- The Washington Times - Friday, September 26, 2008

NEW YORK (AP) — Wall Street headed for a sharply lower open Friday as efforts to approve a $700 billion financial bailout unraveled and Washington Mutual Inc. was seized by federal regulators in the largest failure ever of a U.S. bank. Clogged credit markets tightened further as fears of a deepening economic crisis fed safe-haven buying.In another dose of unnerving news, the Commerce Department said the spring’s economic rebound was less robust than previously estimated.The market was already tense after the Federal Deposit Insurance Corp. seized WaMu on Thursday, and then sold the thrift’s banking assets to JPMorgan Chase & Co. for $1.9 billion. It was the largest bank by far to fail in the country’s history and the latest financial firm to collapse under the weight of enormous bad bets on the mortgage market.The grim although expected development came as government efforts to avoid an economic meltdown fell into chaos. Confusion reigned on Capitol Hill after Republican lawmakers rejected the emergency financial rescue package over the enormous price tag of the White House-backed proposal, hours after congressional leaders from both parties announced they were nearing agreement on a deal.The rescue would remove billions of dollars of bad mortgages and other risky assets off the books of financial firms in a bid to free up lending and revive the economy. In a last-minute shakeup, some Republican lawmakers want an alternative plan under which the government would provide insurance to companies that agree to hold frozen assets, rather than have the U.S. purchase the assets.With the prospects of a deal uncertain, negotiations in Washington were continuing Friday as investors kept close watch on the proceedings. Wall Street cautiously showed its pleasure with the apparent progress Thursday, with the Dow Jones industrials closing 196 points higher.The Dow Jones industrial average futures fell 216.00, or 1.96 percent, to 10,802.The Standard & Poor’s 500 index futures fell 26.70, or 2.20 percent, to 1,186.90, and the Nasdaq 100 index futures fell 45.50, or 2.71 percent, to 1,634.50.Credit markets showed the signs of increasing strain. The yield on the 3-month Treasury bill, considered the safest short-term investment, was trading at 0.67 percent, down from 0.72 percent late Thursday. The lower the yield on a T-bill, the more desperation there is in the market; investors are willing to take a return of practically nothing in return for preserving their principal. The yield on the benchmark 10-year Treasury note fell to 3.81 percent from 3.84 percent late Thursday.Meanwhile, the London Interbank Offered Rate, a bank-to-bank lending rate known as LIBOR, eased slightly. For 1-month dollar loans, LIBOR fell to 3.70 percent from 3.71 percent on Thursday, according to the British Bankers’ Association. The 3-month dollar LIBOR slipped to 3.76 percent from 3.77 percent on Thursday, but is still well above Wednesday’s rate of 3.21 percent. More than half of adjustable-rate mortgages are tied to LIBOR.The Commerce Department reported Friday that gross domestic product, or GDP, increased at a 2.8 percent annual rate in the April-June period. That fell short of the 3.3 percent growth estimated a month ago, but was still better than two previous dismal quarters.Light, sweet crude for November delivery fell $2.12 to $105.90 a barrel premarket electronic trading on the New York Mercantile Exchange.Uncertainty over the bailout package sent the dollar lower against other major currencies, boosting demand for inflation hedges like precious metals. Gold and silver prices spiked higher.Overseas, Japan’s Nikkei stock average was down 0.94 percent. Britain’s FTSE 100 was down 1.14 percent, Germany’s DAX index was down 1.40 percent, and France’s CAC-40 was down 1.02 percent.

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