SUDAN WATCH: The financial contagion that has swept Europe has now infected every stock market in the world. Is this catastrophe heading 1929-wards?

Monday, October 06, 2008

The financial contagion that has swept Europe has now infected every stock market in the world. Is this catastrophe heading 1929-wards?

This is the day when the credit crunch hit Europe with a vengeance. Excerpt from Jon Snow's Snowmail dated Monday, 06 October 2008 18:09:31 BST
At the beginning of the beginning

Confused, baffled, worried, staggered as we have all been by the tumult, I do feel that we are still at the beginning of the beginning of this finance and banking crisis.

How do I know? Well, no-one KNOWS anything at all about the financial contagion that has swept Europe and now infected every stock market in the world. 7 per cent the average fall today or thereabouts, as I write.

Confidence has collapsed, shares in banks and other financial institutions appear to be in free fall

Iceland has suspended trading in financial stocks, the Russians have shut their market twice after it fell a staggering 15 per cent - poor oligarchs (not yet, I suspect)!

You saw it on Channel 4 News first:

The cause? There is no natural, organic method by which banks can re-capitalise. Worse, no-one trusts any of them. Further, the reason they don’t trust them is because they don’t KNOW how bad their situation is. And if they do know, they may take fright about being open about it.

Take the German Hypo real estate bank. In deep trouble, the Germans managed to come up with a rescue plan last week –only to then have the bank ringing up over the weekend to say they had found another black hole of 25 billion euros. This prompted German Chancellor Merkel last night to follow Ireland in declaring all savings guaranteed.

Only, it wasn’t really clear if she had indeed followed the Irish route, or done something similar but different. Now she has had to clarify the position – or row back, perhaps – saying they will do everything they can to ensure no-one loses their savings. Which sounds more of a political guarantee than a formal specific mechanism.

The fear is that this catastrophe is heading 1929-wards. If it runs out of control, at risk would be the high street, pensions, savings - the lot. Politicians appear powerless to do enough to contain it – what are their options? We are riding the rollercoaster, at seven.

Watch today’s Commons statement by Alistair Darling:
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Monday, 6 October 2008 19:08 UK (BBC):

FTSE 100 4589.19 down -391.06 -7.85%
Dow Jones 9743.24 down -582.14 -5.64%
Nasdaq 1809.40 down -137.99 -7.09%

Right now here in England it is 19:17 and I am watching Jon Snow on ITV's 7pm Channel 4 News. Sounds like world stock markets in freefall. Germany has created a shambles. Iceland's economy is at risk. Oil has dropped below $90 per barrel. eBay is cutting 10% of its workforce. Everything is moving so fast, the news is changing by the minute.

See BBC News report: Financial crisis at-a-glance: 6 Oct 2008.
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Excerpt from Snowmail by Jon Snow

From: snowmail daily at
Subject: Bank crisis talks
Date: 7 October 2008 18:53:18 BST

Well, another absolutely diabolical day for UK and international financial institutions.

Shares in British banks have plummeted. Royal Bank of Scotland shares crashed in value today by a staggering 39 per cent. And shares in Halifax Bank of Scotland dropped 42 per cent.

Right now, as I write, there’s a meeting in Downing Street between the prime minister, the chancellor, the Bank of England and the banking regulator for talks about how to stabilise the banking system.

Speculation and rumours abound about possible government action to bolster the banks by taking some sort of stake in them. There are now grounds for believing that some or all the major banks could be partially owned by the tax payer by the end of all this.

Crumbs where does this cascade stop? Beijing?

See our latest report:

And an estimated 300,000 British savers are casualties of the collapse of the internet bank Icesave, a victim of the meltdown engulfing Iceland’s financial system.

This morning Icesave stopped handling transactions after its Icelandic parent bank was taken over by the government - and subsequently went into receivership.

There’s anger and confusion about how and when British savers will get their money back.

See our latest report on Iceland's banking crisis:
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MARKET DATA (BBC) Tuesday 07 October 2008 22:01 UK

FTSE 100 4605.22 up 16.03 0.35%
Dow Jones 9447.11 down -508.39 -5.11%
Nasdaq 1754.88 down -108.08 -5.80%
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Excerpt from Snowmail by Jon Snow

From: snowmail daily
Subject: It doesn't get much bigger
Date: 8 October 2008 17:39:54 BST

I’m going to stick my neck out – I THINK it doesn’t get much bigger than this. But then, I could have said that yesterday.

This is massive, almost beyond financial description.

The taxpayer is investing up to £50bn some in our high street banks, but we will have nobody on the board and nobody inside the bank who represents us - the ultimate sleeping partner.

Instead, it seems the regulator, the FSA, will play a chivvying role to try to get the banks to do what we want them to do. But in the words of one treasury minister, “there is no conditionality”. In other words, our money is not conditional upon the banks doing what we want them to do, which is to lend to each other and lend to us.

So tonight we’re going to try to explore this with the chancellor, whom I’m just about to go off and interview, and with Lord Adair Turner, chair of the Financial Services Authority, who will be live in the studio. We’ll also have a number of other experts to try and look at what’s going on.

Now, quite separate from this, it’s been revealed that we, the taxpayers, are also guaranteeing loans between banks up to a combined value of £250bn. That's intended to encourage them to start lending to each other without worrying about the collateral turning out to be toxic.

Once you add in the £200bn the Bank of England is providing via its Special Liquidity Scheme, it seems that potentially half a trillion pounds is in play in an effort to get the money markets going. And those money markets, expressed in that quarter of a trillion pounds, are basically our money.

Alistair Darling and Gordon Brown on the rescue plan:

At the same time there’s been a concerted effort to cut rates. The Bank of England has done an emergency cut of half a per cent; the Fed in America has cut by half a per cent; and the European Central bank has also cut by half a per cent. So, incidentally, have the Chinese, the Swedes, the Swiss and the Canadians. OK – don’t get offended if I’ve left you out.

And this is all going to free up the world’s financial system. And it’s almost as if the inflationary implications are not even worth mentioning.

Watch our today’s rate cut:

Now, there’s one more thing. Any individual who saves with the Icelandic Icesave is going to have their savings guaranteed, however big they are. And now we discover that local authorities have been dumping millions of pounds of our money into these semi-unprotected funds, at some considerable risk. Clearly, they can be praised for trying to get a higher percentage for the money. But as tens of millions are at stake, and probably much more, they could have lost the lot.

Anyway, the good news is that Steven Burton, the solicitor we interviewed last night, has saved his £150,000, and many other smaller savers too.

I’ve got to fly to that interview. I’ll see you at seven and maybe together we can make sense of the whole thing. Jon.

And if you missed our interview with's Martin Lewis, it’s here:

Watch highlights from the McCain-Obama debate:

We are all bankers now. Congratulations, the main high street banks will now belong to you the taxpayer or at least, big chunks of them will.

It's not quite clear yet how much control the government will exercise in your name, but we want to know what the incoming owners think they should do - sack the board? Cut overdraft rates for small business? Ease credit for first-time buyers.

And we'll be discussing whether this part-nationalisation of the commanding heights of the financial sector marks the end of the post-1980s consensus that private ownership is best.

At the time of sending the FTSE-100 index was 4539.48
The US Dollar to Sterling was: 1.74745
The Euro to Sterling was: 1.28070
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