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Another Rocky Week On The Bourses

  • August 11th, 2007
  • Posted by 7thmin

euro-symbol-reduced2.jpgWorld stock market troubles were made in America but had many homes, with the European Central Bank’s drive to shore-up liquidity a chief talking point, in another uncertain week.

The major markets saw billions of Euros, Pounds, Dollars or Yen wiped off the value of shares, especially during the last two days of trading (Thursday and Friday 9-10.8.07); falls of between 2 and 3.7% per day were the highest in four years and took the overall level down to where it was at the start of 2007.

GLOBAL IMPACTS GET EXPLAINED

It was a mark of this rapid correction that the troubles looked to have spread globally, deeply and evenly, and were being tracked by many analysts — producing credible explanations and generally telling the one story.

It may have had the markets rattled but at least they seemed to know why it was happening.

CHRONICLE

Here is a round-up of the explanation being offered members of a non-stockbroker public wanting to know if or how much they should worry:

It started with banks and other institutions in the United States making expensive home loans to low-paid American workers with no other wealth.

Falls in house prices in several regions have meant inevitable bad debt in that “sub prime” market for low-grade mortgages could not be recovered.

Many debts had been sold on; according to analysts this “securitisation” has meant both wide dispersal of the debt parcels and a question mark over who has them and where they all are.

The lower-grade, riskier debts have been included with other debts in the packaging.

That has been aggravated by signs that lenders have not been as diligent as banks traditionally would be in securing the high-interest loans.

Many institutions however have an exposure to the “sub prime” problem; in the most sensational case of the last two days, BNP-Paribas, the largest French bank, froze three investment funds totalling more than € 2-billion (A$3.24-billion; dcerates.com, 11.8.07).

CREDIT AND LIQUIDITY

Uncertainty over the extent of exposure throughout the system has got banks in the situation of hesitating to lend money to one another, and some of the lenders – like superannuation funds or local councils – scrambling to adjust their portfolios with fewer risky options.

Amid talk that such pressures will mean a “credit crunch” in banking and finance, the European Central Bank has made the big gesture for liquidity and maybe a return to better stability – releasing to its bank borrowers € 41.65-billion (A$67.59- billion) on Friday alone.

Among other central banks taking similar action, the US Federal Reserve followed suit with $US38-billion (A$45-billion); Australia’s Reserve Bank doubled its input to the financial system adding A$4.95-billion.

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