Special report: The Obama presidency
Barack Obama took office on Tuesday with bank shares tumbling, the car sector teetering and a world economy in tatters, and the new US president vowed to meet the daunting challenges.
The first African-American to become US president swore to preserve, protect and defend the Constitution against a backdrop of a deep economic downturn, a trillion dollar federal deficit and fears of more bank losses.
His aides vowed to go to work immediately, armed with the authority to spend the second half of the $700-billion financial rescue plan and a proposed stimulus package of $550-billion in spending and $275-billion in tax cuts.
”That we are in the midst of crisis is now well understood,” the new president said, mentioning war, a battered economy and sagging confidence.
”Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America — they will be met,” he said upon taking the oath.
He offered conciliatory words to Muslims while issuing a warning to those who would wage terrorism. In a message to the Muslim world, Obama said he would seek a ”new way forward” based on mutual interest and mutual respect.
He also said: ”We will not apologise for our way of life, nor will we waver in its defense, and for those who seek to advance their aims by inducing terror and slaughtering innocents, we say to you now that our spirit is stronger and cannot be broken; you cannot outlast us, and we will defeat you.”
Obama said the economic crisis was a consequence of ”greed and irresponsibility” on the part of some and vowed that those who manage Americans’ money ”will be held to account.”
Obama is riding a wave: A CBS News/New York Times poll showed 79% of Americans are optimistic about the next four years. At the same time, George Bush leaves the White House as one of the most unpopular presidents in history, with his approval rating at 22%.
”The inauguration is crystallising all expectations that the US economy will be the first to recover from the recession,” said Marco Annunziata, global chief economist at UniCredit, Italy’s second-biggest bank, in London.
But that did not help the Dow, which was down about 2% at midday, extending its losses for the year to more than 7%.
Shares in major US banks were down double digits after State Street, the world’s biggest institutional asset manager, posted rising unrealised losses in its commercial paper programme and investment portfolio.
State Street stock plummeted 50% while Citigroup, Bank of America, JPMorgan Chase and and Wells Fargo were all battered.
Europe’s banking index fell to a 14-year low on fears that lenders will need more state help to raise capital as recession bites and bad debts rise. Shares in Lloyds dropped 31% and Barclays fell 17%.
On Monday, Britain threw its troubled banks a second multibillion-pound lifeline in three months and gave its central bank approval to pump cash into the ailing economy because interest rates were close to zero.
”After yesterday’s carnage, the smoke is still hanging over the market,” says Justin Urquhart Stewart, director at Seven Investment Management.
Concerns about the British banking sector pushed the British pound below $1,39 for the first time since June 2001.
Car crisis
Except for banking, no sector has been harder hit than carmakers by the worst financial crisis in 80 years.
Italy’s Fiat took a 35% stake in Chrysler, launching a venture designed to secure the beleaguered US carmaker’s future.
The deal aims to give the Italian carmaker the scale it needs to survive and let Chrysler expand its product portfolio to include small, less-polluting cars.
Separately, France said it may pump up to €6-billion into the country’s ailing car industry. Prime Minister Francois Fillon warned that automakers would have to safeguard jobs in return.
”There is an emergency. We need a massive response on the automobile sector’s financing,” Fillon said.
German Chancellor Angela Merkel, however, said the aid threatened to distort competition and was not a long-term solution to the struggling sector’s problems.
EU Industry Commissioner Guenter Veheugen said the EU must watch efforts to rescue U.S. carmakers to ensure they do not disadvantage European manufacturers. – Reuters