- Stockbrokers around the world are braced for a potentially
calamitous week as alarm mounts over a looming, Thirties-style global financial
crisis. A leaked email about the credit-worthiness of Commerzbank, Germany's
third largest bank, yesterday increased fears of the international stock
market malaise exploding into a fully-fledged banking crisis.
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- Commerzbank lost a quarter of its value last week, raising
the spectre of Credit-anstalt, the Austrian bank that collapsed in 1931,
sparking global depression.
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- US stock markets have fallen for six consecutive weeks,
to their lowest levels in five years. European markets have collapsed even
further, wiping out nearly half of the value of European corpora tions
in this year alone. Japan is struggling to put together a plan to save
its banking system, riddled with bad debt after a decade of recession and
falling prices. Now the German economy threatens to follow.
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- 'There are strong parallels to the Thirties after an
unsustainable "new era" boom,' says Avinash Persaud managing
director for economics and research at State Street Bank. 'Then, the stock
market decline was not just steep, it was long, taking three years to reach
the bottom.'
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- 'Commerzbank being affected is a sign of the severity.
But in today's crisis risks have been offloaded from the banks to the markets
and ultimately our pensioners, which makes the problem more difficult to
deal with,' he says. The leaked email about Commerzbank was in response
to an inquiry from a US investment bank about rumours of huge losses on
credit derivatives, which aim to spread risk.
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- Figures due to be published on Friday will show that
a toll of stock market falls, rising joblessness and war fears is finally
denting the spending habits of Americans. Economists fear that the result
may be a 'double-dip' US recession, taking much of the world with it.
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- Europe's finance Ministers, including Chancellor Gordon
Brown, will meet in Luxembourg on Tuesday amid deepening concern about
the stability of the financial system. Tomorrow evening, the Eurogroup
of finance ministers, excluding Brown, will discuss reforming Europe-wide
tax and spending rules along the lines of the British system, taking stronger
account of economic difficulties.
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- In the US, the concern is that Alan Greenspan, chairman
of the US Federal Reserve, has insufficient room to cut interest rates
if the economy falls into recession. 'The [Bush] Administration has two
lines of action: tax relief for the rich [and] reliance on the Federal
Reserve. Both are without effect,' says US economist JK Galbraith in an
interview with The Observer.
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- http://www.observer.co.uk/economy/story/0,1598,805683,00.html
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