Can the federal Aid save the financial market?

  • Federal Aids Vs Recession fears & corporate profits

The Federal Reserve of the United States of America, together with the governments of the other countries has pumped in the required amounts of money to hoist the financial flags but the launching of bank rescues was not fully effective in eliminating the fears of recession that are still driving down the commodities and the stocks in the U.S. It’s the poor profits generated by the corporate world that is held responsible for not allowing the faith to get restored once again.

The latest program of Washington for helping the financial markets amounts to $540 billion that has been channelized to set up five special purpose vehicles. This shall enable buying certificates of deposits as well as commercial papers from the mutual funds suffering currently because of investors backing out lately.

Henry Paulson (Treasury Secretary) is supporting the idea of the fiscal stimulus program, which inevitably is a proof of the Bush administration accepting the government’s responsibility to bring the economy up. But shall it cover the trouble spots such as Pakistan, Ukraine and Iceland? Since Japan and France has extended the help to banks; now the intervention of IMF is required to set the balance.

Inter-bank costs for lending have dropped again; this is a tentative signal of a renewed confidence in the financial system. With the Treasury buying off all the mortgage loans, there are high chances of the credits crossing the freezing points. Question remains, in which direction and shall it be enough to buffer the difficult months before the conditions improve? Even a resilient economy is not enough to answer that.

  • Role of the federal reserve banks around the world

Speaking on a global basis, the promise is of $3.3 trillion. This shall guarantee the bank deposits and inter-bank lending to surface once more. Lawrence J. White (Professor, Economics, Stern School of Business, New York University) commented on the issue – “With honesty on bank balance sheets and enough government bucks, private investors will come back in. But Government investment should be structured to ensure the government earns a profit if and when the banks’ shares rise.”

Whether or not it shall transform into a reality is debatable, for U.S. stocks though experienced a brief rise, slid back with The Dow Jones Industrial Average closing down 2.5 percent while NASDAQ Composite Index went down by 4 percent more. And the stronger dollar resulted in sending the gold and oil prices about 4 percent lower than the previous counts, while Japanese stocks closed 3.3 percent higher and European shares at around 0.8 percent. Canadian banks have now lowered their rates on prime lending for lowering the funding costs, providing customers lowered rates on an array of loans.

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