Markets across the world have slumped with massive losses on virtually all stock exchanges. In fact the only exchanges not seeing any downward trends were those that had suspended trading [BBC].
It was one of the worst weeks in Wall Street history with significant drops across the board. Yesterday the Dow fell by more than 600 points adding to a turbulent week which has seen a 17% drop in the week, 39% down on the year. In Europe there were also massive slides. The FTSE 100 has fallen from 4,980 to around 3,800 in the week, a 20% loss in its value. Over the year the FTSE has lost 40% of its value. The DAX and CAC 40 also saw major drops at the beginning of trading falling some 8 to 9% before beginning to rally. Asia saw massive drops with the Nikkei closing at 9.6%, the Hong Kong Hang Seng down 8%, the South Korean Kospi down 4.13% and the Shanghai composite dropping 3.57%. In Australia the ASX 200 also fell 8.34%. Some markets were suspended, amongst them the Vienna Stock Market and the Russian stock exchange. Icelandic markets have suspended until Monday.
The Dow flew into positive territory at 14:07 GMT after 37 minutes of trading bringing cheers from the trading floor. But soon after the rise it fell back into negative figures once again. The US market has lost an estimated $8.3 trillion in stocks over the year, according to CNN, and the outlook still remains uncertain [CNN]
Ahead of a meeting of G7 leaders, George Bush made a statement in which he tried to reassure the American public. “If you’re struggling to pay your mortgage there are ways you can get help” Bush said, as he outlined a number of proposals to tackle the issue. The biggest threat to the financial market was fear, President Bush said, adding to the financial uncertainty. “We will solve this crisis” he insisted, adding that the US economy was “innovative, industrious and resilient”.
Britain’s Chancellor of the Exchequer, Alistair Darling, has flown to Washington to discuss the ongoing crisis [BBC while UK treasury officials have flown to Reykjavic to meet with the Icelandic Prime Minister [BBC]. Yesterday there were strong words exchanged between Britain and Iceland after all the major banks were put into receivership, effectively putting out of reach hundreds of millions of pounds belonging to taxpayers, councils and other organisations. More than 90 British local authorities have money deposited in one or more of the Icelandic banks amounting to an estimated £1 billion [BBC]. It has also emerged that Transport for London and the Police Authority had also deposited money in the troubled banks. The list of failing financial institutions is growing ever bigger with barely a day going by without the mention of another bank or building society needing help [BBC]. After the collapse of Lehman Bros and the propping up of insurance giant AIG, Britain saw the near collapse of HBOS. Lloyds TSB came to the rescue on that occasion but it was effectively left to the British government to step in and save Bradford & Bingley from collapse. Europe has not escaped the effects on its financial institutions. The European bank Fortis also had to be nationalised after running into trouble [BBC].
But then came the shocking news from Iceland. Kaupthing Singer & Friedlander, Landsbankinn and Glitnir were all declared insolvent and taken over by the Icelandic government. Geir Haarde, the Icelandic Prime Minister, was angered by words and action by Britain saying that his country was being treated as if it were a terrorist organisation. Gordon Brown froze assets belonging to Icelandic businesses and described Iceland's failure to guarantee British savers' deposits as "effectively illegal" and "completely unacceptable". But the protestations may have little effect on a small island whose banks no longer have the money to pay its customers [Sky News]. The bigger danger is that such situations may lead to a trade war. And it may not end with Iceland as it has become common practice for savers, both big and small, to place their money in offshore accounts.
The economic crisis is also likely to take it’s toll on governments. Adam Boulton, Sky’s political correspondent, while acknowledging that some have called the current crisis facing Gordon Brown as his ‘Falkland’s moment’, said that it was more likely that the electorate will turn their backs on him at the polls. Speaking on BBC’s This Week, he said that if Brown sorted out the financial crisis, voters would probably turn their back just as they did with John Major after Black Wednesday. “It happened to Churchill, he wins the war and he was put on his bike” Boulton said. Brown is unlikely to gain much gratitude for his efforts of saving Britain’s economy, despite a small upswing of popularity in the polls. His bringing back Peter Mandelson may have brought fresh blood to a beleaguered party, but it may also be another nail in Brown’s coffin.
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