Markets upbeat on bank bailout

Asian markets ended trading on Thursday mixed with Japan’s Nikkei - 225 down 2% and the Australia’s All Ordinaries down 1%, but Hong Kong’s Hang Seng was up 1% and Singapore’s Straits Times Index was up marginally.

At the time of writing, India’s BSE Sensex was up more than 1.5%.

Markets were upbeat on the passage of a bank bailout package in the US Senate with amendments, which is expected to shore up the financial sector hard hit by investments in sub-prime mortgages or housing loans made to those with low incomes or poor credit ratings.

These mortgage notes typically carried high yields, AAA credit ratings, and were backed by the underlying property as collateral. The lenders were betting US housing prices will continue increasing and hence paid scant regard to the borrower’s ability to pay back the loans. Ironically, prices of houses were rising due to the availability of easy credit thus creating an asset bubble which burst in early 2007.

The subsequent decline in house prices eliminated the borrower’s equity and left financial institutions with large capital losses.

The revised bail-out package called for an increase in the Federal Deposit Insurance Cover from US$100,000 to US$250,000, increasing the safety net offered to small investors in bank deposits. Source: First Guardian

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