US bailout collapses sending markets into turmoil
The US government’s $700 billion bailout designed to rescue its banking sector collapsed last night after Congress rejected the plan.
Despite President George Bush claiming that the economy would sink into a very long and deep recession without approval of the plan, 132 Republicans and 94 Democrats voted against the bailout.
The defeat has sent shockwaves across the stockmarkets, with the Dow Jones falling 700 points and Standard and Poor’s ending the day 8.8% down, its biggest fall since the 1987 crash.
Yesterday has been named by some as one of the worst days seen yet in the credit crunch:
• Wall Street suffered its biggest-ever one-day fall after Congress rejected the US government’s $700 billion bailout plan
• In the UK, the government was forced to nationalise Bradford & Bingley
• In Germany, Hypo Real Estate lost 72% of its value despite a €35 billion handout from the government and several private banks to prevent it from falling into insolvency
• The Icelandic government was forced to take a 75% stake in troubled bank Glitnar
Generally speaking, insolvency is to businesses what bankruptcy is to individuals. A company is insolvent if the value of its assets is less than the amount of its liabilities, or it is unable to pay its liabilities (loan payments) as they fall due. It’s an offence for an insolvent company to keep trading, so the main options available to an insolvent company are: voluntary liquidation, compulsory liquidation, administration or a company voluntary arrangement.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.