| It is not funny anymore....
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The world's central banks redoubled their efforts on Monday to revive the paralyzed global financial system through massive injections of cash.
Global markets remained on edge, however, as a compromise financial bailout plan for US banks failed to stem worries that the credit crisis was spreading.
US stocks plunged following selloffs in Asia and Europe. The US dollar rose, while oil prices plunged.
To counteract a world financial crisis emanating from last year's mortgage meltdown in the United States, the Federal Reserve announced a $330 billion expansion of arrangements to boost U.S. dollar liquidity throughout the global financial system.
The action increases the reciprocal swap lines with the European Central Bank and eight other central banks to $620 billion from $290 billion previously, the Fed said in a statement.
The Fed announcement came after European and Asian central banks had already been busy pumping more money into sclerotic banking systems on Monday, in an effort to persuade financial firms to stop hoarding cash, which threatens to bring down global economy.
"They are throwing billions around, but things seem to be getting worse," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. "There's a monster amount of fear out there. This is global contagion, it's no longer just the United States."
The efforts also show the heightened tensions in bank-to-bank lending markets as the approaching end of the financial quarter compounds the scramble for cash.
Meanwhile, the world's financial system appeared to be edging closer to collapse by the day, authorities in Europe and the United States struggling keep banks afloat with injections of cash, nationalizations and mergers of necessity.
The concern was heightened following the rescue of two major European banks and a takeover of Wachovia's [WB 10.00 --- UNCH (0)] bank operations by Citigroup [C 20.84 0.69 (+3.42%) ].
Investors also worried that troubles facing the bank sector might worsen the economy's outlook and constrain lending, a key pillar of business and consumer spending and vital for profits.
Congressional leaders in Washington said they had a tentative deal on a $700 billion U.S. bailout to mop up bad mortgage debts on the banks' books. The House began debating the measure and hopes to pass it later in the day.
"The U.S. rescue plan is basically done. The news out of Europe this morning is what's really taking a toll on the market. It's one more indication of how serious the situation has become," said Peter Cardillo, chief market economist at Avalon Partners in New York. "The fear is about contagion."
In economic news, hard-pressed U.S. consumers curbed their spending during August despite an unexpected jump in incomes, according to a government report Monday that implied worry about the economy's direction was deepening.
Meanwhile, the governments of Belgium, the Netherlands and Luxembourg moved to part-nationalize Belgian-Dutch group Fortis with an injection of over $16 billion.
Separately, German lender Hypo Real Estate secured a credit line from the German government and banks of up to 35 billion euros, and British mortgage lender Bradford & Bingley was brought under the government's wing.
Investors worldwide continued to show doubt about whether the bill would go through, much less go a long way toward curing the systemic problems that have unnerved financial markets across the globe for weeks.
"A rescue plan worth $700 billion is simply not enough to overcome the crisis for the foreseeable future. If anything, all the real economy problems will escalate as a result in the foreseeable future," said Carsten Klude, strategist at MM Warburg.
-The Associated Press and Reuters contributed to this report.
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