Congress reluctantly said yes to the $700-billion Emergency Economic Stabilization Act—EESA—and it was quickly signed into law by President George W. Bush. But the much-hoped-for stabilizing effects were offset by new European bank worries, prompting stock markets worldwide to sink yesterday. Credit remained frozen. California asked the Treasury for a $7-billion loan. Ohio, Massachusetts, Florida, and Nevada, are dipping into their rainy-day piggy banks to make ends meet. Officials in Jefferson County, Alabama, which includes the city of Birmingham, missed a $83.5-million interest payment on its $3.2 billion in debt, and reportedly has until October 8 to reach a restructuring agreement.

Not to worry too much, says the President’s Working Group on Financial Markets. EESA’s new mandates “will be employed in conjunction with existing authorities to restore market confidence by strengthening the balance sheets of financial intermediaries and improving overall market functioning,” according to a statement issued on Oct. 6. When? “In the coming days, Treasury will work with the Federal Reserve and their financial regulators to develop strategies that deploy these tools,” the working group promises.

One thing is clear already—the U.S. will be printing more money. “Treasury will continue to increase auction sizes of our bills and coupon securities and continue to issue cash management bills,” according to Anthony Ryan, Treasury acting undersecretary for domestic finance.  “Treasury is also considering its options regarding the frequency and issuance of additional nominal coupons, including the reintroduction of the 3-year note, beginning in November 2008.” Indeed.

The Federal Deposit Insurance Corp. and the Federal Reserve didn’t wait. As soon as EESA became law the FDIC increased its coverage from $100,000 to $250,000. The Fed increased the scope of its Term Auction Facility effective with yesterday’s auction, “so that $900 billion of TAF credit will potentially be outstanding over year end,” the Fed says. Banks will also be paid interest on their required and excess reserve balances. Finally, the Fed yesterday granted an exemption allowing an unnamed institution “to purchase assets from affiliated money market mutual funds under certain circumstances. The Board is open to considering similar requests from depository institutions under similar circumstances.”

All of these steps may be laudable and necessary, but credit showed no immediate signs of flowing smoothly despite continued central bank infusions globally.

Small business owners are unconvinced that EESA will ease their credit crunch pain. MerchantCircle surveyed 4,200 of its members in 50 states and found that only 20.1 percent believe the bailout will help them. A Deloitte poll showed that 34 percent of financial services executives responding expected credit standards to stabilize; 25 percent expect them to ease slightly; and 31 percent expect standards to tighten.

Credit availability isn’t the only concern: The latest PNC Economic Outlook survey found U.S. business owner pessimism “at an all-time high” since the poll was introduced in 2003. Seventy-four percent of respondents say the prospect of higher energy prices “will have a negative effect on their company during the next six months,” PNC Financial Services Group reports. Only 43 percent expect sales to grow in the same period; 71 percent fear recession; 65 percent cite inflation concerns.

And Europe keeps scrambling: the Fortis deal fell through, and the bank had to be buoyed by BNP Paribas over the weekend, Germany and others stampeded to insure private savings accounts and certificates of deposit following a similar move by Ireland that attracted deposits from around the euro market; and Iceland is on life support. Europe’s leaders assured everybody they would avert a pan-European systemic meltdown, but that was over the weekend. Yesterday the Germans strongly suggested its efforts would be contained within its borders.

The end result was another unhappy Monday in the world’s bourses, with indices sliding 4-12 percent. The Dow Jones Industrial Average fell by 800 points, closing at 9959.48 points, off 369.88 points or 3.6 percent from 10325.38 on October 3.

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