WASHINGTON, Feb 18 – General Motors and Chrysler asked for another 21.6 billion dollars in bailout funds, adding to the long list of pleas for help facing the administration of US President Barack Obama.
On the same day Obama signed into a law a 787 billion dollar stimulus package, the carmakers said they needed the cash to stay afloat long enough to restructure the two companies and avoid having to file for bankruptcy.
But the request, on top of billions of dollars already approved in December, deepened pessimism about the effectiveness of Obama\’s rescue plan and the chance that the worst financial crisis in decades will be over any time soon.
Stocks in the United States and Asia took another beating on the news, which followed widespread sentiment that the US is not doing enough to tackle the bad mortgage-related assets of banks which started the crisis more than a year ago.
GM said it would cut 47,000 jobs, close several factories, kill off brands and revamp its product line as part of the restructuring, which it said would get the company back to "sustainable profitability" by 2011.
"These are the kind of actions we need to take to survive the current industry crisis," said chairman and CEO Rick Wagoner.
GM and Chrysler both said the other option — a restructuring through bankruptcy — would be vastly more expensive and lead to significantly more extensive job losses.
"We believe the requested working capital loan is the least costly alternative," said Bob Nardelli, the chairman of Chrysler, which announced plans to cut 3,000 jobs and slash production.
Obama spokesman Robert Gibbs said it was clear that "more will be required" to keep the two companies alive, but the administration is facing a growing list of demands for federal funds as the global crisis deepens.
Japan\’s efforts to address a massive recession meanwhile took a blow as finance minister Shoichi Nakagawa was forced out following a word-slurring performance at a G7 meeting that led to allegations he was drunk.
Just a day after Japan announced its economy had suffered its worst contraction in 35 years, Nakagawa\’s departure intensified the sense of turmoil surrounding unpopular Prime Minister Taro Aso\’s government.
"His resignation undermines Japan\’s international credibility, which is already viewed negatively," said Daisuke Uno, chief market strategist at Sumitomo Mitsui Banking Corp in Japan.
Japanese shares were trading at a three-month low on Wednesday, after the Dow Jones Industrial Average in the United States slid 3.8 percent overnight. Other Asian markets were also down.
With no signs of good news in the global economy, the International Labour Organisation said unemployment in Asia could surge this year by more than 23 million people.
As factories and firms slash jobs to cope with the worldwide downturn, migration to cities in Asia could also slow down, forcing countless numbers of people to return to low-paying rural farm work, the ILO said.
"These projections are not just numbers. They carry with them a real risk that children may be forced to withdraw from school in order to work and support their families," it said.
The current crisis has its roots in the so-called subprime mortgages in the United States — loans to people with unsteady credit histories that were repackaged and sold to banks and investors around the world.
Defaults on those loans then set off a global chain reaction, leaving bank balance sheets stuffed with toxic assets that the International Monetary Fund said were undermining efforts to stimulate a recovery.
"The whole world\’s financial system is not yet healthy and thus recovery effects are not sufficiently strong," said IMF director Dominique Strauss-Kahn. "We must finish the job of cleansing bank balance sheets."
Obama\’s Treasury Secretary Timothy Geithner had been expected to unveil concrete details of a plan for the government to buy up the troubled assets from banks.
But he released few specifics in his announcement Tuesday, which helped worsen the gloom on financial markets around the globe.
When a lawmaker cited estimates by some economists that US banks might hold two trillion dollars in bad assets and asked Geithner if he had underestimated the crisis, the Treasury chief reportedly did not deny the figure.
Former Fed chairman Alan Greenspan said the United States should consider nationalising banks to get them through a crisis that has already sunk some of the biggest names on Wall Street.
"I understand that once in a hundred years this is what you do," he told the Financial Times. "In some cases, the least bad solution is for the government to take temporary control."