The confidence in the global financial system took a beating again on the fears of defaults or risky U.S. Mortgages are far from being over.
The news that J.P.Morgan would acquire its rival Bear Sterns irrespective of the value at which it is to be acquired only confirmed the fears of the analysts that the troubles in big American Banks continue and would only worsen further. The buyout was aimed at infusing confidence in the global financial system,but, the results was exactly opposite of that.
This is evident from the way the Asian Markets behaved when they opened for trading today (Monday). They tumbled and market players feel that the sub-prime mortgage woes are deep-rooted and by just buying another investment bank, the problems would not be solved. The U.S.Government would have to infuse public funds.
No doubt the Federal Reserve is doing its best to contain the crisis. For instance, it announced on Sunday evening a cut in its discount rate, i.e. lending rate to financial institutions were lowered by 25 points, from 3.5.% to 3.25%. It has simultaneously introduced another lending facility to big investment banks to secure short term loans and this window would be available from today (Monday). These moves were termed as bold and extraordinary by market players, but its immediate impact on the markets, however, was not positive.
Japan’s Stock Index, Nikki, lost 4.2% while Hongkong’s Hang Seng fell almost by 5% but to marginally recover and keep the losses at 4.4%. Korea’s composite index fell by 3%. China and other Asian markets also were in the negative territory.
The weak trend was evident in U.S. on Friday itself when Dow Jones Industrial Average fell by almost 2%. U.S. Currency further lost its value against all major international currencies.
The Indian Markets on its early trading has lost about 700 points and is quoted below 15000 mark, which only confrims the seriousness of the liquidity crisis.
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