Interbank Forex, WaMu, and the Bailout

The failure of the Bush administration and Congress to reach an agreement by weeks end the seizure of Washington Mutual (WaMu) is sending ripples through financial markets worldwide. Talks bogged down due to disagreements between Democrats and Republicans over several details of the Bush proposal. Legislators from both parties seem confident an agreement will be reached by Sunday.

The seizure of WaMu is the largest bank failure in US history. The bank's assets have been sold to J.P. Morgan Chase and Company for 1.9 billion dollars creating the largest bank in the US. In Europe Belgian-Dutch financial group Fortis NV denied liquidity problems despite falling share prices. Banks throughout the world are heading cash driving rates that institutions charge each other for loans to a record high in London. These moves are certain to affect the interbank Forex market. In other European news HSBC Holdings Plc, said it was cutting 1,100 jobs, blaming the credit crisis.

All these factors have caused global money markets to dry up forcing central banks to increase injections of cash due to high dollar borrowing rates. Said Boris Schlossberg, director of currency research at GFT Forex in New York, "The markets are just caught like a deer in the headlights, watching Washington, trying to figure out what the next step is." To add to all these concerns shares of Wachovia fell as much as 26%, and shares of Midwest based KeyCorp fell 7%.

Financial analysts are hoping that the passage of the US bailout plan will bring a semblance of stability to global markets. With the crisis spreading well beyond the borders of the United States passage of the compromise bailout plan is seen by many as a way to stem the tide of bank failures in Europe. Credit markets and interbank lending have all been virtually frozen by the US financial crisis and it is hoped that the infusion of billions of dollars will cause credit to flow freely again.

Because of uncertainties about the bailout and the political disagreements world financial markets reacted. US stock prices fell 1% and losses were reported in Asian and European markets. Banking woes extended into China where shares of Ping An Insurance fell 9.7%. Financial advisors have been besieged with questions and concerns from investors. Said Cleveland Plain Dealer columnist Teresa Dixon Murray, "There's a feeling of helplessness that nobody seems to have the answers."

Financial analysts are hoping that the passage of the US bailout plan will bring a semblance of stability to global markets. With the crisis spreading well beyond the borders of the United States passage of the compromise bailout plan is seen by many as a way to stem the tide of bank failures in Europe. Credit markets and interbank lending have all been virtually frozen by the US financial crisis and it is hoped that the infusion of billions of dollars will cause credit to flow freely again.

Obviously the interbank Forex markets will remain in limbo until an agreement is reached in the US congress. With banks hoarding cash and rising lending rates, Interbank Forex trading conditions will remain difficult. One can only hope that the US congress and the Bush administration can reach a swift accord.