US treasury to use taxpayers’ money to buy bad debts from financial institutions.
It completes an overhaul of the structure of the banking industry, which had been broken up in the 1930s into commercial and investment banks under rules to restore confidence during the Great Depression.
Lloyd Blankfein, the chairman of Goldman Sachs, said: “We believe that Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution with an exceptionally clean balance sheet.”
He said the decision had been “accelerated by market sentiment”.
In recent weeks, the companies have seen their former investment bank rivals Lehman Brothers collapse, while Bear Stearns and Merrill Lynch have been taken over.
“This new bank holding structure will ensure that Morgan Stanley is in the strongest possible position,” John Mack, Morgan Stanley chairman, said.
The US treasury’s bail-out, which would give it almost free rein to buy up bad mortgage-related debts, received a mixed welcome as markets opened across the world on Monday.
Japan’s benchmark Nikkei 225 index advanced 169.73 points, or 1.42 per cent, to 12,090.59, closing above the key 12,000 level for the first time since September 12.
Hong Kong’s Hang Seng index rose 1.2 per cent, while the Shanghai Composite Index soared 7.8 per cent. In Australia and Taiwan, markets advanced after regulators issued curbs on short-selling, when traders effectively bet on the falling price of shares for profit.
Tony Morris, a currency and markets strategist with ANZ bank in Australia, told Al Jazeera: “The way the markets are viewing this is that it is very welcome in that they are trying to address the core problem here, the valuation of the underlying assets in the US housing sectors.
“However, there are a lot of question marks still over this and I think that it is a cautiously optimistic response thus far.
“Some of the stock markets have come off recent highs and [the US] congress is yet to approve this, so I think we’ll be watching headlines for the next few days.”
In Europe, London’s FTSE 100 index of leading shares dipped 0.63 per cent, the Paris CAC 40 slid 0.51 per cent and Frankfurt’s DAX 30 shed 0.34 per cent shorlty after opening.
Banking stocks were the biggest losers with shares in HSBC, Barclays, Societe Generale, Banco Santander and Lloyds TSB down between 1.25 and 4.5 per cent.
Last week’s turmoil on the financial markets triggered warnings that the global financial system was teetering on the brink of collapse as a result of the year-old subprime mortgage crisis.
|Paulson acknowledged the US bail-out would cost taxpayers billions [AFP]|
On Sunday, Henry Paulson, the US treasury secretary, urged congress to act quickly to approve the rescue plan and said he was “aggressively” pushing for other countries to come up with their own bail-outs for financial institutions.
It is the US’s largest ever interventionist package and will see the US national debt limit raised to $11.3 trillion.
If it is approved, Paulson’s decisions will not be reviewable by any court, leading some critics to say this effectively makes the treasury boss a dictator of US financial markets.
Paulson defended his actions, which he acknowledged would cost the US taxpayer billions of dollars, during an interview with the NBC programme Meet the Press on Sunday.
“This is not something that we wanted to do. This was something that was very necessary,” he said.
“We did this to protect the taxpayer.”