Bailout Doesn’t Resolve Fears On Economy, Credit

Congress approved a $700 billion bank bailout Friday, but stocks tumbled as investors worried that the plan wouldn’t be enough to stem the credit crisis or keep the US economy from falling into a recession.

The House approved the financial rescue plan by a vote of 263-171 and it was quickly signed into law by President Bush. The action ended two weeks of high-stakes haggling in Washington that had roiled global markets.

Stocks, which rallied before passage of the bailout, immediately reversed course as investors focused on the economy and credit crisis. The market ended up with its worst week in seven years.

(Article continues below)

“The markets are still paralyzed,” Loomis Sayles’ Dan Fuss, one of the most widely followed U.S. bond managers, said after the vote. “We need confidence back in these markets and that really takes time.”

In a sign of the spreading crisis, California said it was running out of money, France said the world stood on the “edge of the abyss” and European leaders divided over their response to the banking sector’s difficulties.

Earlier Friday, the US reported its biggest monthly job loss in 5 1/2 years, coming on top of a pile of economic data pointing to an approaching recession. Data showed the U.S. services sector holding up.

Full article here