Today's Papers

Come Together, Right Now

After weeks of disagreement over the need for a unified response to the financial crisis, major European leaders agreed on a coordinated plan that would inject public money into troubled banks  and temporarily guarantee bank debt in an effort to get credit flowing again. In addition, European countries agreed to relax so-called mark-to-market accounting rules that require banks to price assets to current market prices. Australia and New Zealand also joined the fray and announced that they were guaranteeing all bank deposits. “With the newly decisive moves, other major nations are catching up to or surpassing the United States in sculpting a response to the crisis,” declares the Washington Post. USA Todaynotes that the European announcement “may increase pressure on the United States to take further actions to bolster its major banks.”

Many questions remain, starting from the fact that the leaders of the 15 countries that use the euro didn’t say how much their plan would cost. The price tag will begin to take shape this week, as countries announce details of how the program will be implemented in their own nations. Despite these uncertainties, investors reacted optimistically and stock markets  soared today. Although it would be premature to think that this marks “a definitive shift in sentiment,” the positive reaction was “seen as a potential hope that the markets may at least stop their free fall,” says the New York Times. Over the past weeks, many had argued that the differences within Europe made a unified response nearly impossible and since “few details of the programs were disclosed, just how similar the plans are was unclear Sunday night,” notes the Los Angeles Times. Still, the Wall Street Journal points out that “the broad contours of a global response are taking shape: Developed countries are investing directly into the banking system, acting to insure bank deposits, guarantee certain bank debt and in some cases nationalize banks.”

Despite all the talk of coordination, it’s important to emphasize that the measures agreed to by European leaders were mostly an outline that will allow countries to make decisions  at the national level. “In that regard, the outcome was similar to an agreement reached Saturday in Washington by finance ministers of the Group of Seven industrial nations,” notes the WP. But by issuing a joint commitment to prop up banks, European leaders hope to increase confidence in the financial sector to “allow markets to start functioning again,” as German Chancellor Angela Merkel said.

The governments of Italy, France, Germany, and Austria could be among the first to announce specifics of their plans today. The WSJ gets word that Germany is finalizing a plan that could involve up to 400 billion euros in taxpayer money, which would mostly be used to guarantee bank debt, “but with up to 100 billion euros earmarked for taking government stakes in banks,” says the paper. In addition, both the WP and WSJ highlight reports that the British government is preparing to unveil a plan that could give it majority stake in two of the country’s largest banks. Morning reports reveal the British government will provide up to $63 billion to prop up three of the country’s largest banks. The deal could leave taxpayers owning as much as 57 percent of the Royal Bank of Scotland and 43.5 percent of Lloyds TSB and the Halifax Bank of Scotland, which are in the process of merging.

Meanwhile, in the United States, government officials are still trying to work out how best to implement the $700 billion bailout plan. It’s already clear that at least part of that money will be used to inject capital directly into banks. The move would be similar to European efforts, but that doesn’t mean the United States is ready to pick up on all the policy prescriptions that are being outlined across the pond. The NYT highlights that so far the U.S. government has “been reluctant to guarantee bank loans to other banks out of concern that it could give banks a competitive advantage over other financial institutions.” The Treasury is expected to announce details of its program this week, “and it could be up and running shortly,” says the WSJ.

In related news, the NYT fronts word that the Bush administration assured a big Japanese bank that its investment in Morgan Stanley would be protected even if the United States decided to inject capital into the financial institution. The NYT says the move “could set an important precedent” as the government seeks to reassure foreign investors that their money is safe while it finalizes details on a rescue package. Even as Treasury Secretary Henry Paulson has said that it doesn’t look like Morgan Stanley will need fresh capital from the government, officials “privately hinted” that the government would help back Morgan Stanley if needed, “suggesting that he does not want to repeat the troubles that resulted from allowing Lehman Brothers to go bankrupt,” notes the NYT.

The NYT and WSJ go inside with looks at how one of the reasons why stocks have been dropping so precipitously is that big investors and executives have been facing margin calls, which is when those who bought shares with borrowed cash must sell in order to pay back the money. This dynamic, in which investors are being forced to sell at such a bad time, is part of the reason why many are reluctant to jump into the market despite the availability of what would appear to be good bargains.

So should investors rush to snap up these bargains now? It’s little surprise that no one can say for sure. The LAT’s Tom Petruno says that the big question now is how much the credit crisis will affect corporate earnings. Going off current earnings estimates, many stocks do indeed look like good deals. But with the looming threat of a deep recession and no historical precedent for the current credit crisis, trying to guess how individual companies will fare in the future is more challenging than usual. “You’re flying blind,” an investment officer tells the LAT.

As the presidential candidates prepare for their final debate on Wednesday, and with a little more than three weeks until voters head to the polls, things aren’t looking good for John McCain. The WP goes across the top of Page One with a new poll that shows Barack Obama leading 53 percent to 43 percent among likely voters. Significantly, voters gave Obama an 11-point advantage in tax policy as well as a 14-point lead when asked who is the stronger leader. Attempts by the McCain campaign to raise doubts about Obama in recent weeks appear to have backfired, and he is now viewed more negatively than his Democratic counterpart as a mere 35 percent of voters say McCain is dealing with the issues, compared with 68 percent who said the same thing about Obama. Adding to his troubles, McCain has to deal with “an unprecedented grim view of the country overall” that has 90 percent of Americans saying that the country is headed in the wrong direction, “the worst rating in polls dating to 1973,” notes the Post.

The NYT takes a look at historical precedent to say that it’s likely McCain has fallen too far behind to catch up. Of course, that’s not to say it’s impossible but, rather, that if it does happen it would probably be as a result of a mistake by Obama or some sort of national-security crisis and not anything McCain could do to help himself. History has shown that at this stage in the race, most voters have already made up their minds, making large swings extremely unlikely. And in McCain’s case, such a swing seems even less likely, since undecided voters usually choose to punish the party in power during tough times.

The LAT and WSJ both say McCain’s campaign is considering issuing new economic proposals to convince voters that he is the best candidate to handle the current crisis. Both papers cite Sen. Lindsey Graham’s saying that the candidate is considering new tax cuts “to make sure that we can get the economy jump-started.” But the NYT talks to members of McCain’s campaign who say they don’t know why Graham said that. They emphasize that the candidate isn’t going to issue any new proposals this week unless circumstances change. That doesn’t mean McCain is giving up. Dropping in on volunteers yesterday, McCain said he plans to “whip his you-know-what in this debate.”

A week after the NYT’s William Kristol pressed McCain to go on the offensive about Obama’s relationship with the Rev. Jeremiah Wright, he now thinks it’s time to play nice. Kristol says McCain needs to “fire his campaign” and go back to “running as a cheerful, open and accessible candidate.” The Republican should drop his attack ads and try to sell voters on the idea that the country needs a tested leader in a time of crisis. “The McCain campaign, once merely problematic, is now close to being out-and-out dysfunctional,” writes Kristol. “Its combination of strategic incoherence and operational incompetence has become toxic.”