Economic 9/11 after $700 billion Bailout Plan Rejected

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Sep 30 2008
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Boeing is a trademark synonym with domination in aerospace and by far the largest global aircraft manufacturer. Mentioned 777 and chances are the awesome “Triple Seven” world’s largest twinjet jumbo plane appear in front of you. It’s jumbo alright and when you’re talking about something this huge and heavy, it would be disastrous should there be a crash. After I closed my Apple Inc.’s AAPL position yesterday to lock in the profit, I didn’t look back. Little did I realize the huge crash following thereafter on the U.S. stock markets – a jaw-dropping historic 777 points decline on Dow Jones. Guess that should be the expected result from the $700 billion failed bailout plan by Bush administration when the vote in the House showed 228-205.

It was the biggest one-day fall ever beating even the 684 (721 at one point) points plunge on the first day of trading after the Sept 11, 2001’s terrorist attacks on U.S. soils. There’s only one work to describe Dow plunged 777 pointsthe scenario – “panic” selling. Dow closed at 10,365.45; it’s lowest in three years but percentage-wise the 777 points drop (almost 7 percent) is still the 17th-biggest decline in Dow’s history. Hopefully we will not live long enough to see the 20-percent-drop occured on Black Monday in 1987 and before the Great Depression. Light, sweet crude fell $10.52 to settle at $96.36 on the New York Mercantile Exchange as investors feared energy demand would continue to slide amid further economic weakness.

Rates on three-month Treasury bills declined 55 basis points to 0.29%, nearing the levels hit on Sept. 17 when they hit their lowest level since World War II. The TED Spread – the difference between what banks and the Treasury pay to borrow for three months, widened to 3.59% when it was 1.10 percent a month ago. The three-month London interbank offered rate (LIBOR), a key measure of lending rates between banks climbed to 3.88%. In short, banks are extremely reluctant to lend money to people on the street as well as businesses. Americans do not save but spend more than they earned instead (to some extent) hence the Feds is playing the role of a father trying to distribute money into financial institutions so that people can go to these banks for cash, literally. This brings back the good memory of 1997-1998 Asia Financial Crisis *grin*.

Of course not all the lawmakers who participated in the voting session voted with good knowledge about the current financial problems. Some of them voted according to the wishes of the people’s sentiment on the street lest they wish to risk their political seats with five weeks before the elections. You can’t blame the people when the fact remains the plan was designed to bailout the problematic financial companies, not the average Joe. It was reported that more than two-thirds (133 votes) of Republicans and 40 percent (95 votes) of Democrats opposed the bill. Now the ball has been passed to the Federal Reserve’s court.

Dow 911 and Financial CrisisHowever the fact remains that even if the plan succeeded (from the voting), majority of analysts predicted the U.S. economy will probably turns for the worse before it becomes better. Final quarter of 2008 and first quarter of 2009 would be gloomy. Now that the Congress is not moving, the economic forecast will be slashed and the contractions will nosedive further. Already the unemployment is at five-year high of 6.1 percent and it could hit 7.5 percent by end of 2009. Whatever it is one thing is for sure, more banks could appear on the news screaming for helps. Let’s wait if the Malaysia government politicians will still yell “We’re not affected by U.S. economy crisis … The fundamental is still intact …The economic growth of 6 percent remains … blah blah blah”

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Dear friend,

Is it good / better to have cash in hand now?

obviously cash is king now anonymous … refrain from buying unnecessary stuffs …

cheers …

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