Monday, October 13, 2008

An Eventful Weekend: Leaders Unveil New Rescue Plans; Global Markets Surge

Europe acts to rescue banks, Financial Times
U.S. Stocks Open Strongly After Gains Overseas , New York Times
U.S. Missteps Are Evident, but Europe Is Implicated, New York Times

Following one of the worst weeks in the modern history of the world's financial markets, leaders of the world's major industrial powers gathered this weekend and agreed to sweeping plans aimed at relieving the effects of the global financial crisis. Most notably, the leaders present announced a coordinated, $1.1 trillion plan to rescue struggling banks by infusing capital and by guaranteeing interbank lending. Plans to guarantee individual bank accounts were also discussed.

On Monday, in the wake of the pledges made over the weekend, a number of European countries announced their individual plans to lessen the impacts of the financial crisis. The British Treasury announced a $64 billion infusion of government money to three banks: Lloyds TSB, HBOS, and the Royal Bank of Scotland. The German government declared that it would invest $108 billion in numerous German banks and that it would also guarantee $500 billion in interbank loans. Spain also announced a $100+ billion bank bailout plan, with France and Italy expected to follow with their plans later Monday.

The announcements of the European rescue plans spurred a surge in financial markets across the globe on Monday. European markets, including the major London and Paris indexes, surged over 5%, as did many major Asian markets. American markets posted similar gains in early Monday trading.

While European actions likely caused the ebullient investor sentiment that characterized much of Monday's trading day, the American government was also hard at work in its continuing efforts to remedy the financial crisis. Neil Kashkari, the newly appointed coordinator of the United States' $700 billion bailout, made his first public speech outlining the details of the Treasury Departments plans for the bailout package. Congressional Democrats also announced their plans to gather Monday to begin discussions of a new economic stimulus package.

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