Monday, October 6, 2008

Fear spreads over Global Market

CNBC --Fears about the credit crisis spread sharply over the European continent this weekend, despite approval of the U.S. bailout package, as various European governments took it into their own hands to rescue their banks. How can a global financial meltdown be prevented?

This is what the experts say:

All Together "What we would like to see is greater degrees of cooperation amongst regulators around the world. Financial institutions really are global businesses now, and I think what has happened over the last few weeks has been that the interaction between markets and between companies has been very graphically illustrated. And I think greater transparency and greater cooperation amongst regulators is something we would really like to see," James Bateson, head of financial institutions at Norton Rose.

"Unfortunately it’s exactly what we predicted. If national governments continue to deal with the problem, they will make a hodgepodge out of it, having one approach in one country, another in a different one doing deals over the weekend which unravel the next one, and it’s going to be a big mess," Daniel Gros director at Center for European Policy Studies said.

"Germans still think the problem is elsewhere, the French think ‘we don’t have a problem the Germans have one’. Until we have a crisis in both at the same time, both Germany and France, I think it will be very difficult to get a deal out of the present crop of European leaders."

"The national interest at stake is very high and that is why we are probably are not going to see a pan-European solution to these problems. That is why we are seeing the nation states moving ahead on their own. Any political leader would have a great problem answering the question why, did we through the EU, pay a giant bank figure in some other country," David Karsbol, market strategist at Saxo Bank told CNBC.

Do It Like the Irish

"If we do not solve the credit risk issue, we are not getting anywhere," Hans Redeker, global head of foreign exchange at BNP Paribas said.

"What the Irish were doing is the only right thing to do, because you have to lend a strong balance sheet of the government into the banking industry. The government has to work as an insurance here… It is now a question of survival."

No Systemic Risk for Europe?

"You have two different problems going on (when discussing the difference between the European bailouts and the US bailout). The American situation goes far more to the core of individual savings and individual mortgages and the degree of individual leverage. In Europe, it's significantly more institutionalized in a far more socialized economy. And as a consequence, what you're seeing is what I call spot bailouts occurring here. I don't think there's anything systemic as such in Europe to come," Philip Manduca, head of investments at ECU Group told CNBC.

Rate Cuts Won't Help

A coordinated rate cut by global central banks in unlikely to return trust into the banking system, Harry Ida, senior analyst at Thomson Reuters believes.

Interest rates in the U.S. and Europe will come down, soon. But that won't do anything, Philip Manduca, head of investments at ECU Group, said.

"The problem isn't interest rates, it's a lack of willingness to lend to your counter party because you're worried that they won't pay you back and that you might need the money as well," Trevor Williams, chief economist at Lloyds TSB Corporate Markets said, adding that he's doubtful there will be a coordinated effort from global central banks to cut rates as it won't solve the problem..."

The entire article can be read below. Thanks to CNBC for keeping America informed as to what's happening throughout the world.

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