US rescues carmakers, BoJ cuts rates

“The American people want the auto companies to succeed and so do I,” President George W. Bush said in announcing the rescue, sealed in the last month of his eight years in office.

Had the government not intervened, Bush said, a free market allowed to take its course “would almost certainly lead to disorderly bankruptcies.”

US stocks opened moderately higher after the news, shares in Europe reversed their earlier losses and the dollar extended gains against the yen.

Long-term US Treasury bonds, a safe haven in recent days, fell more than 2 points on Friday, pushing the 30-year yield up to 2.59 percent.

“It’s a lifeline, but it doesn’t get them completely out of the woods,” said Erich Merkle, analyst at Crowe Horwath. “It takes them (GM and Chrysler) forward until March. Basically the next administration has to deal with it.”

The funds will come from the $700 billion Troubled Asset Relief (TARP) program passed by Congress in October and originally designed to help the banking industry.

GM will receive $13.4 billion and Chrysler $4 billion, while Ford Motor Co. said it does not need a loan at this time, the White House said. Loans would be called in if the automakers cannot prove they are viable by March 31.

Carmakers are among the hardest hit by the global economic downturn, with Japan’s Toyota expected to report its first ever annual loss.

The head of Japan’s No. 2 automaker, Honda, warned the strong yen could cripple Japanese industry and spur massive layoffs and transfers of production abroad.

Japan Takes Action

The yen was trading at a 13-year high against the dollar after the Tuesday’s dramatic rate cut by the US Federal Reserve to a range of zero to 0.25 percent.

With the US rate below Japan’s, the Bank of Japan lowered its key policy rate on Friday to 0.10 percent from 0.30 percent.

The BOJ said it would step up outright buying of Japanese government bonds and temporarily buy commercial paper outright — further moves to ease the credit squeeze throttling the world’s second-biggest economy, already in recession.

Calling the economic turmoil of the past few months “the most rapid in our lifetime,” BOJ Governor Masaaki Shirakawa told a news conference he could not rule out further rate cuts.

He said Friday’s moves did not mark a return to quantitative easing — the final option of any central bank, when it floods the financial system with cheap funds to try to revive lending.

“The BOJ appears to have gone all out this time by deciding to take a wide variety of steps,” said Koji Ochiai, senior market economist with Mizuho Investors Securities.

Leading central banks said they would keep pumping dollars into the financial system in an attempt to ease the global credit crunch and avert a savage recession.

The US, British, Swiss, and European central banks will extend money market programs in coming months to inject more dollar liquidity into the market — combating a dramatic lending slowdown that is throttling the world’s leading economies.

The deteriorating global economy and rising banking industry risk prompted Standard & Poor’s to downgrade the credit ratings of 11 top global banks on Friday, including Citigroup Inc, Deutsche Bank AG and JPMorgan Chase & Co.

Oil Keeps Dropping

Manufacturers worldwide are also feeling the pain. Highlighting the squeeze on industry, Germany’s ThyssenKrupp AG said it would cut crude steel production to a minimum level from February if demand stayed weak and introduce shorter hours for 20,000 steel-workers.

While leading central banks have slashed interest rates, governments have scrambled to come up with stimulus measures.

German Chancellor Angela Merkel — under pressure from European Union partners to do more to boost the continent’s biggest economy — said her government would pursue a new package next year that would focus on infrastructure projects such as schools and roads.

Oil prices, which have fallen 25 percent in the last five trading sessions on the bleak outlook for energy demand, were trading lower again on Friday despite OPEC’s announcement this week of a 2.2 million barrel per day supply cut, its biggest ever.

The world’s biggest producers and consumers of oil called for international cooperation to stabilize prices, which have plunged by more than $110 a barrel from above $147 in July.

“Wild fluctuations in oil prices harm nations all round the world,” British Prime Minister Gordon Brown said. Saudi Arabia said the price crash was playing havoc with investment in producer nations.

European stocks fell 1.2 percent by midday as the crude drop and the bank downgrades weighed.