New US bailout plan needed

The $700 billion rescue plan for the US's financial system was rejected in the House of Representatives, a move that sent global stock prices plunging and prompting European banks to rescue their institutions. However, President George W. Bush will today propose a new plan to the United States Congress to revive the rejected plan.

Bush spoke before the opening of the New York Stock exchange, whose Dow Jones index had plunged 777 points on Monday, marking it the biggest one-day drop. He said that the legislative progress is not over. "The drop in the market yesterday represented a trillion dollar loss," Bush said during a press conference, adding that the loss is bigger than the $700 billion price tag of the legislation.

"Our economy is dependent on decisive action from the government. The sooner we address the problem, the sooner we can get back on the path to job creation," said Bush during a press conference.

Politicians were hard at work trying to revive the $700 billion plan. US Treasury Secretary Hank Paulson said that a comprehensive plan was urgently needed. "We need to put something back together that works," he told reporters at the White House.

Senior economist at Citi Handlowy, Piotr Kalisz told WBJ that maybe the program wasn't the best program, however, a something was needed and there was nothing else on the table.

Meanwhile, governments across Europe began rescuing financial institutions. Ireland unveiled a security blanket guarantee for savings held by its banks covering EUR600 billion, a move that sent Irish banking stocks soaring.

French President Nicolas Sarkozy began talks with finance executives on Tuesday and is set to meet with officials from Europe's G8 member states later this week.

Among European banks, the top losers were Royal Bank of Scotland, Britain's HBOS and Italy's UniCredit.

The news also impacted Poland's WIG20 index, which fell by 5.03 percent following the trend of European stock exchanges.

Economists agree that an alternative US rescue plan needs to be passed if the market meltdown is to be controlled.

"If the markets see something new, then they will see positive reactions. But, the government must convince the market that this time it will be different," said Kalisz, commenting about the US new plans of intervention. He added that whether this plan will rescue the banking sector all depends on the government and whether it will be accepted. (AO)