[NYTr] Central banks pour in billions - but global slide goes on

[All the News That Doesn't Fit]

[The "booming economy" looks more like a booming avalanche.]

sent by Dave Muller (southnews)

The Guardian - Aug 11, 2007
http://business.guardian.co.uk/story/0,,2146540,00.html

Central banks pour in billions - but global slide goes on

David Teather, Ashley Seager, Katie Allen and Justin McCurry in Tokyo

There were further heavy losses on the world's financial markets 
yesterday despite central banks stepping in with massive injections of 
cash for a second day running in the hope of restoring a sense of calm.

Billions of pounds were wiped off share values as stock markets in 
Europe, the US and Asia fell sharply. The FTSE 100 index in London saw 
#63bn wiped off leading shares as it closed 3.7% lower, losing 232.9 
points to end the week on 6038.3. It was the biggest one-day percentage 
drop in almost four and half years and erased all the gains made by the 
FTSE this year.

The European Central Bank had earlier pumped a further 61bn (#41bn) 
into the money markets to fend off the threat of a credit crunch, where 
the availability of loans dries up and interest rates soar. The ECB had 
provided an unprecedented 95bn on Thursday to ensure liquidity in the 
markets and keep a lid on short-term interest rates. The world's
central banks have now injected $323bn into the money markets over the
past 48 hours, equivalent to a quarter of Britain's entire annual
economic output.

The investor panic has been building , since problems first appeared in 
the segment of the US mortgage market aimed at people with poor credit 
histories, the so called sub-prime market. As interest rates have
risen, so the numbers of people defaulting on those loans has gathered
pace and, due to the way debt is packaged and sold on to other banks,
the effects are being felt throughout the system.

The complexity of the financial markets has only added to the sense of 
dread as investors have no idea which institutions own what debt, 
leaving the markets to be riven by rumour and counter-rumour. "There is 
great uncertainty as to how far risks are spread within the financial 
system and exactly where the losses reside," said Paul Niven, at F&C 
Asset Management. "The market is trading on fear."

Countrywide, the largest mortgage lender in the US, added to the
anxiety yesterday when it warned of lower earnings because of the
"unprecedented disruptions" in the debt markets. Shares in the company
dropped 18%. Washington Mutual, the leading American savings and loan
firm also warned that it would be "adversely affected".

Financial firms were the among biggest fallers in London, as were
mining companies - the price of commodities has also been plummeting as 
investors flee from any risky bets. Northern Rock fell 9.6%, Man group, 
which shelved plans to float a hedge fund in the US, was down 9%,
Lonmin was 7% lower, BHP Billiton was off 6.7% and Barclays fell 6.4%.

Gordon Brown said Britain was in as good a shape as it could be to 
weather the storm. "There will always be issues in the markets and of 
course we cannot insulate ourselves from events in all parts of the 
world," he said. "I think the important message about the British 
economy is that we have done everything in our power and will continue 
to do so to maintain the stability of the economy."

The Dow Jones Industrial Average on Wall Street dropped 200 points in 
early trading, on top of the 387 point slump on Thursday, before
clawing back some ground after the Federal Reserve in Washington
ploughed another $16bn into the US financial system, hard on the heels
of a $19bn injection early yesterday. It ended yesterday with a mere
0.23% loss.

The Fed had injected $24bn into the markets on Thursday. The action is 
not uncommon for the Fed in its daily management of the money markets, 
but the size of the injections is unusually high.

In a statement, the Federal Reserve said it would "provide reserves as 
necessary to facilitate the orderly functioning of financial markets". 
The decision to pump extra cash into the markets though means it hopes 
to avoid cutting interest rates just yet.

Japan's central bank had earlier injected one trillion yen (#4.2bn)
into the Tokyo market. At close of trade in Japan, the Nikkei 225
average had lost 2.4%. Hiroko Ota, the economy minister, said: "It is
hard to tell how the sub-prime issue will affect the Japanese economy
right now." The Hang Seng in Hong Kong fell 2.9%. The central banks
across Asia and in Australia also took action to calm their volatile
financial markets. "They're trying to bolster confidence without
resorting in the first instance to rate cuts," said Alan Levenson,
chief economist at T Rowe Price.

Symptoms of the sub-prime crisis have been appearing with alarming 
frequency in recent days. On Thursday, the French bank BNP Paribas 
suspended trading in some funds with exposure to mortgage assets, while 
German banks discussed emergency measures to bail out rival IKB. At the 
beginning of the week, Bear Stearns co-president Warren Spector
resigned over losses in hedge funds because of the sub-prime fiasco. A
series of corporate deals have been derailed by the lack of available
cash, including the sale of cable company Virgin Media.

Some analysts, though, suggested the turmoil would not lead to systemic 
problems, and could even provide opportunities for canny investors. "We 
are mindful of the risks of a broader systemic crisis but view the most 
likely out-turn as somewhat less dramatic," Mr Niven said. "There will 
be financial problems and many hedge funds are in the process of going 
to the wall. From a fundamental perspective, however, the outlook for 
equity markets is still reasonable and, for the patient investor, is
good."

The FTSE 100 had ended 2006 at 6220.8 and hit a peak of 6732.4 on June
15.

FAQ: What stock turmoil means to you?

What does the market turmoil mean to me?
We are all affected by stock market falls even if we have never owned a 
share or investment fund. The disruption affects us through our 
employers, our pension funds' holdings of financial assets or our
mortgages.

The current crisis is linked to problems with American mortgages but
how does that affect my money?

Global markets are increasingly linked as banks across the world have 
bought complex packages of debt, including many US mortgages that have 
gone sour as borrowers have not been able to meet repayments. These 
losses are spread across the financial system.

Should I be worried?

If there is a prolonged market downturn, it could shake companies' 
confidence in the world economy. This could mean spending and job cuts.

Is my pension at risk?

Pension funds hold billions of pounds of assets and a market fall will 
see those holdings decline in value. This could lead to more company 
schemes running up big deficits and ultimately being closed.

What about my mortgage?

Central bankers may cut interest rates, meaning cheaper mortgage 
payments. But this is unlikely to happen in Britain where inflation is
a worry.

What can I do about it?

Not much. Worried investors may sell their shares or unit trusts, but 
this could be at a loss.

Biggest falls

FTSE 100

7 October 19 1987 -10.84%

7 January 4 2000 -3.81%

7 Sept 11 2000 -5.72%

7 March 24 2003 -3.05%

Dow Jones Industrial Average

7 October 19 1987 -22.6%

7 January 4 2000 -3.2%

7 Sept 11 2001: Market shut after terrorist attacks

7 March 24 2003 -3.6%

                      ***


AFP - Aug 11, 2007

Fed pumps 38 bln dlrs into market in biggest move since 9/11

WASHINGTON (AFP)--The Federal Reserve pumped 38 billion dollars into 
the banking system Friday, marking its biggest operation since the week 
of the 9/11 terror attacks, as it vied to shore up the US financial
system.

The US central bank acted after injecting 24 billion dollars Thursday 
into the market, amid sharp falls on global stock markets which were 
triggered by fears over the multitrillion dollar US mortgage market and 
a related credit crunch.

"The Federal Reserve is providing liquidity to facilitate the orderly 
functioning of financial markets," the US central bank said.

The Fed, which has pumped a combined 62 billion dollars into the market 
in two days, said it stood ready to release more money if necessary as 
investors ditched mortgage securities and stocks tied to the troubled 
housing sector.

Concerns about the US housing and mortgage markets have swept the
globe, sparking hefty declines on Asian and European stock markets and 
injections from other central banks.

The Fed injected an initial tranche of 19 billion dollars, followed 
rapidly by a second large infusion of 16 billion dollars, into the 
financial system in a bid to calm market turmoil. It then pumped a
third tranche of three billion dollars Friday afternoon.

It said it would also "provide reserves as necessary through open
market operations" to keep its short-term federal funds interest rate
close to its 5.25 percent target and to boost liquidity.

The Fed, created by Congress in 1913 to ensure a safer financial
system, moved amid fears on Wall Street that the widening credit crunch
could stoke interest rates on bank and commercial loans and slow US
economic growth.

The credit squeeze has occurred as banks revaluate their exposure to
the housing sector amid surging home foreclosures.

Concern has heightened in the past month as more mortgage firms have 
gone out of business and several large hedge funds, which dabbled 
heavily in mortgage securities, have seen their portfolios ravaged.

US stock markets remained volatile in the wake of the Fed's
interventions.

The Dow was down 84.30 points, or 0.64 percent, at 13,186.38 at 1810 
GMT, after tumbling over 200 points in earlier trading and after diving 
2.83 percent on Thursday.

"Ongoing and intensifying strains in the short-term financing markets 
prompted the Fed to make an unusual comment on its normal system market 
transactions," said Stephen Gallagher, an economist at Societe Generale.

The Fed regularly buys and sells securities, but Friday's injections 
were the largest since September 14, 2001, when the central bank pumped 
81.25 billion dollars into the financial system following terror
attacks on New York and Washington three days earlier.

"The purpose was to remind the financial markets that the Fed is a 
lender of last resort and will provide funds, as necessary," Gallagher
said.

The Fed made its injections in return for mortgage-related securities 
after opting to keep its fed funds rate anchored at 5.25 percent on 
Tuesday, where it has been since June 2006.

Some analysts had urged the Fed to cut rates in the facing of the 
housing slump, but it said this week that US economic growth would 
likely be "moderate" and that inflationary threats remained its prime 
concern.

Fed chairman Ben Bernanke told Congress last month that he foresees 
"significant financial losses" from failed subprime property loans, but 
he said this would only have a limited effect on the world's biggest 
economy.

Subprime mortgages are home loans granted to Americans with poor
finances.

Renewed fears about the mortgage market have spooked global investors, 
including foreign banks which invested in US mortgage securities during 
a property boom which fizzled out in early 2006.

Other central banks also flexed their muscles Friday to soothe overseas 
markets.

The European Central Bank pumped more money into the eurozone banking 
market, taking its cash injections to 155.85 billion euros (212.98 
billion dollars) in just two days.

Central banks in Australia, Canada and Japan also injected liquidity 
into their markets.


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