The bailout was rejected, now what?

When economic and financial analyst, politicians and savvy bankers are still trying to understand what went wrong, the United States´House of Representatives voted today to reject the $700-billion rescue of the financial markets. As evidenced by the events in Washington, the decision is influenced more by the political situation rather than by a thorough economic assessment.

If you want to build a more educated guess about the future consequences of the debate of whom the financial rescue would benefit, then google Fobrapoa  Mexico, 1994-2006. The difference in the Mexican case is that the bail-out package was approved and the rescue implemented. What will happen in the US? It seems like 1) bailout and controlled crisis or 2) no-bailout and the end of the world as we know it.

In the meantime this is the market’s reaction to the vote:

And (as reported by the BBC):

  • Wachovia, the fourth-largest US bank, was bought by larger rival Citigroup in a rescue deal backed by US authorities
  • Benelux banking giant Fortis was partially nationalised by the Dutch, Belgian and Luxembourg governments to ensure its survival
  • The UK government announced it was nationalising the Bradford & Bingley bank
  • Global shares fell sharply – France’s key index lost 5%, Germany’s main market dropped 4% while US shares plunged after the vote result was announced.
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