Confusion Over White House Plan Crashes Asian Markets

Stock prices on Asian markets plummeted sharply this morning, the dollar weakened, and central banks intervened after news that negotiations on the U.S. government’s plan to bail out banks had once again hit a dead end.

Thanks to news that Republican and Democratic representatives in the U.S. Congress reached a preliminary agreement on the government’s $700 billion financial system aid proposal on Thursday, the U.S. dollar strengthened, and stock prices on Wall Street surged. However, after Wall Street closed, a shock ensued when it was announced that the meeting of U.S. President George W. Bush at the White House with Republican and Democratic presidential candidates John McCain and Barack Obama, as well as congressmen from both parties, reportedly turned into a shouting match. The reason seems to be McCain’s change of stance regarding the government’s proposal for financial system recovery.

Although his office reported that McCain neither attacked nor supported any proposal at the White House meeting, participants in those discussions say that the Republican presidential candidate advocated for a completely new approach to solving the financial system’s problems. At that meeting, a new plan from a group of Republican representatives in Congress was presented, which significantly differs from the government’s. According to reports, this reflects a disagreement within the Republican Party on how to address the banking issues. Democratic Party representatives, on the other hand, say they will not back down from negotiations, but they will not support legislation that lacks solid bipartisan support.

"If some Republican representatives continue to oppose the government’s proposal, there will be no law," said Barney Frank, a Democratic congressman. Negotiations on the bank bailout plan will continue on Friday. This unexpected confusion has caused chaos in Asian markets. The Nikkei index on the Tokyo Stock Exchange fell more than 1 percent this morning, and stock prices also dropped on other markets. The U.S. dollar sharply weakened against the Japanese currency, with its exchange rate falling about 0.5 percent, dipping below the level of 106 yen.

 The euro exchange rate, on the other hand, rose by 0.3 percent to 1.4650 dollars, remaining close to its highest level in the past month. Central banks of Japan, Australia, South Korea, and several other Asian countries injected several tens of billions of dollars into their financial markets this morning to improve liquidity and trigger a decline in interest rates that had risen following news of new obstacles in negotiations to rescue U.S. banks. News from Washington also caused a drop in futures indices on Wall Street, so today, as things stand, a lot of uncertainty can be expected in markets around the world. (H)