Credit Markets Begin to Seize Up Over Bailout Fears

This is why the President was addressing the nation tonight and why Congressional leaders, plus the Presidential candidates are meeting tomorrow at the White House.

The fight over the Bush administration’s plans for a $700bn financial rescue package unnerved markets and spilled over into the US presidential race on Wednesday as John McCain, the Republican nominee, said he would put his campaign on hold until a deal was reached.

Amid uncertainty about the plan’s prospects, US money market funds controlling thousands of billions of dollars in assets led a stampede to safety, buying short-term government debt, selling commercial paper and withdrawing funds from the interbank market. As a result, the rates that banks charge each other soared, while yields on Treasury bills plunged.

As officials struggled to address the mounting political objections, Ben Bernanke, Federal Reserve chairman, told Congress turmoil in the markets could lead to greater economic pain. Peter Orszag, head of the Congressional Budget Office, warned lawmakers of possible “chaos” if Congress did nothing. “You would have a financial market meltdown that would cause very severe dislocations  . . . maybe on the magnitude of the Great Depression.”

Back to the drawing board tomorrow but they better work quick and through the weekend if need be. If the credit markets seize up then the layoffs start on Monday afternoon.