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Global Financial Crisis: Worse Still Forward?

Business Materials 18 September 2008 18:35 (UTC +04:00)
Global Financial Crisis: Worse Still Forward?

Azerbaijan, Baku, 18 September /corr. Trend A.Badalova / American financial crisis continues to collect new speeds and already reached a new stage. On this eve the stock trades were closed with a significant reduction of the leading indices up to the minimum level over the in past three years. The index of Dow Jones fell by more than 4% (450 points), Nasdaq reduced by almost 5% (109.05). The shares of the largest bank Morgan Stanley, one of those survived during this period, fell by 24.2%, which is the most considerable drop since 1998. With the hope to avoid the fate of the fourth largest American investment bank Lehman Brothers, which announced its bankruptcy this week, Morgan Stanley began negotiations on confluence with Wachovia Bank. Other aspirants to the confluence are British HSBC, Spanish Santader, Japanese Nomura Holdings Inc., and also the Chinese broker company CITIC Securities.

The investment bank Goldman Sachs also may go on foots of Morgan Stanley, the Financial Times reported. Its shares decreased by 18.9%. The management of the bank held initial talks on sale of part of its securities to the banks Citigroup, JPMorgan Chase and Wells Fargo.

At the same time, the U.S. Federal Reserve System provided $85bln credit to the insurance giant American International Group Inc. (AIG) in exchange of 79.9% of its shares in order to bailout the company.  

"The bailout of AIG so soon after Lehmans was allowed to go bankrupt is leading some to suggest that the US administration has done a U-turn and that the Fed will lose credibility. AIG's dominance of the derivatives and insurance markets means that it was simply too big to be allowed to fail. The management and the existing shareholders have still lost out," Julian Jessop, Chief International Economist of British Independent Macroeconomic Research Consultancy Capital Economics, told Trend .  

The wave of American crisis affected the entire world. The economic crisis in the USA strongly struck the Russian stock markets. As a result of large fall in the shares of the Russian stock exchanges, the trades in the stock markets RTS and MMVB were stopped according to the order by the Federal Financial Market Service of Russia. The analysts consider that it is necessary to overcome the crisis of liquidity in the money market to restore the situation in the market.

Due to the negative financial news, the Asian markets also demonstrated the most significant drop over past three years. The joint index of MSCI Asia Pacific reduced by 2.5%. The Japanese index of Nikkei 225 descended by 2.2%, Hong Kong Hang Seng - by 7.22%, and the shares of the Japanese Sony Corp collapsed by record 8.2%.

Concrete steps on the realization of these measures will become ejection of $100bln in the Japanese and English financial markets, France Press Agency reports. Japanese bank and the U.S. Federal Reserve System will jointly direct $60bln towards the Japanese markets, while Bank of England together with the Reserve System will make financial infusion in amount of $40bln in Great Britain.

The events in the world financial markets impel the Central Banks of different countries to undertake measures to overcome the approaching crisis. Thus, the Federal Reserve System, European Central Bank, Japan Bank and Bank of England declared combined actions for weakening the tension in the markets.

Today all ask one question: what will happen further and will not the happening events transform into a new "Great Depression"? "I fear that we yet have not traversed the storm. In certain sense, we still move towards it, but we do not avoid it," the Finance Minister Henry Polson said in an interview with BBC.

If to believe him, worsening is still forward.

The correspondent can be contacted at: с[email protected]

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