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U.S. calls for unity as crisis wrecks markets
2008-10-06
NEW YORK (Reuters) - Governments and central banks around the world grasped at measures to contain the fast-spreading financial crisis on Monday but global stocks still plummeted as investors bet a recession was inevitable. A fragmented response from Europe led top U.S. officials to call for a "forceful and coordinated" global reaction as the Dow industrials fell nearly 5 percent, below 10,000 for the first time since October 2004. The S&P 500 and the Nasdaq dropped more than 5 percent in the first Wall Street session since Congress approved the $700 billion bailout of the financial industry. European stocks buckled even more. The FTSE 100 and the FTSEurofirst indexes each fell nearly 8 percent and investors fled to safe havens. Emerging markets, which had gained most from the boom in commodities demand and surging global expansion in the last three years, were also sucked into the vortex. Trading was halted in markets as far afield as Brazil and Russia when their indexes nosedived 15 percent. "This is a stampede," said Valerie Plagnol, chief strategist at CM-CIC Securities in Paris. French President Nicolas Sarkozy issued a statement from the 27 member states of the European Union saying individual countries would do all they could to safeguard the financial system while euro zone finance ministers gathered in Luxembourg in an attempt to attack the crisis in unison. But some analysts were pessimistic that European powers could stop the contagion. The banking upheaval that began on Wall Street has effectively shut down interbank and other loan markets, pushing industrialized countries closer to recession. Conditions remained poor for interbank lending. Even as Sweden, Austria and Denmark followed Germany's lead by offering guarantees to savers, investors from Tokyo to London continued to slash risk from portfolios and positioned themselves for a further tightening of credit and bank lending. South Korea said it wanted crisis talks with Japan and China and Gulf equities crumbled under concerns the fallout would strike the region. Lost in the avalanche of bad news was the continued drop in the price of oil, which fell below $90 a barrel. That was a dose of relief amid deteriorating macroeconomic signs including another 159,000 jobs lost in September, the ninth straight monthly reduction and the deepest in 5-1/2 years. With the U.S. presidential election less than a month away and the financial system coming to grips with a massive government intervention in America's free markets, the country was sorting out how it would confront the worst banking crisis since the Great Depression. BUSH ON THE BAILOUT Still unresolved was who would run the Treasury Department's $700 billion program to buy degraded debt in a bid to free up new lending by financial institutions that have been crippled by underperforming mortgages. The Wall Street Journal reported that Assistant Secretary for International Affairs Neel Kashkari would oversee it. In Texas, President George W. Bush said it would take time to restore confidence in the financial system and free up credit, telling reporters it was important that the rescue program did not waste taxpayer money. "We don't want to rush into this situation and not have the program be effective. ... The one thing people can be certain of is that the bill I signed is a big step toward solving this problem," Bush said. Experts from the markets to the think tanks remained divided over who was responsible for the train wreck that unfolded before the world's eyes and whether the unprecedented U.S. intervention was a boondoggle or a necessary evil. The disgraced head of Lehman Brothers Holdings Inc told Congress that U.S. banking regulators knew exactly how Lehman was pricing its distressed assets and about its liquidity in the months before its collapse. In a panel discussion in Chicago, former U.S. Securities and Exchange Commission chief Richard Breeden called the crisis "a 900-foot tsunami" and chided Treasury Secretary Henry Paulson for wanting, as recently as a year ago, to reduce regulation. EUROPEAN BANKS TRANSFORMED In Europe's sudden transformation of its banking sector, France's BNP Paribas agreed to scoop up assets in Belgium and Luxembourg of banking and insurance group Fortis for 14.5 billion euros ($20.1 billion) to become the euro zone's biggest deposit bank. Germany abandoned plans to handle its domestic banking problems on a case-by-case basis and is now considering a nationwide umbrella to shield its entire financial industry. On a frantic weekend, it clinched a revised rescue deal for lender Hypo Real Estate that will provide extra billions of euros of liquidity. Trading in shares of Italy's UniCredit was suspended several times as volatile trading greeted the bank's abrupt U-turn decision to boost capital by 6.6 billion euros. For its part, the Federal Reserve was pushing Citigroup Inc and rival Wells Fargo & Co to compromise over their competing bids for hobbled U.S. bank Wachovia Corp that could result in them carving up its assets. (Reporting by Reuters bureaus worldwide; Editing by Brian Moss and Steve Orlofsky)
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