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bloomark
PopStar
Joined: Apr 28, 2008
Posts: 1019
Location: Reality
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 Posted:
Oct 08, 2008 - 04:53 PM |
 
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| Post subject: No End In Sight |
Sources from Economist.com:
AMID the uncertainty of the global financial crisis a pattern has emerged. First, the world’s central bankers and finance ministers construct bail-outs and rescue packages for teetering financial institutions. Then investors give their manoeuvres an emphatic thumbs-down. The pattern is becoming ever more pronounced.
In Europe, an unseemly mishmash of bank rescues and a scramble across the continent to beef-up national deposit-protection schemes have done nothing to solve the paralysis in money markets. Stockmarkets steadied themselves a little, early on Tuesday October 7th, after a series of dramatic falls on Monday. But the overnight dollar London interbank offered rate (LIBOR), the rate that banks are charged for borrowing from each other and other investors, climbed by a heart-stopping 157 basis points to 3.94%.
European Union leaders continue to issue reassuring statements promising that governments will take “whatever measures are necessary” to prop up the financial system. Such blandishments ring increasingly hollow. Germany was forced to rescue Hypo Real Estate, a big property lender and financier of local governments, on Sunday, for the second time. And the stumbling rescue of Fortis continued as Belgium’s government took over the remaining Belgian bits and sold a stake in them to BNP Paribas, a large French bank.
As a result full-scale recapitalisation of the sector is edging ever closer. Iceland was forced to take control of Landsbanki, its second-largest bank, on Tuesday. In Britain shares of some of the biggest retail banks fell precipitously after reports emerged of talks over a huge recapitalisation from the government in return for equity stakes. Royal Bank of Scotland was one of the worst hit, with its shares down by some 30%.
Further action is also needed across the Atlantic. The passage of the TARP, a much-trumpeted $700 billion bail-out package, did not stop the Dow Jones Industrial Average dropping below 10,000 points for the first time in four years on Monday, after losing 3.6% on the day.
America’s Federal Reserve is now said to be considering its own plan to take a flame to frozen interbank lending markets, and tackle the equally pressing problem of a shrinking commercial-paper market that could choke off funds to businesses. On top of further efforts to pump liquidity into the banking system, it might begin unsecured lending to banks and businesses, something that central banks rarely attempt and that the Fed has never tried before.
The Fed and other central banks may also turn to another weapon they have so far held in reserve—a co-ordinated cut in interest rates. On Tuesday Australia announced a cut in rates and expectations have grown that the Bank of England will also cut rates at a scheduled meeting on Thursday. Others may yet follow suit at unscheduled meetings. As the scale of the crisis deepens, the authorities know that they have to get the next round of interventions right. |
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