The bloodletting continues...

The massive rescue plan, designed by the Bush government to cleanse the US financial system and restore confidence in Wall Street, was shot down by the House of Representatives amid continued political wrangling. The move triggered one of the worst selloff in US stocks and dealt a brutal blow to bipartisan efforts to pull the world's largest economy from the brink of collapse, despite repeated warnings of a major catastrophe by White House. The Bush regime, however managed to win the support of the Senate after incorporating a few changes in the bill. The measure was scheduled for a fresh vote in the House on Friday.

In the interim period, there was more mayhem in the western financial space, with the contagion spreading to Europe. Citigroup stepped in to rescue Wachovia, but by the end of the week the troubled bank abandoned that deal and found another suitor in Wells Fargo.

Across the Atlantic, regulators and governments threw lifelines to European banks. The Dutch, Belgian and Luxembourg governments partly nationalised Fortis amid uncertainty about its ability to sell assets it holds in ABN Amro. Dexia, a Belgian-French bank, received a €6.4bn (US$9.2bn) government cash injection. In the UK, Britain Bradford & Bingley, a specialist in buy-to-let mortgages, was nationalised and some assets sold to Spain’s Santander. Hypo Real Estate, Germany’s second-largest property lender, obtained €35bn (US$51bn) in credit guarantees from the government and the banking industry. And Glitnir, Iceland’s third-largest bank, was nationalised.

Ireland’s government took the extraordinary step of guaranteeing all deposits in six Irish banks after their share prices suffered huge losses. The guarantee covers around €400bn (US$575bn) of liabilities, more than twice Ireland’s gross domestic product (GDP). Some politicians, especially in Britain, grumbled that the Irish move may be contrary to European Union (EU) competition law.

The Reserve Bank of India (RBI) stepped in to reassure depositors that ICICI Bank was financially sound amid reports of a wave of cash withdrawals from the bank. And Russia provided a further US $50bn to increase liquidity in its banking system. This comes on top of a US $130bn package doled out to Russian banks in the form of loans, tax cuts and delayed tax payments.