue to live under this impersonal form of slavery for many years to come.

Mark
said

...again with the 'Harper lied' comments regarding the Canadian economy. Perhaps these people should read a dictionary.

The Canadian economy is related in terms of what is known-and that is past performance. Anything else is called a 'prediction'.

I suspect that Mr. Harper went with what he knows-because these same people would be all over him if he tried to predict the future.

Let us be clear-this will affect everyone. It is a time to be prudent and thoughtful. I don't like the idea of using taxpayers money to bailout FOREIGN investors however. It might be best to let the market sort itself out a bit (as it seems to be doing) and make responsible, prudent government intervention when and if there is reasonable data to go on.

Who would you want operating on you, the surgeon who quickly opens you up to "See what's going on" or the one who takes a measured, thoughtful look and then makes a decision?

Heather.
said

Re: all the comments about Made In China Walmart stuff. I had a friend looking for an electric kettle NOT made in China. She couldn't find one at ANY retailer in the Greater Toronto Area - including Canadian Tire. All the brands - Black&Decker, Electrolux, all of them - say made in China for:___. Sad, huh? Just sayin...

shane prpich
said

Ahhh... the wonderful world of Capitalisim, where in the end 1 person/company will control all the wealth in the world. Everyday we get closer to this enevibility.
The rich tell you everything is all right, so you can risk it all and then they buy it all at bargin basement prices!

Let's get together and kick butt!
said

What is going to happen is stocks going up and down. What should not happen is tax-payers falling into the plan of a few greedy dirt-bags at the Federal Reserve.

Nick in Gatineau
said

To Cradle to grave socialism is called communism

Not sure what planet you're on. I do not support socialism or communism.

I want accountability from the government. That's it. That means that the laws it writes and passes are followed by the government and the companies that sell these products. In other words, the government allows these institutions to sell us the moon. You sell me the moon, I expect the moon. Not just a 5x7 glossy.

As for the 30 day plan, how many seniors were forced to cash in because Banks did not know what to do, or what sort of financial backing they would receive from the Government last September, October, November, etc... ? How much cash has the BoC injected into the system so far ? 30, 40, 50 Billion ? Why if our system was so strong and stable ?

If people are responsible for their choices, their families, then why would we need government ? Why would government be handing out child benefits, bursaries for schooling ?

And btw, Government answers to the people, not the other way around like you obviously seem to believe. Tell that to Damien,... I mean Harper. Did I write that out loud ?

Reece
said

And the Hits keep on coming!

Next week they'll point the finger at some other defined reason...maybe because a CEO
caught a cold? Or perhaps because the the sun rose on a rising Leo & yeah, that could be a reason. But if anybody asks me why I'm bailing it's not any of those reasons. The reason I've bailed was because there are nothing I've read that convinces me that the middle income workers' jobs are secured. We are a few weeks before the Christmas shopping season & you and I know that consumer confidence & receipt numbers will be the worst on record - THIS will be another reason for a major drop in the stock market but when all has been said, anybody who had any money left in their portfolio will be far more poorer than they were in October.

This is NOTHING. It's going to get worse.

jp
said

... Its all about the word FEAR!!!
As you noticed price of oil has fallen but gas hasnt kept up, the cost to grow food has fallen but the price hasnt dropped at the grocery stores. Like i said earlier gas is going down slowing i might add. so lets increase heating fuel. Electricity has gone 4 times in the last 6 years. Insurance has gone up and less coverage
Do you see the trend!
We have to jail the money hungry execs and speculators

Steve in Fredericton
said

We simply cannot regulate or legislate against a basic human condition; greed.

So long as there is a free-market economy where self-interested individuals interact and success is determined by obscene wealth, the rich will continue to get richer and the poor will continue to get poorer.

We as a society need to publically chastize the uber-wealthy in this country to the point where they no longer want unlimited financial means and are rewarded for distributing their excess wealth.

Gov't can't help us with that folks. You and I need to get our point across directly to our bosses and their bosses.

JP - seeing reality in 2008 - Canada
said

To JOE NORTH- you stated "This all had to do with Hong Kong reverting back to communist China in 1997 after Britain's 99 year lease expired.

The Hong Kong billionaires fearful of mainland China taking them down into a communist path put mainland China to work as the Walmart "Made in China" monster unleashed on the world who suddenly had easy credit to buy loads of the junk.
Are you serious ?
China had the brains to go out and look for buyers of there products,and found them- namely greedy , lazy Western Society countries.
The World can stand on its own feet- we DO NOT need the US economy to move on - The market are correcting themselves and this will move on - with or without the USA-
They need a WAKE UP CALL and it has come in the way of these greeding unstable companies going under.
MADE in CHINA and MADE IN MEXICO have lead to the USA going the way it has. Aslso the FREE TRADE DEAL has lead to there demise.

~Joe NorthAmerican~
said

This all had to do with Hong Kong reverting back to communist China in 1997 after Britain's 99 year lease expired.

The Hong Kong billionaires fearful of mainland China taking them down into a communist path put mainland China to work as the Walmart "Made in China" monster unleashed on the world who suddenly had easy credit to buy loads of the junk.

Soon it got hard to keep up with the bills and credit card after middle-class manufacturing jobs disappeared. Bankruptcy followed more and more as mid-class jobs went to communist China and left North Americans digging for pocket change to put food on the table.

Remember that the next time you smile at the door greeter working in Walmart "the Chinese Embassy in Your Neighbourhood".

"Made in China" although cheap,,,sure cost us lots in the end with health, food safety, jobs and economy going to hell in a hand basket (Made in China..of course).

Mark M
said

I'm well diversified, have investments in numerous areas, some are getting hurt, others are holding on but right now is a GREAT opportunity to buy! The market will rebound, it always does so I'm loving it. If you have all your eggs in one basket however it could hurt. People should take up their own investing, diversify and not let someone else do it for you! People always panic. Canada is better off than most, hopefully people will see that.

Mario in London
said

Dick in Gatineau,

Social justice is needed because three factors can influence people's lives: The greed of others (see Enron, Conrad Black, Fannie May...), discrimination by others (either race, gender, class, religious), uncontrollable events (being out of work due to illness). We cannot eradicate those factors therefore we use the State to offer protection for the victims of these elements.

Lindsay Morgan
said

It all began with Canadians and Americans buying cheaper vehicles for whatever their reasoning was, and in the end all but bankrupting (and still may) the big 3 North American auto makers.
The writing has been on the wall for at least 2 or 3 years.
Most people I know are of the bigger, better, faster mentality.
They are the sector that this recession/depression will affect most.
This was long overdue.

Cradle to grave socialism is called communism
said

Nick in Gatineau:

What you seem to want is cradle to grave socialism where big brother wipes your bum as a baby, then sends you to school as a teen, then pays your retirement in later years and finally buries you. You keep pounding the Liberal message (as well as the Prime Minister) but fail to realize governments are not there for the purpose of looking after your every need that comes your way.

YOU are responsible for yourself and your family NOT the government and as soon as you recognize that and stop demanding governments look after you from cradle to grave you will be able to be a more productive member or society.

Dion's 30 day non-sense wasn't explained, isn't costed and Canadians should be wary of a desparate Dion who can only see 30 days ahead if that far becaise he is blinded by his socialist ideology which doesn't fly with responsible Canadians.

Canada needs legislation & enforcement of markets
said

It has to do with greedy hedge fund managers who earn upwards of 20% of the gains making them BILLIONS for their investors. Hedge funds should be outlawed. With billions to play with, stock manipulation software technology and their ability to short the market they go to work fleecing the market daily earning huge gains and causing this volatility. It will stop when governments decide to stop it but somebody is getting greased otherwise it would have stopped by now.

Hold on, this ride will end eventually and we can start to see some market growth come back in.

Only when governments decide to get serious about legislation and enforcement dealing with this greed will this stop. As it is they do NOTHING to stop it.

Canada's TSX is no different than Wall Street, just as bad when it comes to our investment banker activity at manipulating the market.

Mark - Vegreville, AB
said

This is the product of irresponsibility by everyone involved. The lenders, the consumers, everyone. We have had cheap and easy credit for over a decade now and people have taken full advantage of it to the point where a substantial percentage of the population is heavily indebted. I do not see bailouts as a solution. This is going to be a long and painful process and will end up teaching everyone that we have to live within our means, and that banks cannot just lend, lend, lend to people because they have a job or have some equity in their house. Too many people in my region started to live like millionaires after home prices tripled by treating their homes like a bank account. And unbelievably, lenders let them do it. What a mess!

David #1
said

And so all this has absolutely nothing to do with political/business/corporate elites greenlighting our middle-class economy and jobs overseas to communist China?

Some bitter food for thought the next time you peruse the aisles of Walmart Street "Made in China".

Outlaw the shorting of stocks.
said

These markets are driven by unscrupulous greedy investment bankers.

As soon as government regulators realize that shorting of stocks is counter productive and detrimental and outlaw the practice we may begin to get some stability which will assist to reverse the trend.

Nick in Gatineau
said

The world is telling the USA that these measures are not enough and that they do not fix the problems. Curious thing is that Canada has some of the same measures already in place so is the world tellng Canada to fix itself as well ? If so which part ? God knows the TSX has been taking a pounding - larger than the US exchanges.

The main issue I have is the 250 K insurance. Here in Canada, an individual's accounts are insurable up to 100 K for every financial institution. The institutions are insured for 250 K per individual account so in the event that something happens, an individual should be covered up yo 250 K. This measure is not geared for full scale closure of a bank so if a bank closes, you only get up to 100 K.

Say you want retire, you want to do so on a salary that is at least 75 % of what you make now, or more (power to ya). So if you want to have 30 k a year at retirement, you need to have $ 1 million in an RRSP that tou into a Riff (lower taxes than RRSP). If that institution goes belly-up, you only get 100 K out of that $ 1 Million - and still pay taxes + admin fees - for a yearly salary of 3K. You lose the 900 K. If the government comes in and bails out the bank, who gets the 900 K ? You or the Bank ? The uncertainty has lasted over 1 year. That's a long time to stick it out if you're retired.

So that 30-day Dion plan, sounds pretty darn good to me - it is the right thing to do.

James
said

And on it comes! It will come down to picking up the pieces after the crash. I think the House better hold off on voting for that $700 billion bailout because it will not matter. Why throw good money after bad. Save that $700 billion for the types of projects that came into being after the "First" Depression. I listened to some financial adviser on TV last night who said, in response to a possible Depression, that he was offended that people would use that word since his parents and grandparents had been through a depression. What does that have to do with the fact that we are headed for another?
During last night debate, Harper stated that the fundamentals of the Canadian economy are sound. He lied! Commodity prices are falling because the world does not need as much of our potash, wood and oil as before. Bank stocks are falling because people are nervous about the banks' exposure to the American crisis. (their exposure is huge) Our housing market is losing value because people are losing their jobs and can't afford their mortgages. Canada's economy is being pulled down along with the rest of the world and people need to understand this and prepare as best they can. Thev worst is still to come.