Roundup on global financial turmoil

US Treasury Secretary Henry Paulson unceremoniously buried the idea of buying troubled mortgage assets. Instead he will use the US$700bn Troubled Asset Relief Programme (TARP) to recapitalise banks and non-bank financial institutions such as financing arms of the near-bankrupt car majors. The Treasury has already spent $250 billion on bank recapitalisations. He also disclosed that the Treasury and the Federal Reserve are exploring the creation of a "liquidity facility" to buy top-rated securities backed by credit-card, car and student loans, and perhaps mortgages. Banks bundle many such loans into asset-backed securities which they then sell in the capital markets. But, that market is almost non-existent right now. Congress had approved the package a little over a month ago. Already gloomy investors interpreted the policy negatively and stock markets fell sharply around the world.

In an attempt to help struggling homeowners in the US, the agency that oversees Fannie Mae and Freddie Mac outlined a plan to avoid preventable foreclosures. The terms of AIG’s bail-out were renegotiated, resulting in an expanded package worth US$153bn. The insurance giant also reported a US$24.5bn net loss for the third quarter and booked more write-downs. Meanwhile, General Motors’ share price plummeted to a 65-year low after it made another big loss, though analysts were more concerned at the rate at which GM and Ford were burning their cash to see them through an adverse market. The credit crunch has left millions of potential customers unable to finance car purchases, crushing sales for an already weakened industry. GM is now at risk of running out of cash within months.

The murmurs of a bailout plan for the Detroit auto majors increased this week, with president-elect Barack Obama discussing the same with President Bush. The Fed gave American Express the go-ahead to turn itself into a bank. Circuit City, an electronics retailer with 40,000 employees, sought bankruptcy protection. Intel and Wal-Mart cut their sales outlook as did No. 1 electronics retailer Best Buy.

Across the Atlantic, UBS confirmed that American prosecutors have charged one of its most senior executives with conspiring to help wealthy clients hide assets from the Internal Revenue Service. UK's HBOS rebuffed an attempt by two former Scottish banking chief executives to scuttle its rescue merger with Lloyds TSB. UK's unemployment rate reached an average of 5.8% for the three months to September. Telecom giant BT said it was cutting 10,000 jobs. Hypo Real Estate Holding AG, the lender that received a 50 billion euro (US$63bn) bailout last month, said it expects a third-quarter provisional pretax loss of 3.1bn euros.

China pledged a 4 trillion yuan (US$586 billion) stimulus plan to prop up growth in the fourth-largest economy as the world heads toward a recession. Australia's central bank signaled it's prepared to add to the most aggressive interest-rate cuts in 17 years as it tries to ensure the economy sidesteps a looming global recession. The cost of protecting against a default by Russia soared after the central bank increased the ruble's trading band and lifted its benchmark interest rate to stem record capital outflows.

Hedge-fund managers, including George Soros and Philip Falcone defended their practices and profits while splitting over whether the US should impose stricter regulations. They told US Congress that they broadly agreed that largely unregulated financial vehicles ought to be subject to greater disclosure, though they warned of excessive regulation.