Friday, October 10, 2008

Global Markets Fall

If you were hoping to wake up to some good economic news (or at least, no bad news)...well:

Global stocks plummeted Friday after the rout a day earlier on Wall Street, where the Dow Jones industrial average lost more than 7 percent, and investors were looking to global financial authorities meeting later in Washington for new measures to stem the turmoil.

“We are fighting really dire fundamentals,” said Gerhard Schwarz, an equity strategist at Unicredit in Munich. “It will require restoring trust and confidence before a sustained rebound will be possible.”

European markets fell more than 10 percent at the opening, but came off their lows a bit later. In early afternoon trading in London, the FTSE 100 index was down 7 percent. In Paris, the CAC-40 was 8.2 percent lower, and the DAX in Frankfurt was down 8.7 percent.

Shares in Asia also declined as fears continued to spread that a deep global recession is at hand, despite unprecedented steps by policy makers to defuse the financial crisis. As the urgency grew, finance ministers and central bankers from the world’s richest countries were gathering for a meeting in Washington, and President Bush was due to make a statement on the crisis at about 10 a.m., Eastern time.

“It is a must for the G-7 countries, especially the U.S., to make a firm commitment to public fund injections for recapitalization of banks in trouble, in order to see the stock market pull out of the doldrums,” Hideyuki Suzuki, an analyst at Morningstar Japan told Reuters. “If the G-7 nations failed to do so, its raison d’ĂȘtre will be called into question for sure.”

Japanese Finance Minister Shoichi Nokogawa will propose at this weekend's G-7 meeting a joint global fund to make emergency loans to nations hit hardest by the crisis. The greatest fear is that the crisis in confidence that has infected the global markets would lead banks to stop lending from each other. This in turn would essentially freeze the commercial paper market, thus preventing business from getting short-term loans they need for daily operations and wreaking untold havoc on the economy. Moves by the Treasury Department and the Federal Reserve have perhaps slowed this process, but they have definitely not stopped it.

UPDATE: Developments on this scale have even normally sober economists wondering if there are things we need to do to prevent something like the Great Depression from happening again.

UPDATE II: Reacting to the bad day of trading overseas, the Dow is already down 400 points this morning.

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