US bail-out 'insufficient': Japanese prime minister

Japan’s prime minister says the US bank bailout is “insufficient” and contributing to a renewed plunge in global stock markets.

Prime minister Taro Aso told the country’s parliament today that “since it was insufficient, the market is again falling sharply”.

Japan’s key stock index plunged more than 10% in morning trading today following another big sell-off on Wall Street yesterday amid fears that the world is entering a recession.

The US Congress earlier this month approved a plan to use $700bn (€522.97bn) of public money to buy bad mortgage-related securities and loans from troubled financial institutions. Some $250bn (€186.72bn) of that will be used to buy shares in leading US banks.

The US economy lurched deeper into the doldrums yesterday and took the stock market down with it, sending the Dow Jones industrials to a staggering 733-point loss and erasing any hopes that the convulsions that have shaken Wall Street for a month were over.

The daylong sell-off came as retailers reported the biggest drop in sales in three years and as a Federal Reserve snapshot showed Americans are spending less and manufacturing is slowing around the country.

Piling up losses in a rough final hour of trading, the Dow Jones index ended the day down nearly 8%, its steepest drop since one week after Black Monday in 1987. The Dow has wiped out all but about 127 points of its record-shattering 936-point gain on Monday.

Early this week, after governments around the world announced plans to use trillions of dollars to prop up banks, including a US plan to buy about $250bn (€186.72bn) in bank stocks, the market had appeared to be turning around, or at least calming down.

Instead, relentless selling gave the Dow its 20th triple-digit swing in the past 23 trading sessions, an unprecedented run of volatility. The Dow has finished higher on only one day this month. The loss of 733 points is the second-worst ever for the average, topped only by a 778-point decline on September 29.

The plunge in stocks put the nation’s economic anxiety front-and-centre as the two major presidential candidates, Barack Obama, the Democratic nominee, and Republican John McCain, prepared for their final debate last night in New York.

In the meantime, the man they each hope to succeed met with his Cabinet. President George Bush predicted “in the long run that this economy will come back”.

Mr Bush plans to speak on the financial crisis tomorrow, before the markets open, at the US Chamber of Commerce headquarters across from the White House. Officials said the speech was not intended to put forward new policy actions, but the President would instead give a more detailed explanation of what the government is doing, and why, to combat the crisis.

Treasury Secretary Henry Paulson and the nation’s central banker, Fed Chairman Ben Bernanke, expressed confidence that the US government’s radical efforts to stabilise the financial system and induce banks to lend again eventually will help the economy.

Prime Minister Gordon Brown said crisis discussions should include not only the world’s richest nations but also major emerging economies such as China and India.

“I believe there is scope for agreement in the next few days that we will have an international meeting to take common action ... for very large and very radical changes,” Mr Brown told reporters before a meeting with other European Union leaders for talks in Brussels on the financial crisis.

There was a dose of good news Wednesday: Oil prices dipped below $75 (€56) a barrel for the first time in nearly 14 months, suggesting petrol prices will keep falling. Oil prices have now plunged almost 50% since peaking at $147 (€110) in mid July.