Update: The rescue package was finally passed by Congress and is currently being implemented, with some changes allowing equity in banks to be bought by the government.

Wall Street is back in panic mode again after politicians failed to secure a rescue package for the distressed banking sector last night.

The scenes in Washington were close to farcical as senior members of the administration had stand up rows in the White House. Treasury Secretary, Hank Paulson, reportedly went down on one knee and begged Democrat Nancy Pelosi to pass the bill.

Her response, “Ask the Republicans,” was met with a bewildered “I know, I know” from Paulson.

The $700 billion bank bailout bill is meeting determined opposition from many quarters, in particular a group of Republicans who say the public is 100 to one against the deal.

Negotiations start again today and may spill over into the weekend.

U.S. investment bankers have almost disappeared off the face of the Earth. The so-called Masters of the Universe only have themselves to blame, of course.

Last week a “flight to safety” of investors in America’s $3.5 trillion Treasury money market was only halted by Secretary Henry Paulson’s swift action in nationalising the banking sector’s bad debts.

Read The Great Harvard Sausage Scandal 2008 over at Syntagma.

Today we hear that the two surviving giant American investment banks, Goldman Sachs and Morgan Stanley, have turned themselves into “holding banks”, which will allow them to beg on the streets for any deposits we the people may have remaining after their Attila the Hun rampage through our domestic balance sheets. They will also gain access to Government funds designed to bail out the banks.

In common parlance, Goldman and Morgan and the other stricken titans are signing on the dole.

Read the rest of the article.

As economies around the world face up to the “perfect storm” slowly building around us, with various “crunches” lethally combining their woes, the word recession is on everyone’s lips.

Does the past tell us anything we ought to know? Here is a list of the five worst slumps of the past century in rough order of magnitude. They may provide some sort of comparison, but we should remember that the current episode may have several years to run:

1 1929-33: Great Depression 11,000 of America’s 25,000 banks closed and number of unemployed rocketed. Result: global depression

2 1989-93: The savings and loans crisis More than 700 lenders failed. The crisis cost more than $160bn. Result: recession

3 Now: Collapse of US sub-prime mortgage market This has spread financial panic worldwide. Result: unclear

4 1980s: Latin American debt crisis The flow of international capital to region dried up, leaving massive debts. Result: global economy weakened

5 1973-74: Secondary banking crisis Slowdown led to three-day week in Britain. Result: recession

Source: Times Archive

So what is the state of the U.S. economy right now, given that shares are down around 20pc from October peaks?

Car sales are at a 10-year low, with General Motors’ shares selling at levels last experienced in the 1950s. GM, Ford and Chrysler may just be running into liquidity crises as cash flow fades, according to Wall Street sources.

With the climate change bandwagon running strongly, it will take time to shut down the 4×4 factories and increase output at plants producing smaller cars. Profits will fall as a result.

Housing starts have fallen by half from their January 2006 peak. The National Association of Home Builders’ index is at an all-time low. Inventories of unsold houses remain high, with foreclosures rising.

Most of the foreclosures and price falls are centered in California, Nevada (especially Las Vegas) and Florida.

Average prices in Manhattan continue to rise, driven in part by Europeans and others. Considering that a euro buys around $1.60 worth of property in New York, this must be a bonanza for cash-rich Europeans.

Last week’s jobs report was generally in line with expectations, essentially bad, but not cliff-falling territory.

Non-farm payrolls dropped by 62,000 in June, and earlier reports of lost jobs were revised upward by 52,000.

Since December, non-farm payrolls are down by 438,000. The unemployment rate remains at 5.5pc, not particularly high by historic standards.

A mixed picture then. Not as healthy as one might expect, but not the worst-case scenario either.

However, with the credit crunch bill now forecast to reach $1.6trillion, the outlook may be blacker than many realize.