Global Crisis

Week of October 19

During testimony before the US Committee of Government Oversight and Reform, Alan Greenspan remarked that the crisis is "a once-in-a-century credit tsunami"
Following a conference at Camp David over the weekend of October 18th and 19th attended by President Nicolas Sarkozy of France and José Manuel Barroso, President of the European Commission, President George W. Bush announced on Wednesday, October 22 that he would host an international conference of financial leaders on November 15 in Washington, D.C. Participants would be drawn from both the developed world and the developing world, including participants from the G20 industrial nations such as India, Brazil and China.[146]
On Sunday, October 19 the government of the Netherlands bailed out ING, the Dutch bank, with a €10 billion capital rescue plan. On Monday the government of Belgium rescued the insurance company Ethias with a €1.5 billion capital injection. In Germany BayernLB has decided to apply for funds from the German €500 billion rescue program. Sweden announced formation of a 1.5 trillion kronor fund to support inter-bank lending and a 15 billion kronor capital injection plan. Swedish banks were reported to be increasingly affected by the financial crisis. An IMF rescue plan for Iceland was reported to be near finalization while Ukraine was reported to be in discussions with the IMF. Iceland was reported to have also received assistance from Denmark and Norway while Britain has offered a loan to support compensation of British depositors in failed Icelandic bank Landsbanki. On Monday France announced a €10.5 billion rescue plan for six of its largest banks, including Crédit Agricole, BNP and Société Générale.[147]
Despite some improvement in the availability of credit, stock markets and weak currencies such as the British pound and the euro continued to decline worldwide during the week of October 19. Markets across Asia suffered particularly heavy losses while European markets experienced substantial losses too, but to a lesser extend compared to those in Asia. The Dow Industrials Index, on the other hand, experienced a week of extreme volatility with violent swings both upwards and downwards, eventually ending lower. The yen and the dollar showed particular strength with the yen rising with respect to the dollar. This "flight to quality" had baleful effects on the economies of all nations including the United States and Japan.[148][149][150][151] On Wednesday, Pakistan joined Iceland, Hungary, Serbia and Ukraine and requested aid from the International Monetary Fund in dealing with severe balance of payments difficulties.[152] Hungary, Russia, Ukraine, Pakistan, Turkey, South Africa, Argentina, Iceland, Estonia, Latvia, Lithuania, Romania and Bulgaria were all experiencing financial difficulties with others threatened. These countries did not hold securities based on subprime mortgages, but were affected by inability to borrow money, the credit crisis. Plans are under discussion to increase credit available to the IMF, perhaps to a trillion dollars.[153][154]
On Friday, October 24, stock markets plummeted worldwide amidst growing fears among investors that a deep global recession is imminent if not already settled in. The panic was partly fueled by remarks made by Alan Greenspan that the crisis is "a once-in-a-century credit tsunami" and by comments made by Gordon Brown during a speech, admitting essentially that Great Britain is already in recession mode. Following the trend, the US stock markets also fell sharply on opening and ended with the Dow Industrial Index down 312 points.[155] Friday and Saturday (October 24 and 25) the 7th Asia-Europe Meeting was held in Beijing with the European Union meeting Asian states in an attempt to discuss a common approach ahead of the Emergency International Meeting that is scheduled to take place in Washington on November 15. No specific recommendations to solve the crisis were developed.[156][157]

[edit] Week of October 26
On Sunday, October 26, Hungary and Ukraine made tentative arrangements with the International Monetary Fund for emergency aid packages. In Poland the value of stocks has fallen 50% for the year and the zloty, the Polish currency, has fallen against both the dollar and the euro. The crisis has affected South Africa, Brazil and Turkey. South Africa was particularly affected by a dramatic drop in the price of platinum, a commodity used in automobile manufacturing.[158] In addition to Iceland, Ukraine and Hungary, Belarus and Pakistan were also engaged in emergency discussions with the IMF. Pakistan had what was described as a "growing balance of payments crisis".[159][160] In the Gulf states, impacted by the falling price of oil and a drop in equities prices of 40% for the year, the Gulf Cooperation Council met in Riyadh on Saturday to discuss a coordinated response to the crisis.[161]
On Monday, October 27, Hong Kong stocks crashed, losing more than 12% of their value while in Japan, the Nikkei 225 Index plummeted by 6.4% to its lowest level since 1982. European stock markets showed mixed results. After suffering an initial drop, the Dow Jones Industrial Average was in slightly positive territory for much of the trading day but eventually closed down 203 points. Oil futures continued to decline and the yen continued to rise against all other currencies.[162] There was consideration given by both the G7 and the Japanese government to take measures to support other currencies as against the yen.[163]
In a second round of recapitalization, the U.S. Treasury funded 22 banks with 38 billion dollars. The list of banks aided was confidential, but some banks including BB&T, Capital One, SunTrust Banks, City National Bank, Comerica, First Niagara Bank, Huntington Bancshares, Northern Trust, State Street Corporation, UCBH Holdings, First Horizon National Corporation, PNC Financial Services (buyer of the National City Corporation), Regions Financial Corporation, Valley National Bancorp KeyBank, and Washington Federal Savings said they would receive government money. Fifth Third Bank announced that they would apply. Criteria for funding was based on the strength of the bank with stronger banks with higher CAMELS ratings having a greater chance of being offered aid.[164][165] The American Bankers Association stated that due to restrictions on salaries and payment of dividends that some U.S. banks may not participate. Another concern was that acceptance of the recapitalization plan might give a false signal that a bank was troubled.[166] (A TARP oversight report by GAO, published December 2008, listed a total of 44 banks participating in the Treasury's $250bn "Capital Purchase Program" initiative.
On Tuesday, October 28, stocks rose dramatically worldwide in anticipation of rate cuts by central banks. In the U.S. the Dow Industrial Average rose 10.8%, closing at over 9000.[167] On Wednesday, October 29, markets in the U.S. closed down slightly despite announcement by the Federal Open Market Committee of a reduction in the federal funds rate 50 points to 1 percent[168][169] Markets in the U.S. were up Thursday and Friday, closing up for the week, cutting losses to the Dow Industrial Average during October to 17%, down 30% for the year.[170][171]
In Russia the $50 billion rescue program administered by the state development bank Vnesheconombank (VEB) is assisting Russian firms controlled by Russian oligarchs who gave ownership of portions of their companies as security for loans from Western financial institutions. Recipients include Oleg Deripaska of Rusal owner of Norilsk Nickel and Mikhail Fridman of Alfa Group whose assets VimpelCom and TNK-BP were threatened. [172] Stock markets in Russian have crashed, down 70% and there is lack of faith in its currency the ruble. Despite significant foreign reserves from the sale of oil, Russia is now faced with sharply reduced commodities prices.[173]
In Asia Japan announced its second economic stimulus plan of $51 billion on Thursday, October 30. Hong Kong and Taiwan cut interest rates while an interest cut to .3% was announced by the Bank of Japan on Friday.[174][175] Also on Thursday the Federal Reserve established a $30 billion currency swap line with South Korea and Singapore as well as Brazil and Mexico.[176]
JPMorgan Chase, the largest bank in the United States, announced that it would work with homeowners who demonstrate a willingness to pay their mortgages by reducing interest payments or principal. Counseling centers are planned for troubled areas. Washington Mutual, and EMC Mortgage Corporation, a loan servicing company, acquired by JPMorgan, will be included. Bank of America has announced a similar program, as has Countrywide Financial as the result of a court settlement.[177]