Investors Anxious for “Big Three” Decision in Last Full Week of 2008 Trading
With Monday marking the start of the last full week of trading for 2008, U.S. stock market investors are likely to be focusing their attention on developments regarding Detroit’s Big Three automakers and the possibility of a central bank interest rate cut. They will also be considering earnings reports from influential companies such as Goldman Sachs and Oracle and reports on housing, consumer pricing and manufacturing.
Last week the Senate rejected a proposed $14 billion bailout package for the Big Three to be drawn from a fund set aside by Congress to assist automakers in research and development of more fuel-efficient cars. The proposal was agreed upon between the Bush administration and congressional Democrats early last week, with the loan package being passed by the House on Wednesday. However, opposition from the Republican minority resulted in the package not being able to win the 60 votes needed to present the matter to the Senate for a vote.
White House Press Secretary Dana Perino said in a statement that in light of the weakened state of the U.S. economy, the Bush administration is willing to consider other options should this become necessary to prevent the collapse of the automakers, which would have a severe impact on the economy. The other options being considered include using funds from the $700 billion Troubled Asset Relief Program (TARP) approved by Congress in October to assist Wall Street. This is a complete about-face on the Bush administration’s previous position on assisting the auto industry to remain in business. Although a senior Bush administration official has indicated that an announcement would only be made “if there is something to announce” and would not indicate when this may happen, investors are hopeful that a decision will be reached before Friday, even if it is short term solution.
The Treasury Department controls the TARP fund and has confirmed that, with Congress failing to act, the Treasury stands ready to ward off failure of the Big Three until Congress reconvenes and is in the position to address the “long-term viability of the industry”. Speculation as to how extensive this bailout may be includes the possibility that it will only see the automakers through to early next year when the new Senate, with at least seven additional Democrats, is sworn in on 6 January. Nevertheless, analysts believe that any sort of concrete plan with regard to a Big Three Bailout will remove one aspect of speculation and uncertainty and thereby prove beneficial to markets.