The financial system could face a meltdown of 1929 proportions unless US politicians succeed in their efforts for a $700bn rescue scheme, experts added.If Congress can't get something together by Sunday night, Monday's open on Wall Street could be a freefall and there won't be a bank in the country without a line of anxious depositors trying to pull out their money.
The warning came as Republicans and Democrats met in Washington for a rare weekend debating session to attempt to seal agreement on the contentious plan, aimed at preventing a long-lasting recession in the US.
Officials close to Paulson are privately painting a far bleaker portrait of the fragility of the global economy than that advanced by President George W Bush in his televised address last week.
One Republican said that the message from government officials is that “the economy is dropping into the john.” He added: “We could see falls of 3,000 or 4,000 points on the Dow [the New York market that currently trades at around 11,000]. That could happen in just a couple of days.
“What’s being put around behind the scenes is that we’re looking at 1930s stuff. We’re looking at catastrophe, huge, amazing catastrophe. Everybody is extraordinarily scared. It’s going to be really, really nasty.”
The other issue that's hanging over everybody's head is the state of the FDIC. We all see the deposit guarantees on our bank documents, but there's nothing in the law that allows the FDIC to spend more money than it has, and that organization is a couple of big bank failures away from running out of funds. Congress will have to authorize payments beyond the balances currently available to the FDIC if depositors are to be protected.
I went through the S&L failures of the 1980's with a front row seat as an officer of a failed institution, but it was nothing like this.
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