Some economic crisis links (10.10.2008)

From the New York Times: Friday's early market reports were bad:

Stock markets in Asia plunged on Friday as investor sentiment was battered by the overnight rout on Wall Street, confirmation that Singapore has slid into recession and news of a financial-sector bankruptcy in Japan.

The Financial Times reports that

Japanese shares fell by 11.4 per cent on Friday — the worst drop for 20 years — leading a rout of Asia-Pacific shares as fears deepened that the world's economy was heading for recession. Markets followed the example of Wall Street, where the S&P 500 dropped by nearly 8 per cent.

And (via Naked Capitalism) Nouriel Robini asserts

The US and advanced economies' financial system is now headed towards a near-term systemic financial meltdown as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof. There is now the beginning of a generalized run on the banking system of these economies; a collapse of the shadow banking system, i.e. those non-banks (broker dealers, non-bank mortgage lenders, SIV and conduits, hedge funds, money market funds, private equity firms) that, like banks, borrow short and liquid, are highly leveraged and lend and invest long and illiquid and are thus at risk of a run on their short-term liabilities; and now a roll-off of the short term liabilities of the corporate sectors that may lead to widespread bankruptcies of solvent but illiquid financial and non-financial firms.

On the real economic side all the advanced economies representing 55% of global GDP (US, Eurozone, UK, other smaller European countries, Canada, Japan, Australia, New Zealand, Japan) entered a recession even before the massive financial shocks that started in the late summer made the liquidity and credit crunch even more virulent and will thus cause an even more severe recession than the one that started in the spring. So we have a severe recession, a severe financial crisis and a severe banking crisis in advanced economies [emphasis added].


At this point severe damage is done and one cannot rule out a systemic collapse and a global depression. It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging market economies to avoid this economic and financial disaster.

Update (10.10.2008)

From the New York Times:

For almost 10 minutes on Friday, Wall Street seemed in a free-fall.

The Dow Jones industrial average fell almost 700 points or about 8 percent in that time. The broader Standard & Poor's 500-stock index, declined almost 8 percent.

Then the turnaround began, and in the next five minutes, the Dow regained about 500 points. The S.&P. made similar gains.

And shortly after 10 a.m., the Dow actually slipped into positive territory, briefly. Forty minutes later, it was trading down about 340 points, or 4 percent.

Another day, another series of violent swings in a week that has seen large sell-offs in the last hour of the trading day.

Markets dropped in Europe and Asia as well, adding new urgency to efforts to find a solution to the global financial problems and restore confidence in the markets.

"People are scared," Howard Silverblatt, senior index analyst at Standard & Poor's, said. "Nobody believes what is coming out of the mouths of politicians, chief executives."

The Financial Times reports that Britain advocates and is willing to work for a common program during the G-7 meetings this weekend. Business Week reports that

The top economic officials of the Group of Seven leading industrial nations will meet starting Friday in Washington where they intend to discuss a proposal from the U.K. government to bolster bank lending. Problems in the credit market have led to widespread dislocation in the financial system and the broader economy. Under the U.K.'s recently announced plan, which it is now pitching to the G-7 members, the British government would guarantee up to 250 billion pounds ($432 billion) in bank debt maturing up to 36 months. The British concept to expand its proposal to other countries has a lot of support from Wall Street and is being pored over by U.S. officials, according to people familiar with the matter.

Update II (10.10.2008)

The Dow declined again today, the eighth straight day that it has fallen, according to the New York Times.

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