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Bush calls for calm amid global stock market panic

world Updated: Oct 10, 2008 23:04 IST
Hindustan Times
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Warning that "anxiety can feed anxiety," US President George W. Bush implored Americans to remain confident on Friday and promised to restore stability in the face of a global stock market panic.

Bush spoke ahead of a gathering of leaders of the world's major economies in Washington where they will confront the frozen credit markets and recessionary signals underlying the worst financial crisis since the Great Depression.

"This uncertainty has led to anxiety among our people. And that is understandable, that anxiety can feed anxiety, and that can make it hard to see all that is being done to solve the problem," Bush said in a televised address.

"We know what the problems are. We have the tools to fix them. And we're working swiftly to do so," Bush said in a national address after Wall Street opened with an 8 per cent slide, soon pared its losses but extended the damage from a seven-session losing streak.

Finance ministers and central bankers from the Group of Seven faced mounting pressure to repair the system after joint interest-rate cuts, individual liquidity injections, a $700 billion US bailout and government plans to take equity stakes in banks failed to restore investor confidence.

French President Nicolas Sarkozy may launch a new European Union plan to try to deal with the crisis, a French government official said.

The Dow Jones Industrial Average lost nearly 700 points and fell more than 8 percent in the opening minutes of trading, then turned positive half an hour after the opening bell before resuming its slide.

Like the S&P 500 and the Nasdaq, the Dow was down more than 2 percent after Bush spoke.

That drop came after the Dow fell 679 points, or 7.3 per cent, on Thursday, extending its losses over six trading sessions to 20 per cent.

The fall was part of a global evisceration of wealth that has affected investment bankers and retirees alike. Going into the trading day, stocks on the benchmark MSCI main worldwide index had lost $14.3 trillion of value since October 31, 2007, leaving the global equity benchmark worth less than $20 trillion for the first time in four years.

The MSCI has lost nearly $4.6 trillion in value in the previous seven days alone.

Underlying the stock market sell-off were the paralyzed credit markets. International Monetary Fund chief Dominic Strauss-Kahn called for a temporary guarantee of all interbank deposits.

Japan's Nikkei sank 9.6 per cent, while in Europe major indexes traded down more than 6 percent.

Bourses in Iceland, Russia, Austria, Indonesia, Romania and Ukraine all closed as a result of the share price falls.

"There's no confidence -- there's an atom or two of confidence returning," said market strategist Steve Goldman at Weeden & Co in Greenwich, Connecticut.

Many investors have been looking for global leadership, but Bush is a lame duck ahead of the November 4 presidential election with the two men competing to succeed him, Republican John McCain and Democrat Barack Obama, arguing over how to resurrect the economy.

One strategist said he feared a political vacuum with weak governments in Europe and North America.

"Sarkozy has been the EU president and is doing what people regard as a good job, but his wife is more popular than he is. That leaves Italy then as a bastion of political stability," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.

"It scares me that there's a vacuum of strong political leaders right now. It's not like we have a Franklin Roosevelt and a Churchill," he said.

The larger Group of 20, which includes 19 of the world's largest economies plus the European Union, the International Monetary Fund and the World Bank also were due for weekend meetings amid the thirst for leadership.

Morgan Stanley entered the spotlight after investors appeared unconvinced about its deal with Japan's Mitsubishi UFJ Financial Group Inc. Morgan Stanley shares have lost nearly half their value in the last three days on worries Mitsubishi UFJ might back out of a deal to inject much-needed capital.

The stock was down 35 per cent.

In a bid to unfreeze bank lending, the US government is weighing guaranteeing billions of dollars of bank debt and temporarily insuring all US bank deposits, The Wall Street Journal reported on Friday.

The U.S. Treasury plans to start injecting capital into US banks as soon as this month, according to a financial policy source familiar with Treasury Secretary Henry Paulson's thinking.

U.S. policy had focused on a plan to buy banks' distressed assets under the $700 billion rescue plan. Many analysts say a move to shore up banks' capital would be a more direct way to break a logjam in credit markets that has closed off new borrowing for consumers and businesses.

British Prime Minister Gordon Brown said other governments should follow Britain in putting money into struggling banks and offering guarantees worth hundreds of billions to persuade banks to start lending to each other.

The International Monetary Fund said on Thursday it was ready to lend to countries hit by the credit crunch and activated an emergency financing mechanism first used in the 1990s Asian crisis.

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