Shares slump as US tinkers with bailout package
13 Nov 2008 5:48 PMBy Colin Brinsden, Economics Correspondent
CANBERRA, Nov 13 AAP - The share market has suffered one of its worst sell-offs of the global financial crisis, hitting a fresh four-year low as the US administration changed the rules of itsUS700 billion bank bailout package.
Wall Street slumped as much as five per cent overnight on a renewed bout ofjitters after US Treasury secretary Henry Paulson said the package would not allow for the purchase of troubled or toxic assets.
Instead, Mr Paulson said the Troubled Asset Relief Program (TARP) would focus on continued capital injections to struggling banks, but would also lookat ways to help the "non-bank" financial sector.
The renewed uncertainty over the US financial system wiped57 billion off Australian shares as the market sank 5.7 per cent.
Finance Minister Lindsay Tanner said it was not appropriate for him to givea running commentary on the decisions taken by the US administration.
"(But) there is no question these things are of considerable significance to Australia in a wider sense, as part of the effort globally by the major economies to get their activity ticking over at a faster rate to get throughthe slowdown already well on the way in those economies," Mr Tanner told reporters in Canberra.
The Rudd government's own bank support package that gives a guarantee for Australian banks raising wholesale funding in international markets came under scrutiny in parliament.
Opposition Leader Malcolm Turnbull raised the concerns of an international credit-rating agency about the lack of legislative authority for the guarantees.
Without that authority, banks may not be able to pass onto borrowers the benefits of triple-A credit ratings, he said.
"Why won't the government act to fix this flawed guarantee and allow banks to receive full benefits that will then be passed onto the millions of Australian customers through lower interest charges and fees," Mr Turnbull asked in parliament.
The government is bypassing parliament, saying it has concerns legislation may be blocked in the Senate.
"The guarantees will be provided on the basis of contracts entered into under the executive power of the commonwealth," Attorney-General Robert McClelland told parliament.
"The commonwealth is clearly entitled to rely on all constitutional heads including banking, including corporations, including interstate and international trade, including insurance and so on."
Credit ratings agencies themselves will come under tighter supervision under a new proposal announced by the government today.
The agencies and research houses will no longer be exempt from holding an Australian Financial Services Licence.
Credit rating agencies have come under the microscope because of the high ratings they gave to US sub-prime mortgages and other complex derivatives, which are now known as toxic assets.
The government has also introduced draft laws that will permanently ban so-called "naked" short selling and provide greater scrutiny of "covered" short selling, while giving the securities watchdog greater powers to monitor such trading action.
Short selling is where investors sell shares they don't own on the assumption they will fall in value.
A covered short sale is where a person borrows an amount of stock using a legal stock lending agreement, while in the case of a naked short sale thereis no borrowing arrangement.
"In the current global financial crisis, there has been a need to take decisive action, particularly where we see some trading practices that involve manipulation or abuses," Corporate Governance Minister Senator Nick Sherry told reporters in Canberra.
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