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Every country for itself | Comment: Anatole Kaletsky | Analysis: David Wighton | Stricken Iceland | Car sales slump
Britain's blue chip companies lost £60 billion in value in just a few minutes today as investor confidence crumbled and political leaders battled to avert the threat of recession.
The FTSE 100 index of leading shares fell by some 250 points in the first six minutes of trade, following sharp losses across Asia, and drifted down to reach a four-year low of 4,670.9 by late morning, 6 per cent down on Friday's close.
For policymakers and central bankers, it was a nightmare start to the week – little helped by the failure of EU leaders to agree on a European banking rescue scheme or even, it appeared, on a common strategy.
There was continued confusion as to the detail of Germany's decision to guarantee all private bank deposits as Austria and Denmark broke ranks to follow suit and Spain threatening to do so if the EU did not take action.
Both Gordon Brown and Alistair Darling, the Chancellor, who is keen to avoid a similar blanket guarantee, were working the phones. Mr Brown discussed the crisis with President Sarkozy of France this morning and was due to talk with Angela Merkel, the German Chancellor, later today to clarify Germany's plans.
"In the last 24 hours, the Prime Minister and the Chancellor have been spending a lot of time on the phone. We continue to urge cooperation at an EU and international level," his spokesman said.
No stock was in positive territory on the UK benchmark index but banks were again among the biggest fallers, with Barclays, Royal Bank of Scotland and HBOS down between 11.8 and 15.5 per cent. HBOS was marked down partly on fears that the Treasury could move towards a taxpayer-funded recapitalisation of British banks – effectively a partial nationalisation – which could reopen its takeover by Lloyds TSB.
As stocks fell, investors fled to government bonds and the relative safety of the Japanese yen, which gained 1.7 per cent against the dollar.
The euro was particularly hard hit by the failure of the leaders of Europe's four biggest economies to agree on a co-ordinated bailout plan at a weekend summit, losing 1.2 per cent against the dollar and 3 per cent against the yen.
“We are seeing an intensification of risk aversion overnight and the main beneficiaries are the yen and dollar,” said Lee Hardman, a currency economist at Bank of Tokyo-Mitsubishi-UFJ. “The market is in an extreme state of paralysis.”
The FTSE's falls were mirrored across Western Europe. In France, the CAC 40 index was down 5.9 per cent by midday UK time and German's Dax index was down 5.7 per cent.
The European freeze was in contrast to the situation in the United States, where Treasury Secretary Hank Paulson's $700 billion bank rescue plan was finally passed through Congress on Friday.
“The Paulson plan may be flawed, but it at least underlined that the drive for a solution to the problem is coming from the United States, and that is where the capital is likely to flow as a result, favouring the dollar,” Daragh Maher, deputy head of global FX strategy at Calyon, said in a research note.
Trading on Russia’s main stock market, the dollar-denominated RTS, was halted again after its headline index fell more than 14 per cent.
The markets were also in meltdown in Iceland, where foreign currency reserves have all but dried up because of the credit crunch.
The Icelandic crown lost another 7 per cent in value after steep declines last week and ministers worked on an emergency plan to save the banking system.
In South Korea, banks were also having trouble raising foreign currency funds, forcing the Government to give them access to the country's foreign exchange reserves.
Despite weeks of huge liquidity injection by central banks, money markets remained tight, reflecting deep reluctance by banks to lend to each other. “We have a seriously weak and fear-driven market on our hands,” said Tom Hougaard, the chief market strategist at City Index.
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You don't put robbers to work in a bank" - American Proverb
"I hate banks. They do nothing positive for anybody except take care of themselves. They're first in with their fees and first out when there is trouble.
No US economist believes the bailout was right way to go.
D McGregor, St Mawes, UK
and in the meantime china and the arabs buy up entire western economies.
Who needs armies . When all this is over we will be owned by one or the other.
huxley, leeds, UK
Russian stock market is not worthy to mention it seriously here. Besides that is tiny market and operations there to turn around oil and gas with quite rare exceptions, it is basically a playground for stockjobbers from around the world. They have realised the time them to be down and out.
Alexey, Moscow,
How can anyone be surprised?
The markets are falling for a reason. No amount of interference by governments is going to take away that reason.
Confidence? There is no confidence in failure. This is the natural outcome of poor decisions.
Let the market re-balance naturally. No intervention.
Laura Roberts, London, UK
Steve of Watford:
You really think that is scary, the stock market fell by 93 Billion pounds. and Gordon Brown & Darling invested today alone 40 Billions, trying to buck the trend. One world order is around the corner. Add up all the money these Gov is putting in, where is it GOING? Hello everyone.
daphne kenward, Cambridge, UK
If the American economy is the bad virus maybe
we should be working on our firewall. Will anyone
treat American Business the same after this ?
Are people dithering now, making the situation
worse? Or is the American problem only just
started, ... I wonder.
M Walker, Nr bromsgrove, Worcs
Hang on Hang on so the markets are dropping controlled by the same people who caused the problem in the first place
is it not in the interest of the banks/finances companies to force the market down and get the taxpayers/governments to bail them out yet again talk about big brother scary.
steve, watford, UK
...In the meantime--if anybody has got over £50,000 to invest in savings--they are advised to switch it to a German OR an Irish Bank.
Did you hear that Mr Darling?
William Grierson, Kimpton, UK
So, people are selling shares and buying govt bonds. And the govt is thinking of using the money to buy shares. Have I got it?
Then the shares will go up, bonds down, and people will sell bonds to buy shares, losing more money in the process. For 'people' read 'pension funds' I expect.
andrew, cirencester,
The USA has just spent £700 billion, and the outcomes is still falling shares. This doesnt lok good
Sunny, Coventry,
A question from someone who is quite ignorant. If Gordon Prune only secures up to £50,000 in the event of a complete bank crash, doesn't that mean that should it actually happen, less tax payers money will be liable than Ireland et al who are likely to owe a lot more? Someone please clarify....
James Cullup, Oxford,
For an investor to hear that the U.K. government does not wish to guarantee all U.K. deposits, it really does make one wonder why!
Barbara, Hereford, U.K.
Yen is King.
Kara Swart, London, UK
There's nothing quite so gross as city gamblers in panic mode.
Headless chickens have more sense of direction!
David Cotterell, Cheltenham, Uk
It might be better to look at what happens after banks, shares and currencies collapse. The world will still go on ...
Chris, London,
Rightly or wrongly, Irish, Greeks, Germans all acted decisively. There's no right answer, but by not doing so, Mr GB is causing more fear in the markets. Is this the experienced man we are suppose to rely on? Has he ever been in control in a crisis? Or is he just another Novice?
DT, London,
the eu dead,euros adead duck,they cannot agree on anything it took the americans two goes.prime ministers job is to look after uk,you know who your friends are when the going get tuff,
germany puts germany first,mr brown dont fiddle whilst the uk burns. lets have a vote on europenow.
markwilde, coalville, leicester
""In the last 24 hours, the Prime Minister and the Chancellor have been spending a lot of time on the phone."
Great experience in making phone calls and photo ops looking as if doing something, but where in the last decade was or now is 'Judgement'?
Damian, Brighton, UK
Oh dear...
Nick, London,
What has happened is simply fraud! The financial markets have dressed mutton as lamb. It is time to start prosceuting the managers of banks so that the world knows that white collar fraud is blue collar fraud and that that these CEO's, lauded by the press, are no different to common theives.
Chris Innis, London, UK
The financial markets will not turn around till after the American election. 9.8 Trillion of American debt. What is unstabling the global markets, I am surprised that Wall Street missed it. London Stock Market missed it, Frankfurt missed it.
All the Governments are doing is wasting their money.
Daphne Kenward, Cambridge, UK