Markets Pray House Can Deliver

So much for the Senate Bounce. Stock markets plunged in Asia, Europe, the United States, and South America on Thursday on concerns the suffocating credit crisis could trigger a global slowdown, the Financial Times reports. On a light trading day again in Asia on Friday, the Pacific and Japanese borses took another tumble as fears the U.S.-led downturn will hurt Asian exports, the Telegraph reports. By the time the market opened in the U.S. yesterday, the Senate's historic "yes" vote on the $700 billion Paulson Plan a few hours earlier was already a fleeting memory. Instead, "the economy’s worsening health and a continued choking of credit," the New York Times writes, was front-of-mind. The Dow fell 3.2 percent on Thursday, while the S&P and Nasdaq sunk by 4 and 4.5 percent, respectively. The Wall Street Journal said the markets even showed "flashes of panic" in the Thursday free-fall, again citing banks' reluctance to lend money. "Those are textbook signals of peril ahead for the global financial system," the WSJ ominously observes. Traders around the world reckon there's only one thing that could possibly revive the markets: Congress passing the $700 billion rescue plan. Gulp.

All this drama leads to a pressure-packed vote in the still-divided House today. Even scheduling a vote today is being portrayed as a small victory. According to the NYT, "top Democrats said earlier that they would not bring the bill to the floor unless they were certain of victory." Where have we heard that one before? To be sure, nobody is holding their breath, after watching Monday's theatrics on the Hill. As BusinessWeek calculates, a bailout vote could still go either way. "The odds seem good. But that's a far cry from the near-certainty that preceded the Senate vote. And after Monday's sudden about-face, it hardly inspires confidence," the magazine writes.

Meanwhile, across the pond, Europe is splintering over state aid doled out to its troubled banking sector. It all started earlier this week when Ireland, in an effort to avert a run on deposits, created a 400 billion euro ($555 billion) fund—an amount that's more than twice the country's GDP—to guarantee 100 percent of savers' deposits. Yesterday, Greece followed suit with an "absolute guarantee" on deposits, even as the EU was debating the anti-competitive ramifications of the Irish bailout, the Guardian reports. A fuming British Prime Minister Gordon Brown is now piling on the pressure to get Ireland to stop the practice, the FT writes, as British savers empty out their accounts and park them in Irish banks. Amid all the finger-pointing, it has emerged that Europe has no clear plan for how to deal with its suddenly destabilizing banking sector. The U.K. and Germany earlier this week rejected a French proposal for a super-sized bailout fund. And yesterday, as criticism of the 300 billion euro ($416 billion) aid package intensified, France, too, wanted nothing to do with the French plan. “I deny the sum and the principle [of the rescue scheme],” French President Nicolas Sarkozy, and presumed architect of the original plan, was quoted in the FT as saying. Meanwhile, the inflation hawks at the European Central Bank are hinting that something has to be done to unclog the credit markets. According to the International Herald Tribune, ECB President Jean-Claude Trichet is signaling the central bank will cut interest rates as soon as next month.

The carnage continues in the banking sector with UBS announcing 2,000 job cuts in its investment bank, the Guardian reports. This brings total job losses this year at the Swiss bank to 9,000, notes the London Times. J.P. Morgan Chase is doing some serious house-cleaning over at Washington Mutual, "emptying out the executive floor" of its newly acquired Seattle operation. WaMu Chief Executive Alan Fishman, President Steve Rotella, Chief Legal Officer Michael Solender, Executive Vice President Todd Baker, and a slew of other top bankers are out the door as of this morning according to the WSJ. The security of WaMu's 43,000 employees hangs in the balance. JPMorgan Chase says it will make a decision about how many will have to go by December 1, but noted that many will be retained. One person who might consider himself lucky to still have a job is Merrill Lynch Chief Executive John Thain. Under the new ownership of Bank of America, Thain's going to become president of the combined company's global banking, securities and wealth-management business. Speculation is rife that he is being lined up to succeed Bank of America Chairman and CEO Kenneth Lewis at some point in the future, writes the WSJ. But while Thain gains a new life, it is unclear whether his former "high-priced inner circle" at Merrill will join him at BoA. Pay is at the heart of the issue. Take Merrill's global head of sales and trading, Thomas Montag. BoA would like to keep him, but how to justify the $38 million guaranteed bonus he negotitated in his former employ?

From Wall Street to California, where the Los Angeles Times has obtained a letter written by Gov. Arnold Schwarzenegger to U.S. Treasury Secretary Hank Paulson in which he warned that his "state might need an emergency loan of as much as $7 billion from the federal government within weeks" (in the word of the LAT) to meet day-to-day running costs. It's getting bad even in Silicon Valley, where tough times are forecast by a tech industry that previously considered itself immune from the credit crisis. A fog of fear is settling all across the valley with funding for start-ups beginning to dry up and industry veterans like semiconductor maker AMD forced to spin off its "chip manufacturing operations this year to focus on processor design," writes the NYT. Even the mighty Google is looking to "reinvigorate its slowing growth" through traditional advertising, writes the WSJ. Google has, for the most part, avoided paid advertising and marketing, relying on word of mouth and internal promotion to drive its phenomenal growth. But as it moves into new areas like cell phone and business software, it must go up against "competitors who rely heavily on advertising, like Microsoft Corp. and Apple Inc." Which brings us to one Silicon Valley success story this morning: Apple has prevailed in its copyright dispute with music publishers and won't have to increase royalties from 9 cents to 15 cents on songs purchased on iTunes.

Finally, at least one company received a boost from the House of Representative's bailout drama. The NYT writes (with just a hint of glee) that Fox's fairly moribund Business Network finally registered a pulse during the House vote in the form of a confirmed 81,000 viewers—that's the Nielsen Media Research estimate for the "average number of people watching [Fox Business] for any given hour from 1 p.m. to 10 p.m. on Monday." That might not seem a lot compared with CNBC's 900,000 viewers during the same period, but it's better than the 6,300 daily viewers Nielsen estimated the network was getting when it first launched.