First Asian country to go recession

Reprinted partially from MSN news

Singapore the wealthiest country in Southeast Asia known for its ability to be number one in various fields have been now also the first Asian country to enter into recession due to global credit crunch.

Analysts said Singapore had become the first Asian economy to fall into recession after the government revised downward its full-year growth estimate and eased monetary policy for the first time in years.

The Ministry of Trade and Industry lowered the city-state's full-year growth forecast to around 3%, citing a slowdown in the global economy and key domestic sectors.

The move came as the ministry released preliminary data showing that real GDP declined by 6.3 percent in the third quarter after contracting 5.7 percent in the previous quarter, the ministry said. While it did not describe the economy as being in recession, a technical recession is generally defined as two consecutive quarters of contraction in economic output.

"Singapore will be the first Asia economy to fall into a technical recession," DBS Group Research said in an assessment of the data.

In a move to confront the downturn, the Monetary Authority of Singapore (MAS) -- its de facto central bank -- said it was easing monetary policy for the first time in more than four years.

"The Singapore economy has weakened over the course of 2008, alongside an escalation in the turmoil in financial markets and a more severe deceleration in global economic activity," MAS said.

These developments meant new uncertainties for the Singapore economy, while slower Asian growth would restrain activity in a range of service industries such as transportation and tourism, it said.

"The risks to external demand conditions continue to be on the downside, and a more severe global downturn cannot be discounted," the bank said.

The MAS conducts monetary policy through the local currency rather than by setting interest rates.

The Singapore dollar is traded against a basket of currencies of its major trading partners within an undisclosed band known as the nominal effective exchange rate (NEER).

In its semi-annual statement, MAS said it had maintained the policy of a modest and gradual appreciation of the NEER policy band since April 2004 but is shifting to zero percent appreciation.

Singapore is Southeast Asia's wealthiest economy in terms of gross domestic product (GDP) per capita but is heavily dependent on trade. This makes it sensitive to hiccups in developed economies, particularly key export markets the United States and Europe.Analysts' forecasts
Economists polled by Dow Jones Newswires had forecast a 0.3 percent quarter-on-quarter rise in GDP, the value of goods and services produced in the economy.

Compared with the third quarter of last year, the ministry said Singapore's economy contracted by 0.5 percent in real terms, against 0.8 percent expansion foreseen in the Dow Jones poll.
In August the government had revised down its full-year GDP growth forecast to 4.0-5.0 percent but since then, external economic conditions have deteriorated more than expected, the trade ministry said.

Analysts said the key drag on third-quarter growth was manufacturing, which contracted by 11.5 percent year-on-year, and the surprise was a sharp decline in growth of what has been a booming construction sector. Construction growth slowed to 7.8 percent from 19.8 percent, while service industries grew by 6.1 percent, marginally down from 7.0 percent in the second quarter, the data showed.

"Services deceleration should get more severe from here on," the US bank Morgan Stanley said in a report.

Morgan Stanley said it expects things will only get worse for Singapore, and the recession will likely be more than just a technical one.

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G7 meeting ahead to fix the market

Global policy makers gather in Washington this weekend for the annual meetings of the International Monetary Fund and the World Bank. All eyes are on Friday's meeting of Group of Seven finance ministers and central bankers.

Other moves could come from the U.S. where authorities are considering radical new measures to shore up ailing financial markets, including guaranteeing billions in bank debt and insuring all U.S. bank deposits for a temporary period.

However, valuation measures for equities are rarely sufficient in themselves to spark a rally; they usually need to be combined with positive signals in terms of investor confidence and also a major policy response.

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US Bailout is a thumb down

Fed latest moves and what it means

Round Up Stock Market Crisis - 2008

Dow's D-Day, October 9, 2008

Further fall of the Dow

After the 7 % decline in U.S. equities on 9 October 2008 and the Dow declining below the 9,000 levels for the first time since 2003, we bring up the charts and highlight how far off we are from the highs and how much more we could decline.

The declines in the Dow have been sharp and quick as stocks declined for a 7 straight day on worsening concerns that financial crisis may deteriorate and measures by global central banks may not help the credit crisis. As of 9 October 2008, the Dow is close to 39 percent from the highs last seen in late 2007 and approximately down 35 percent year-to-date (2008). A simple analysis of the DJI chart shows that the next strong support for the Dow will probably come in around the 7,200-7,500 lows last seen in 2002-2003.

The U.S. dollar ended higher on Thursday 9 October 2008 as short term interest rates for dollars continued to rise on global money markets despite coordinated efforts by global central banks to east the credit crisis. Fears of further bank failures continue to deter inter-bank lending and this led corporations, funds and banks to hoard cash, especially in U.S. dollars. Finance ministers and central bankers of G7 countries will be meeting on Friday 10 October 2008 in Washington D.C. to follow up on measures to ease the current credit crisis.

US ticking financial time bomb

Reprinted from Business Times


Ticking financial time bomb: The US national debt is growing so large that the clock near Times Square in New York has run out of digits to show it. As a quick fix the clock's minders have decided to drop the dollar sign from the figure, which showed that the national debt hit almost US$10.2 trillion on Wednesday 8 October 2008.


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US$ seen de-throned as a main reserve currency

Reprinted from Business Times 10 October 2008.

JPMorgan Chase expects commodity currencies to remain highly volatile.

THE weakening greenback is changing the way countries hold their foreign reserves as they move away from holding US-denominated foreign reserves to a mix of reserve currencies, audience at the Discover Europe 2008 panel discussion was told.

Over the next two decades, foreign reserves would no longer be dominated by one single reserve currency but three to four foreign reserve currencies, of which two would be Asian currencies, Klaus Regling, senior adviser with the European Commission, said at the event yesterday, held at the National University of Singapore.

But that does not mean that these countries will totally decouple from the US economy, he added.

'It means that other economies will be less dependent on the United States but it does not mean they will be immune or decouple from the US,' Mr Regling said. 'The US, which now has a share of one-quarter of the world's GDP, will continue to have a very high share.'

The US financial and economic fallout is eroding the dollar as a store of value.

JPMorgan Chase head of Asia forex research Claudio Piron noted that China and India have been trimming their US dollar-peg link.

The US dollar peg, which stood at 100 per cent in 2000 for both Chinese yuan and Indian rupee, now stands at 90 per cent as a proportion of currency basket peg, he said.

Though euro has achieved much monetary stability and grown in its role as a reserve currency, it is unlikely to become the next single dominant reserve currency, Mr Regling said, citing incumbency advantages and inertia that favour the continued use of the US dollar.

According to Deutsche Bank Research, the euro/US dollar segment was the most frequently traded currency pair accounting for 28 per cent of the global forex turnover in 2007. Over 47 per cent of initial offerings of international bonds were issued in euro compared with just 35 per cent in US dollar in 2007.

But so far, the euro and Asian currencies have weakened as the financial crisis brewed in the US and Europe, threatening to deepen further.

Mr Piron said he expects the US dollar to remain firm for the next three to six months until the financial crisis is over. He is 'neutral' to 'slightly underweight' on Asian currencies in the short term.

'At the moment, cyclically Asian currencies will probably be weak for the next two quarters but we certainly expect currencies to appreciate a bit in the second half of next year,' he added.
He also expects commodity currencies to remain highly volatile as commodity prices stay corrected during the economic downturn, and advises that investors stay on the sidelines.

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Investor mentality in present times.

Airline affected by credit crunch and confidence crises

9 October 2008.

Airline bankruptcies around the world are set to double over the winter to at least 70 for the year, the director general of the European Regional Airlines (ERA) industry body said on Thursday.

"We are now up to around 35 (bankruptcies) this year. I see at least that number over the winter," Mike Ambrose told Reuters on the sidelines of the group's annual conference.

He added that the current climate for airlines was "far more significant, far more far-reaching" than the period after the attacks on New York in 2001, describing the current year as a "year of hell."
"At 9/11 there was a terrorist attack that created a loss of confidence in safety. This is far more pernicious -- it is a loss of confidence in investment," he said.

"There are a major set of problems -- such as governments shoring up banks -- that go way outside aviation and take longer to resolve," he added.

Airlines have struggled throughout 2008 amid a cocktail of soaring fuel prices, slowing consumer demand and the impact of the credit crisis on bank liquidity.

More than 30 airlines have collapsed around the world, including business class-only airline Silverjet and travel giant XL in the UK.

Reversing the Trend
Ambrose called for a lower regulatory burden for airlines, estimating that a European scheme to make airlines pay more for carbon emissions could add 6 million euros ($8.23 million) a year to the cost of a typical regional airline.

"Far more than 50 percent of an airline's cost base is out of its control -- with fuel, navigation fees, airport fees, carbon permits and other regulations. We have to try to reverse this trend," he said in a speech earlier on Thursday.

The legislation for a European Trading Scheme (ETS) to reduce carbon emissions has already been passed in Brussels, but the details are still being examined by European lawmakers.

Ambrose said in the interview he hoped it would not be finalized by the time European elections get underway next year, allowing him to fight the proposals with a new set of politicians.

ERA said in a statement its member airlines had reported combined passenger growth of 3.7 percent in the months January to June -- the lowest increase since 2001.

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Is Bear market in 'terminal stages'

SAN FRANCISCO Oct. 10, 2008 -- You'd have to go back to the 1930s to find a worse week for U.S. stocks than this one, so why is one investment strategist breathing a bit easier?

"I think we are in the terminal stages of the decline," said Bob Doll, global chief investment officer of equities for asset management giant BlackRock Inc. "There's a pretty high chance that the low we saw [Friday 10 Oct 2008] morning was an important bottom."

The Dow Jones Industrial Average rebounded from Friday's 10 Oct 2008 intraday low of 7,882 to close at 8,451, but the Dow still lost 18% for the week -- the biggest weekly decline in the benchmark's 112-year history.

"You have some chaotic moves in the market," Doll said. "That's part of what you look for in a capitulation."

The U.S. market appears oversold, he added. "More and more names have become interesting from a valuation standpoint, and the market is also interesting on valuation."

Doll noted that the dividend yield on the Standard & Poor's 500 Index is above 3%, not far from the yield on a 10-year Treasury bond. So S&P 500 index investors are getting almost as much as they would in a risk-free investment, plus capital appreciation potential.

Still, Doll said it's too early to embrace stocks wholeheartedly. The sell-off is advanced, he noted, but it's not over.

"When credit markets lock up people get scared, and when markets go down out of fear it's not an analyzable situation. The selling just has to exhaust itself," Doll said.
In a separate research note to clients late Friday 10 Oct 2008, Doll and his fixed-income counterpart Peter Fisher put a finer point on the current situation.

"The best advice we can give to investors is to remain cautious for a while longer," Doll and Fisher wrote. "We recommend investors focus on capital preservation for the time being, even at the cost of missing some near-term gains in higher-risk assets.

"We believe we will see evidence that the credit markets are starting to recover," they added, "but this is likely to be a mid-2009 event rather than a fourth-quarter 2008 occurrence."

Dow Great Fall

$65 Trillion credit defaults swap is unregulated

What happens tomorrow to billions of dollars worth of an arcane investment instrument called a credit-default swap could determine whether the frozen credit markets can regain liquidity.

The swaps -- a type of quasi insurance for investments -- were written against $110 billion worth of senior debt from Lehman Brothers Inc., an investment bank that filed for bankruptcy protection last month.

That debt has gone into default and the organizations that issue the swaps to guarantee the debt are supposed to pay up tomorrow.

But no one knows if they have the money to do so. It will be first major test of these complicated financial instruments in the current credit crisis, said Kent Engelke, chief economic strategist for Capitol Securities Management in Richmond.

Many economists say a key cause of the financial crisis is the lack of transparency in instruments such as credit-default swaps, making it difficult to value assets.

Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corp., said in remarks this week to the National Association for Business Economics that the leveraging of debt through instruments such as credit-default swaps could be the painfully huge lesson of 2008.

Q: What is a credit-default swap?

A: It's insurance against an investment, but it isn't regulated, so it is not real insurance, Engelke said.

The company issuing the swap is not required to maintain capital reserves to back it as an insurance company would.

Q: How does it work?

An investor, for example, buys $1 million worth of bonds to leverage even more debt and then buys a credit-default swap for a fee from a private-equity group, insurance company or hedge fund to protect the initial investment.

One twist: Investors can buy insurance on a security without having to buy the security itself. This has created a market in which speculators are betting that mortgage-backed securities will lose their value.

Q: What happens if the swaps on the Lehman debt are not settled?

A: "It will send a major tremor through the market," Engelke said.

"There is the potential that any remaining confidence in the financial system will be gone."

"We will question all these other hedges. Are they worth anything or are they just worth a piece of paper?"

Q: What happens if the swaps are settled?

If the debt is paid, the markets should settle down and the measures that have been taken to shore up the financial system, including the Fed's lowering of a key interest rate yesterday, should begin to have an effect.

"If settlement is a nonevent, I think there will be a distinct probability short-term credit markets will begin to show signs of liquidity," Engelke said.

Q: How much money is invested in credit-default swaps?

A: It's difficult to estimate, because the market is unregulated.

However, the International Swaps and Derivatives Association, a trade group, estimates the total value of outstanding at $54.6 trillion.

That's nearly four times the entire U.S. production of goods and services.

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Japan machinery orders lowest in 2 years.

Reprinted from Channel News Asia

TOKYO, 9 October 2008 : Japan's core machinery orders plunged at the fastest pace in two years, the government said Thursday 9 October 2008, reinforcing fears that Asia's largest economy has slipped into a recession.

The core private-sector machinery orders, a leading indicator of corporate capital spending, slumped 14.5 per cent in August 2008 from the previous month, falling for a third straight month, the Cabinet Office said.

It was the steepest fall since a 15.9 per cent drop in July 2006 and worse than the market's average forecast for a fall of around 3.6 per cent.

"Companies are growing cautious about capital spending as their business outlooks are worsening," noted Naoki Murakami, chief economist at online securities firm Monex.

"The US economy will not bottom out at least until mid-2009. Japan, which cannot move to ease credit by itself, will continue to depend on the US and world economies," he said.

"Investment on plants and equipment will likely slow, particularly among manufacturers, as exports plunge due to economic slowdowns in emerging countries," Murakami said.

Major central banks in the United States, Europe and Canada cut interest rates Wednesday in a joint effort to ease a global credit squeeze. China also reduced borrowing costs, but the Bank of Japan did not participate as its benchmark rate is already low at 0.5 per cent.

Machinery orders placed by the manufacturing sector in August tumbled 13.9 per cent from the previous month. Orders by non-manufacturers were down 14.9 per cent, the Cabinet Office said.

But it was "unlikely that such a sharp fall as in August will continue" given buoyant investment in research and development, said Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo.

"Due to the turmoil in financial markets, however, there is no doubt that companies are growing cautious," he said in a report.

Hiroshi Watanabe, economist at Daiwa Institute of Research, noted orders placed by the electrical machinery and automobile industries fell sharply, showing "capital investment by export industries will likely drop ahead."

The International Monetary Fund said Wednesday that Japan's economic downturn was expected to be longer and more severe than previously thought, slashing its forecasts for the world's second-largest economy.

Japan's economy will grow by just 0.7 per cent this year, down from a previous projection of 1.5 per cent and much slower than last year's 2.1 per cent expansion, the IMF said.

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Global economy in deep trouble

Opinion from Singapore Economists of CIMB

The unprecedented step by central banks from Asia, Europe to North America to slash their benchmark interest rates is an indication that the global economy is in deep trouble.

On the heels of rising risks of a global recession, we are revising our macro assumptions for China, Hong Kong and Singapore for the next two years.

The financial-sector meltdown has spread and this downturn will be unlike previous downturns, in that it is expected to have a material knock-on impact on private consumption.

For Singapore and Hong Kong, their ratios of exports of goods and services to GDP are 2.5% and 2.1 respectively, the highest in Asia.

Therefore, a consumer-led global recession is going to have a more significant drag on their GDP.

For China, further fiscal and monetary loosening may still keep its GDP growth in the 6-8% region over 2009-10, whereas we are forecasting GDP contractions of 3-5% for Singapore and Hong Kong in 2009, and contractions of 2-3% in 2010, assuming the worst case of a deep recession in OECD economies.

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Gold seen as a safe haven in present "confidence crisis"

Safe-haven gold rally continues after rate cuts

NEW YORK/LONDON, Oct 8, 2008 - Gold rose to a nine-day high on Wednesday 8 October 2008, extending a safe-haven rally after coordinated interest rate cuts by major central banks failed to restore confidence to battered financial markets.

U.S. gold futures rose 2.8 percent, and silver jumped 3.4 percent as investors continued to flee the stock market and park their money in hard assets. Global central bank rate cuts fail to calm markets, leading to investor rush to safer assets that boosts gold's appeal.

Global central banks ease rates by 50bps. Gold rallies more than 2 percent and settles above the $900 region.

"Gold truly is the commodity, and silver by its parasitic role, they are truly the flight-to-safety vehicles. With the dollar losing some ground, that lent a little bit of support as well," said Bill O'Neill, a partner at LOGIC Advisors.

The Dow Jones industrial stock average ended down 189 points. It had spent some of the day in positive territory after a series of scary slides reflecting pessimism about whether global credit system bailouts will prevent economic disaster.

Central banks around the world cut interest rates in unison in a joint response to the world's worst financial crisis in nearly 80 years.

December gold reached $924.90, its highest since Sept. 29 2008. It settled $24.50 higher at $906.50 an ounce on the COMEX division of the New York Mercantile Exchange.

Spot gold rallied to $920 an ounce, its highest since Sept. 29 2008 and was last quoted at $913.80 an ounce, up 3.1 percent from $886.60 at Tuesday's New York close.

"Gold will still continue to gain safe-haven interest," said Simon Weeks, director of precious metals at Bank of Nova Scotia.

"I do not think the cuts will solve the situation. It will help smooth the situation, but I don't think there are any miracle cures at the moment," he said.

The metal touched multiyear highs in several other currencies. In South African rand, it touched its highest price recorded on Reuters data, which goes back to 1990. In Australian dollars, it was at the highest since 1985.

Spot gold has risen 25 percent since mid-September as a deepening financial crisis, spreading to banks in Europe from the United States, prompted investors to sell investments in equities markets and seek refuge in safer assets.

But it remained well below its lifetime high of $1,030.80 an ounce struck in March 2008.

Physical demand for gold also has shot up, analysts say, as consumers invested in gold coins amid news of banks being taken over by governments or sold to rivals.

The U.S. Mint said on Tuesday 7 October 2008 that because of the extreme fluctuating market conditions for 2008, as well as current market conditions, gold and silver demand is "unprecedented."

Unprecedented demand for precious metals and volatile markets forced the U.S. Mint to cease production for the half-ounce and quarter-ounce popular American Eagle gold coins for the rest of this year 2008 and to supply other bullion coins on an allocation basis.

"Due to the extreme fluctuating market conditions for 2008, as well as current market conditions, gold and silver demand is unprecedented and the demand for platinum is unusually high," the U.S. Mint said Monday in a memorandum to its authorized coin dealers.

"The U.S. Mint has worked diligently to attempt to meet demand, however, blank supplies are very limited and it is necessary for the U.S. Mint to focus remaining bullion production primarily on American Eagle Gold one-ounce and Silver one-ounce coins," the Mint said.

The Mint said it would continue to supply one-ounce American Eagle gold coins and one-ounce American Eagle silver coins on an allocation basis to coin dealers.

For half-ounce and quarter-ounce American Eagles, the Mint said that inventory was depleted last week and no more coins would be produced for the rest of 2008.

In addition, the Mint said it would produce 1-10th ounce Eagles based on current coin blank supplies, but would cease production for the rest of this year once the remaining inventory was depleted.

Produced from gold mined in the United States , the 22-karat American Eagles have been novel items among collectors and investors since their introduction in 1986. Each coin has a face value of $50 but it is sold by authorized dealers at a premium to the price of gold.

AMERICAN BUFFALO , AMERICAN EAGLE PLATINUM
The Mint said it would continue to supply 24-karat American Buffalo one-ounce gold coins based on current blank supplies, but would halt production once the remaining inventory was out.

The Mint had suspended sales of the Buffalos in late September 2008 due to strong demand and inventory depletion.

Similarly, the Mint said that all denominations for American Eagle platinum bullion coins were depleted last week, and it would halt production for the rest of the year 2008 once the remaining inventory was depleted.

Coin dealers from the United States to Canada have recently reported a surge in buying of bullion coins.

Meanwhile, holdings in the world's largest gold-backed ETF, the SPDR Gold Trust, rose to 745.22 tonnes as of Oct. 8 from 744.54 per tonne as of Oct. 7 2008.

December silver jumped 43.0 cents to $11.81 an ounce. Spot silver went out at $11.74 an ounce, versus the close at $11.51 an ounce on Tuesday.

Spot palladium closed unchanged.

Platinum fell, ending the day near $990.50 an ounce, down from $1,004.00 amid heavy selling on fears of falling demand for autocatalysts. It tumbled to $920 an ounce on Monday 6 October 2008, its lowest level since November 2005, on the back of poor car sales, especially in the United States.

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European Government joints to rescue banks

Reprinted from Bloomberg

Oct. 6, 2008 - European governments from Brussels to Copenhagen to Berlin rushed to shore up their faltering banks as the credit crunch worsened in Europe.

BNP Paribas SA agreed to buy Fortis's units in Belgium and Luxembourg for 14.5 billion euros ($19.8 billion) after a government rescue failed, while the German state and financial institutions put together a 50 billion-euro rescue package for Hypo Real Estate Holding AG. Denmark and Germany said they will guarantee all their countries' bank deposits.

Financial shares tumbled in European trading on concern the hurried actions will fail to unlock bank lending. European Union leaders issued a statement today pledging to ``take whatever measures are necessary'' to protect banks and deposits. The leaders of the four biggest EU economies were unable to agree on joint responses at a meeting two days ago, pledging instead to work together to limit the economic fallout, ease accounting rules, and seek tougher financial regulations.

The governments' plan for individual action ``is a failure,'' said Pio De Gregorio, head of equity research and trading at Centrobanca SpA in Milan. ``This is a systemic crisis and it warrants a systemic solution. We need a European fund that will recapitalize banks.''

The escalation in the cost of rescuing Hypo Real Estate and Fortis, just a week after the initial bailouts were announced, also undermined confidence, analysts said.

Shares Decline

The Bloomberg 500 Europe Banks and Financial Services Index dropped 7.1 percent at 4 p.m. in Paris. The euro slid to a 14- month low against the dollar and Treasuries rose as the crisis spread outside the U.S., prompting investors to opt for less risky investments.

The cost of borrowing in euros for three months rose to a record for a seventh day, according to the European Banking Federation. Commercial banks are hoarding cash and refusing to lend to each other after the collapse of New York-based Lehman Brothers Holdings Inc.

French President Nicolas Sarkozy, who convened the Oct. 4 meeting, called for a global summit ``as soon as possible'' to implement ``a real and complete reform of the international financial system.'' He said ``all actors'' must be supervised, including credit-rating firms and hedge funds. Executive-pay systems must also be reviewed, he said.

Finance ministers from the Group of Seven industrialized nations meet in Washington later this week.

Merkel's Position
German Chancellor Angela Merkel's opposition to collective action underscored the hurdles to a united European front. ``Each country must take its responsibilities at a national level,'' she told a joint press conference after the summit.

Germany will guarantee the savings of private account holders, Merkel said, in a bid by Europe's biggest economy to prevent a rush of withdrawals. Until now, German savings accounts, including those of small, privately held companies, have been guaranteed by 180 banks in Germany, the BDB private banks group said on Oct. 2. The guarantees of the banks covered 90 percent of an account's balance to a maximum of 20,000 euros, the group said.

Denmark said today commercial lenders will provide as much as 35 billion kroner ($6.4 billion) over the next two years to a fund to insure depositors against losses. Sweden will double the guarantee on bank deposits to 500,000 kronor ($69,500), while U.K. Chancellor of the Exchequer Alistair Darling said Britain is ``ready to do whatever it takes'' to help its banks.

The commitments follow similar verbal pledges by Sarkozy and Italian Prime Minister Silvio Berlusconi, both of whom have promised to prevent losses for depositors in their countries. Ireland is guaranteeing banks' deposits and debts for two years.

BNP Buys Fortis
Amid the race to shore up Europe's faltering financial institutions, BNP Paribas, France's biggest lender, agreed to take control of Fortis's units in Belgium and Luxembourg.

The sale comes after a Sept. 28 bailout failed to stabilize what was Belgium's biggest financial-services firm, as clients withdrew money and the company had trouble obtaining loans. Fortis received an 11.2 billion euro capital injection from Belgium, the Netherlands and Luxembourg.

The Belgian government will have an 11.6 percent stake in BNP Paribas, and Luxembourg a 1.1 percent holding, after the purchases are completed, BNP Paribas said in a statement today.

On Oct. 3, the Dutch government took control of Fortis's units in the Netherlands for 16.8 billion euros after deciding the initial rescue didn't go far enough.

Hypo Real Estate won a reprieve after Germany's finance ministry said the country's banks and insurers agreed to double a credit line for the company to 30 billion euros. The federal government's guarantee for the credit line remains unchanged, Torsten Albig, a spokesman for Finance Minister Peer Steinbrueck, said late yesterday in an e-mailed statement.

Too Big to Fail
Munich-based Hypo Real Estate had earlier announced that a government-backed 35 billion-euro bailout plan collapsed after commercial banks withdrew their support.

The government and the Bundesbank have said that the nation's second-biggest property lender is too big to fail. The stock fell as much as 54 percent, and was down 36 percent at 4.80 euros by 11:47 a.m. in Frankfurt trading.

Dexia SA, the world's biggest lender to local governments, got a 6.4 billion-euro state-backed rescue on Sept. 30. Belgium's federal and regional governments, France and the company's largest shareholders will supply the funds, The Brussels- and Paris-based company said yesterday it won't need additional funding to cope with the deterioration in financial markets. The stock dropped 18 percent in Brussels trading.

UniCredit SpA, Italy's biggest bank by assets, said it planned to boost capital by as much as 6.6 billion euros in an effort to calm investors' concerns about the strength of the lender's finances.

Helping Banks

The capital-raising project approved late yesterday by the bank's directors includes replacing the lender's cash dividend for 2008 earnings with 3.6 billion euros of new shares, and selling 3 billion euros of convertible securities. The shares fell as much as 16 percent in Milan trading, and were 9 percent lower at 2.81 euros by 11:47 a.m.

In the U.K., Darling said the government, which took over Bradford & Bingley Plc last week, is ready to offer further support to banks that may get into financial difficulty. He did not rule out a further injection of capital for failing institutions.

``We are ready to do whatever it takes, and that is, we've put money in to help banks generally,'' Darling told the British Broadcasting Corp.'s Sunday AM program.

``There are other measures we will be taking too, and I will announce them when we are ready to do that.''

U.K. Prime Minister Gordon Brown was among the leaders gathered in Paris, along with Berlusconi, Luxembourg Prime Minister Jean-Claude Juncker, European Commission President Jose Manuel Barroso and European Central Bank President Jean-Claude Trichet.

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US Treasury Secretary warns of more bankruptcies in US bank ahead

Reprinted from Channel News Asia

WASHINGTON, 9 October 2008: Treasury Secretary Henry Paulson warned on Wednesday that more financial firms would go bankrupt in the United States and that recent market turmoil had "seriously impacted" the economy.

Paulson cautioned that a 700-billion-dollar government rescue package for the financial sector approved last week would not mean an end to bankruptcies and that it would take several weeks to put in place. "

One thing we must recognise - even with the new Treasury authorities, some financial institutions will fail," Paulson said at a news conference. The aim of the rescue package is for the Treasury to buy up toxic debt being held by banks, but Paulson said it would be "several weeks before our first purchase.

" The new law "doesn't exist to save every financial institution for its own sake," he added. Reflecting the international scope of the crisis, Paulson also called for emerging market countries to be included in broad international talks on stabilising the financial system.

Brazilian officials told AFP that a meeting of central bank chiefs and finance ministers from the G20 emerging and rich country group would take place in Washington on Saturday, 11 October 2008, alongside a gathering of the G7 rich countries.

Paulson said a meeting of the Group of Seven afforded an opportunity to discuss "ways to further enhance our collective efforts." In comments about the US economy, Paulson underlined that turmoil in the banking sector caused by declining house prices was already reducing growth in the non-finance economy.

"A chain of events caused by the ongoing housing correction has reverberated through US banks and financial institutions and has seriously impacted the underlying economy," he said.

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Asia's bank not at risk but growth may slow

Reprinted from Channel News Asia

DUBAI, Oct 8, 2008 - Economic growth in Asia will suffer from the global financial crisis but banks are not at risk and no region-wide measures are necessary to stave off any systemic threats, Southeast Asian finance ministers said on Wednesday.

Ministers from the Association of Southeast Asian Nations , meeting in Dubai, underlined the region's banking systems were resilient and economic fundamentals sound.

"The banking and financial systems are not facing a crisis of systemic confidence. We are not facing the sorts of problems as in other parts of the world that require a systemic response," Singapore finance chief Tharman Shanmugaratnam said in a joint statement for the group.

"We are not pretending that we are not going to be affected by this we are assured that there has not been a loss of confidence in the banking system, certainly not on a systemic scale."

Central banks around the world cut interest rates on Wednesday to try to limit economic damage from the worst financial crisis in 80 years.

The Federal Reserve said it was cutting its key federal funds rate by 50 basis points to 1.5 percent. China, the European Central Bank and central banks in Britain, Canada, Sweden and Switzerland also cut rates in a coordinated response which investors had been demanding.

Malaysia's Second Finance Minister Nor Mohamed Yakcop said the ASEAN countries would be burdened by the crises in Europe and the United States but not to the point of recession.

"We will not be going into a recession," he said. "We don't have a banking crisis."
Asian stocks tumbled, however, as fears over the financial crisis hit investor sentiment and Indonesia suspended trading on its bourse after the index fell by its 10-percent limit.

Indonesian finance minister Sri Mulyani Indrawati told reporters after the meeting that some small banks or banks with liquidity should be supported through the pressure but in a way that does not create systemic problems.

Thailand's secretary for finance, Suparut Kawatkul, said his country planned to proceed with plans to remove state guarantees on bank deposits in 2009.

"We have enacted a new law on this, and this year will be the last year that we guarantee bank deposits in full and from next year onwards we will lower the level," he said.

"We will go ahead as scheduled in the law," he said.

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Asia’s markets are falling, but Asia's banks aren’t.

Reprinted from Christian Science Monitor.

A decade after their own debt crisis shook the world, Asian banks have so far averted the crippling run of failures afflicting the US and Europe. By staying away from risky US securities, prudent lenders in Asia may even stand to benefit from the current crisis, as stricken Western banks seek fresh capital.

Asia is feeling the credit squeeze. And fears of a global recession have pummeled equity markets here, too – Tokyo’s key index was down 4.25 percent Monday, pushing it to the lowest level in 4-1/2 years – but none of its financial institutions have collapsed.

A handful of banks in Hong Kong and India have had to reassure nervous savers not to pull their deposits. Regulators have also pumped extra money into credit markets, but there’s been no panicked rescues of stricken lenders, as in Western countries.

That’s because relatively few banks bought into the promises of US mortgage-backed assets. Those that did had only limited exposure before last year’s subprime blowout: Asia currently accounts for only $24 billion of $550 billion in global subprime-related loan write-offs, according to Bloomberg.

“We’re not really seeing a lot of pressure on Asian bank systems…. They just didn’t seem to build up their exposure [to US subprime loans] in a way that other banking systems did,” says James McCormack, head of Asia-Pacific sovereign ratings at Fitch Ratings in Hong Kong.

Many bankers in the region have painful memories of the 1997-98 crisis and prefer to lend cautiously, avoiding the kinds of high-risk, high-return bets that they can’t manage. Japan had its own experience of a real estate crash that kept economic growth on hold through much of the 1990s.

The US housing bubble came at a time when dynamic economies in Asia were offering ample lending opportunities, so there was less pressure to buy sophisticated US derivatives. A global economic slowdown is bound to crimp Asia’s export-led growth, but its bankers can breathe more easily knowing that they’re not saddled with toxic assets.

A culture of risk aversion underscores the differences between the US and Asian financial markets, says Cyn-Young Park, a senior economist at the Asian Development Bank in Manila. Regulators are more hawkish on monitoring banks, and companies are less likely to pile on debt so soon after the last crisis, which led to waves of bankruptcies.

But over the long term, such conservatism may be a handicap, she adds. “Asia wasn’t developed enough to digest all these [US] financial innovations into their system. In some senses, this isolation is a reflection of weakness,” she says.

Whatever the reason, cash-hoarding Asian banks – and governments – now appear to be in good stead as US banks try to dig out of a hole.

In a reversal of the 1997-98 crisis, Asian capital is beginning to flow West to buy marked-down assets in the financial sector. Japan’s Mitsubishi UFJ Financial recently paid $9 billion for a 21 percent stake in Morgan Stanley. Merrill Lynch and Citigroup have both raised capital this year from Singapore’s government, one of several in the region with ample foreign-currency reserves that are mostly held in US government debt.

Middle East oil producers also hold large reserves that could provide a lifeline for cash-strapped banks. Abu Dhabi’s sovereign fund last year spend $7.5 billion on a stake in Citigroup.

Fear of a nationalist backlash to their investments and the risk that asset values could decline further – as Merrill Lynch did after Singapore’s initial investment last year – may keep foreign governments on the sidelines. But the pressure on US banks to rebuild their capital base will continue, even if the Congressional bailout sucks out bad loans from the system.

That should be a magnet for sovereign wealth funds and healthy banks. “They’re the ones with the capital right now. You can assume that Western governments are happy to embrace their investments,” says David Cohen, director of Asian economic forecasting at Action Economics in Singapore.

Despite the relative strength of Asia’s banks, investors have been dumping stocks in the region. Leading the downward charge, Japanese stocks tumbled Monday, largely on fears that Asian exporters will be hit hard by an expected US recession.

Newspapers in Hong Kong quoted an executive of HSBC, a regional banking giant, warning that any slowdown in Asia would be “far more severe” than that of a decade ago and that recovery would be slower. Hong Kong’s Hang Seng index lost 5 percent, while markets in mainland China, South Korea, India, Singapore, Australia, and Thailand also slid.

Any global slowdown will eventually hurt banks in the region, says Emmanuel Daniel, founder and CEO of The Asian Banker, a publisher and research company in Singapore. Companies that rely heavily on demand from the US for their products and services are certain to feel the pinch, probably by early next year.

“There is concern that when that happens, the quality of borrowers within Asia will come into question and that in turn will affect the banking industry. This is the big one that Asian banks are bracing themselves for,” he says via e-mail.

Mr. McCormack says he’s monitoring banks that are vulnerable to tighter credit conditions, such as those in South Korea and Taiwan. “I think that the pressure we would see would be on banking systems that are dependent on capital markets for funding,” he says.

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Capitulation marks a market bottom.

Reprinted from MarketWatch newsletter.

While bears likely have some more room to roam, investors are hoping for at least some short-term relief from the series of brutal sell-offs that have occurred over the past two weeks. But a number of investors have been searching for signs of an actual capitulation, which would mark a longer-term market bottom.

One Dow Theorist believes that Tuesday's 7 October 2008, trading session may very well have offered such a capitulation. Peter Brimelow reports that Jack Schannep, editor of the Schannep Timing Indicator, proclaimed that yesterday's collapse marked the end of the bear market.

But could the daily search for a market bottom actually be hindering its formation? After all, as Brimelow notes, Richard Russell, another well-known Dow Theorist, believes that bear markets "end in only one way -- in exhaustion.

"If that's the case, then the Hulbert Stock Newsletter Sentiment Index suggests that though there is plenty of gloom to go around, investors have yet to reach the exhaustion that marks a true capitulation.

In fact, Hulbert says that his sentiment index is actually a few percentage points higher than where it stood in early July when the market was trading nearly two thousand points higher than today.

As Hulbert puts it, contrarians believe that investors will have to become far more bearish before an enduring bear market bottom can be achieved.

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Fed inject more money into AIG

Reprinted from Channel News Asia

WASHINGTON, 9 October 2008: The Federal Reserve announced on Wednesday that it had authorised a new 37.8-billion-dollar cash infusion into troubled insurance giant AIG, which was nationalised last month.

The Fed said that an 85-billion-dollar loan facility made available to AIG last month had been drawn down and that the new cash would be transferred from the New York Fed, which would take securities from AIG and inject cash in return.

"The New York Fed will borrow up to 37.8 billion dollars in investment-grade, fixed-income securities from AIG in return for cash collateral," a statement from the Federal Reserve said.

Far more than other insurers, AIG has been a big player in a complex market called credit default swaps (CDS), financial instruments in which Wall Street companies take out a form of insurance against the risks of bond defaults.

These products, often linked to the US real estate market, are at the heart of the current banking crisis and have exposed AIG to massive losses. The Fed explained that AIG needed the cash to settle payments to counterparties.

AIG chairman and chief executive Edward Liddy had warned on October 3 that the group might need more money from the Fed. "We don't know exactly where the borrowing from the Federal Reserve will top out at, and the reason we don't know is we don't know what market conditions will be like," he said.

The US Federal Reserve agreed in mid-September 2008 to the loan of 85 billion dollars to stave off the collapse of AIG. The deal gave the US government a 79.9-percent stake in the insurance behemoth, which it considered too big too fail.

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US lead a global financial rescue to calm market turmoil

WASHINGTON - The US Federal Reserve led a coordinated round of global official rate cuts on Wednesday, easing by a half percentage-point, as did the European Central Bank, Bank of England and Swiss, Canadian and Swedish central banks.

In an attempt to stem unprecedented global market turmoil, the Fed cut its key federal funds lending rate by half a percentage point to 1.5 per cent and also lowered its discount rate by the same amount to 1.75 per cent.

The ECB also cut by a half-point to 3.75 per cent as did the Bank of England, taking its rate to 4.5 per cent.

China also joined the effort, cutting its key rate 27 basis points.

The Bank of Japan, with rates at just 0.5 per cent, did not ease but the Fed said the BOJ expressed its strong support for the coordinated policy action.

'Incoming economic data suggests that the pace of economic activity has slowed markedly in recent months,' the Fed said in a statement.

'Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.'

The Fed said that while inflation has been high, recent declines in energy and other commodity prices had tempered inflation risks.

It said the vote to cut US rates was unanimous and that inflation expectations appeared to be diminishing which could help support price stability.

'The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability,' the Fed said.

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Recession inevitable for Asian wealthiest economy

Singapore, Oct 8, 2008 (AFP) - Singapore appears headed for its first recession since 2002 as the city-state suffers from a US economy wilting under its worst financial crisis since the Great Depression, economists say.

Southeast Asia's wealthiest economy in terms of GDP per capita is heavily dependent on trade, which makes it sensitive to hiccups in developed economies, particularly key export markets the US and Europe.

The crisis that began last year in the US subprime, or higher-risk, mortgage sector is now infecting European shores, and Singapore may very likely find itself in an extended downturn, economists said.

They expect this Friday's (10 October 2008) release of preliminary economic data for the third quarter to confirm Singapore is in a technical recession, generally defined as two consecutive quarters of quarter-on-quarter contractions in economic output.

"We are pencilling in the worst for Singapore.... We might see two straight years of (economic) contractions (from 2009 to 2010)," said Song Seng Wun, a regional economist with CIMB-GK Research.

While the last technical recession came six years ago, the most recent full-scale recession was in 2001 when the economy contracted 2.4 percent during the year.

After years of growth, signs of a slowdown emerged with recent disappointing trade data and contractions in the important manufacturing sector, which includes the country's export-dependent electronic and pharmaceutical industries.

In August, key non-oil domestic exports fell for the fourth straight month, with electronic shipments continuing a decline begun in February 2007, and manufacturing dropped by 12.2 percent.

The August fall in output followed a 21.5 percent decline the previous month.

In the second quarter to June, Singapore's economy contracted 6.0 percent on an annualised, quarter-on-quarter basis and the negative trend likely extended into the third quarter, said economists.

"Things are bad globally," said Kit Wei Zheng, Citigroup's vice president for regional economics and market analysis.

"There are a lot of downside risks and in such a scenario, one cannot hope for a quick recovery," he said in Singapore.

Kit is optimistically forecasting a fourth-quarter recovery, with full-year growth at 2.8 percent.

Song said his revised 2009 forecast would likely be for negative growth.

He said that given the rarity of the global crisis, "the numbers we may be looking at may be once in a century for Singapore."

According to economists' calculations, more than two-thirds of the country's economy, valued at 243.17 billion Singapore dollars in 2007 (166.46 billion US), is driven by external demand.

The island nation has no significant domestic economic drivers to lean on because its market of almost five million is simply too small, said economists.

"If the world is in a recession, there is little that we can boost," said Song. "Our plan B is really to try to make the local population bigger."

Economists from Credit Suisse also see Singapore's economy slowing further next year.

"Signs that growth will be lower in 2009 than in 2008 are everywhere... lower job and income growth, falling asset prices, and flat to negative export growth," they said in a report.

"By sector, the global financial turmoil could hit financial services growth hard, exports are likely to drag down manufacturing, and the biomedical sector is expected to remain under pressure from competition from generic drugs."

In early August Singapore's government cut its forecast for economic growth this year to between four and five percent.

But Finance Minister Tharman Shanmugaratnam warned this week that the country could be stuck in an economic downturn that may last "several quarters" as the global crisis evolves.

"It is now an economic crisis," he was quoted as saying Monday 6 October 2008, in The Straits Times.

"So globally the economy is slowing down. This is a fact that we cannot escape."

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The rise of LIBOR shows a gloomier road ahead

Reprinted from Money Morning

More than a year ago, even before the subprime-mortgage crisis had revved itself up into the full-fledged credit crisis that’s now threatening global growth, we pointed to the London Interbank Offered Rate (LIBOR) and other interbank rates that suggested that the worst was yet to come.

Yesterday (Monday), the spread between Overnight Indexed Swaps (OIS) and the three-month LIBOR rose to an all time high of 2.94%. The LIBOR/OIS spread measures the amount of cash available for interbank lending and is used by banks to determine interest rates. The wider the spread, the less cash there is to go around. This is telling us that banks, despite billions of central-bank support in recent months, are still cash-strapped and are disinclined to lend money either to each other or to consumers.

Then there’s LIBOR itself, the rate that banks charge each other for overnight dollar loans, which rose to 2.37% yesterday, the British Bankers’ Association said. The three-month LIBOR rate has retreated only slightly from a nine-month high of 4.33%, set last January.

LIBOR actually is a set of rates, and is calculated for several currencies based on periods ranging from overnight to 12 months. That, in turn, determines prices for financial contracts valued at $393 trillion as of Dec. 31, or $60,000 for every person in the world, and helps set consumer interest rates on everything from home loans to credit cards, Bloomberg News reported.

The BBA compiles the dollar rate every day from data submitted by 16 banks, including Deutsche Bank AG (DB) and Royal Bank of Scotland Group PLC (ADR: RBS). There are also rates for the euro, Japanese yen, British pound, Swiss franc, and Australian and Canadian dollars.

During the past week, as U.S. lawmakers tussled over a bailout plan and governments in Europe were forced to intercede to rescue five banks, the cost of one-month bank loans in euros and overnight dollar loans soared to records. That basically means banks are hoarding cash, a reality that raises borrowing costs and causes economies worldwide to slow. Yesterday’s three-month LIBOR for loans in dollars jumped to 4.33%, Bloomberg reported.

Meanwhile the so-called TED spread or the difference between three-month LIBOR and what the U.S. Treasury pays for a three-month loan hit an all-time high of 3.93%, before pulling back slightly. The TED spread provides a gauge of how likely banks are to lend to each other, rather than to the Federal Government.

Under normal conditions, the banks charge each other premiums that are historically not much higher than government Treasuries. The fact that the spread is at all-time highs seemingly confirms that banks don’t want anything to do with one another, and would rather deal with the government.

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US Government bailing out Wall Street fat cat.

AIG execs splurge on pricey retreat after US$85b loan

08 October 2008 0942 hrs (SST)

WASHINGTON: AIG executives escaped to a pricey California beach resort to unwind just days after the insurance giant was rescued by an unprecedented US$85-billion US government loan, lawmakers said Tuesday.

"Less than one week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation," Democratic Congressman Henry Waxman told the House Committee on Oversight and Government Reform.

The US Federal Reserve stepped in to save American International Group from imminent collapse on September 16, with a loan that gave the US government a stake of 79.9 per cent in the insurance behemoth in the deal.

"Less than one week later, AIG held a week-long retreat for company executives at the exclusive St. Regis resort in Monarch Beach, California," Waxman said.

Invoices showed that AIG paid the Pacific Ocean getaway resort more than US$440,000, Waxman told the committee on its second day of hearings on the Wall Street economic crisis.

The charges included close to US$200,000 for rooms - which cost between US$425 and US$1,200 per night - over US$150,000 for meals and US$23,000 in spa charges, he said. "Well, average Americans are suffering economically.

They're losing their jobs, their homes and their health insurance," Waxman said, "We'll ask whether any of this makes sense." Without the government loan, analysts had argued that an AIG collapse, fuelled by problems with complex derivatives known as credit default swaps, could trigger a wave of failures in the global financial system and deepen the credit crunch.

"AIG spent - listen to this one – US$23,000 at the hotel spa and another US$1,400 at the salon," said Democratic Congressman Elijah Cummings of Maryland.

"They were getting their manicures, their facials, their pedicures and their massages while the American people were footing the bill."

Cummings pointed out that AIG spend US$7,000 in green fees at the golf course and US$10,000 on bar tabs as he turned his questions on former AIG chief executive officers Robert Willumstad and Martin Sullivan.

"I do find it interesting that Mr. Willumstad knows nothing about it, but this came just a week after - after you left. Did you know that, Mr. Willumstad?" Cummings asked.

Willumstad answered: "I heard you say that, but I was totally unaware that there was any plan for any conference."

"And, Mr. Sullivan, I'm curious, what were your views on this?" Cummings asked.

"You know, obviously, I left the company many months earlier prior to Mr. Willumstad. But if I'd have seen bills like that, I can assure you, as the CEO, I would have been asking questions," Sullivan said.

Waxman noted that longtime former CEO of AIG, Maurice "Hank" Greenberg, "told the committee he is too ill to appear today to answer questions."

"Mr. Greenberg blames Mr. Sullivan and Mr. Willumstad for the downfall of AIG," Waxman noted.

"Many others think it is Mr. Greenberg who sowed the seeds that led to AIG's failure." Cummings later told CNN that revelations of the resort spree "upset my constituents, many of whom are losing their houses and losing money in the 401(k)s (retirement savings plans). They are upset and rightfully so."

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Wall Street slides to 5 year low as global markets turned upside down.

Stocks fell for a second day straights on Wall Street on Tuesday 7 October 2008, while those in Europe were mixed, on persistent anxiety over the health of the banking sector and despite central bank initiatives to shore up market confidence.

Wall Street opened with solid gains, bolstering both spirits and prices in Europe after the US Federal Reserve, the European Central Bank and EU finance ministers all announced new measures to stanch a credit crisis and protect savers' deposits.

But the rebound was short-lived, with the Dow Jones Industrial Average shedding 508.39 points, or 5.11 percent, to close at a five-year low of 9,447.11 -- worse than its 369-point slide Monday.

The tech-heavy Nasdaq plummetted 108.08 points (5.80 percent) to 1,754.88 and the Standard and Poor's 500 index slid 60.66 points (5.74 percent) to 996.23, dropping below a key level of 1,000 points and also hitting a five-year low.

Analysts at the Charles Schwab brokerage house said the market was slammed by "continuing fears about the credit crisis and worries about the health of the economy, exacerbated by Fed chairman Ben Bernanke's comments in a speech today."

Bernanke signalled the Federal Reserve would cut interest rates in response to a worsening outlook for US economic growth.

The most dramatic move Tuesday came from the Federal Reserve, which opened up its coffers to companies hit by the credit crunch with a new program that will buy up commercial paper -- the short-term debt critical for many corporate operations.

"This bold but necessary move will put the Fed in the position of essentially lending directly to businesses, rather than to the financial institutions under its regulatory umbrella," said Ryan Sweet at Economy.com.

This latest effort to overcome the credit crunch creates a new "liquidity backstop" for corporate finance, the Federal Reserve said.

It was established after the US Treasury determined it was "necessary to prevent substantial disruptions to the financial markets and the economy".

Frederic Rozier of the Meeschaert financial firm said: "The problem for the stock exchanges is extreme tension on credit markets," where banks carrying heavy debt remain reluctant to lend, leaving businesses strapped for cash.

The European Central Bank meanwhile laid out a schedule for fresh coordinated action to be taken in tandem with other central banks to expand the provision of US dollars to commercial banks.

At the same time, the 27-nation European Union more than doubled bank deposit guarantees to at least 50,000 euros (68,000 dollars) per account, in the bloc's first joint action against the global financial maelstrom.

Desperate to restore confidence in the banking system, European finance ministers also vowed to ride to the rescue of big banks whose collapse would threaten broader financial stability.

"We have agreed to assure the solidity and stability of our financial system and carry out any measure to reach that objective," said French Finance Minister Christine Lagarde, whose nation holds the EU's rotating presidency.

US President George W. Bush discussed the economic meltdown with leaders of Britain, France and Italy, seeking a common strategy ahead of crisis talks between the Group of Seven major economies in Washington on Friday 3 October 2008.

Japan and Australia pumped more than US$20 billion into the money markets Wednesday 8 October 2008 but failed to save free-falling Asian stock markets from another massive sell-off. The Bank of Japan injected 2.1 trillion yen (US$20.7 billion) into the money markets, its 16th straight day of intervention, while Australia's central bank pumped in A$1.21 billion (US$856 million).

Hong Kong meanwhile slashed interest rates by one percentage point, but like other such moves in recent days, the measure did little to stem dramatic losses in the face of the worst financial crisis since the Great Depression.

With credit tight, Hong Kong's Monetary Authority said it was cutting its key interest rate by 100 basis points effective Thursday 2 October 2008. Australia made a similar move on Tuesday 7 October 2008.

"These sorts of measures aren't working anymore," said Hiroichi Nishi, a broker at Nikko Cordial in Japan. "It's like you're trying to pump blood into a heart with clogged arteries."

Federal Reserve Chairman Ben Bernanke comments that did little to calm jittery investors by saying the latest economic data showed the prospects for the US economy had grown gloomier amid the credit crunch and global financial crisis.

"In light of these developments, the Federal Reserve will need to consider whether the current stance of policy remains appropriate," he told business leaders in Washington.

Bank of America economist Peter Kretzmer said the comments offered a clear hint at a rate cut, possibly with other major central banks that could come at a Friday's gathering of G7 finance officials.

Iceland, which has been hit hard by the crisis, meanwhile nationalised its second largest bank, Landsbanki, and gave its biggest, Kaupthing, a US$678-million loan. Its third largest bank was nationalised on the week 1 October 2008.

Russia also agreed to negotiate a four-billion-euro (US$5.4 billion) emergency loan to help Iceland's fight against national bankruptcy. The European Central Bank pumped US$50 billion back into interbank money markets, but it said banks sought more than twice that amount.

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Wall Street shakeout