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The US Congress has finally passed the US$700 (Bt24trillion) rescue package for the nation's financial system. The 263171 vote did not look promising, however. Wall Street fell 157 points on Friday on fears of more bad news to come. Passing the rescue package might be easy, but using the federal govern¬ment's money to buy out the toxic assets from the financial institutions would be more complicated and time consuming.

The US is now facing a fullblown financial crisis unseen since the Great Depression of the 1930s. The credit market has been virtually shut down. The financial insitutions have lost trust among themselves. The banks can't borrow money from the interbank market. Neither can they issue commercial paper to raise short term money. The only channel left for them is to turn to the Federal Reserve as lender of the last resort.

The US banks borrowed a record $367.8 billion per day from the Federal Reserve through its discount window in the latest week ended October 1. This was compared to an average of $187.75 billion in shortterm borrowing from the Fed the week before.

These data are staggering. The Fed is ready to supply money to the financial system for an unlimited amount. The fate of the US banks now lies in its hand. The Fed in effect has been forced to act as a safety net for the financial system to prevent its systemic col¬lapse. Some banks are indeed too big to fail.

Since the US government has been relying heavily on foreign governments to finance its deficit through the treasuries it issues, it has to protect the interest of the foreign creditors too. The Chinese government is believed to have huge exposure in Freddie Mac and Fannie Mae, the two mortgage giants. This has forced the Fed to bail them out to the tune of US$200 billion to prevent their collapse. The Fed also takes in deposits from the central banks of other countries. It must do everything to safeguard confidence oth¬erwise foreign creditors will pull their money out to aggravate the US crisis and send the US dollar tumbling g.

Even California Governor Arnold Schwarzenegger has admitted that the state gov¬ernment is going broke. He sent out a letter that said without a clear resolution to the crisis, his state and others "may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the federal Treasury for shortterm financing."

President George Bush has tried to put on a brave face. The past two weeks proved to be one of the most critical periods of his twoterm presidency. "Congress took a big step in the direction of at least giving us the tools necessary to bring some stability into the marketplace," Bush said."My administration will move as quickly as possible, but the benefits of this package will not all be felt immediately. The federal government will undertake this rescue plan at a careful and deliberate pace to ensure that your tax dol¬lars are spent wisely."

Is the bailout money going to be spent wisely? We'll have to wait and see. But what the Bush administration can do through the rescue package is use its broad authority to buy up toxic mortgagerelated investments and other distressed assets from shaky financial institutions. By doing so, it hopes that it can restore confidence in markets and repair the credit market. Since the US economy relies for twothirds of its growth on domestic consumption, it will plunge into deep recession if the credit market is not restored. There are millions of consumers or businesses out there waiting to get their loans to buy a new car or a new home or to keep their businesses going.

The rescue package also aims to protect the smaller banks. There is a flight to quality with people shifting their deposits to stronger financial institutions. The Federal will now insure deposits from a minimum US$100,000 per account to US$250,000. The package will allow federal authority over Wall Street firms to prevent

executives from getting golden parachutes from helping to clean up bad loans. Regarding the Wall Street executives, there have been talks in the financial circle that "you need to hire murderers to do the job because they know where the bodies are."

But the US has taken just step one in its long and treacherous road to restore health to the financial system, which could take several years . Yes, this is only the beginning.