Stock Markets Chaos


Linda DUPHEN: Welcome to business brief. I’m Linda Duphen. Another day of chaos at the markets. London plunged whilst Wall Street staged a last minute rally but the analyst say the blood bath is not over yet. As the chaos continues the hunt is on for whom or what is to blame. The European Commission starts an investigation into the companies who are supposed to track risky investment and as the markets go into melt down a new cold front opens in the arctic. We report on the race for the riches under the northern icecap. The world’s markets were subject to another day of chaos today, with London’s main FTSE 2 index seeing its sharpest fall in four and a half years, but hours before the final bell, shares in Wall Street, recovered slightly after suffering heavy losses early in the day. The main Dow Jones index closed down at 0.12% at 12845.8. Concern over impact in the U.S sub prime lending market though continues to haunt investors and once again a single mortgage lender in the U.S has found itself at the centre of deepening financial crisis over credit. America’s largest home loan provider, Countywide Financial, had already seen its shares plummeted. Now it’s been effectively shut out of the loan markets it relied on to fund its daily operations. It’s had to draw down every dollar of US $11 billion credit line and it had to suffer the humiliation of having its entire survival called into question by the influential U.S broker, Merrill Lynch. So what should we make of the latest events? Dean Baker is founder of America’s centre for economy and policy research, he’s long been worried of the U.S housing bubble and the potential for meltdown and nothing he’s seen this week has made him change his mind.


Dean Baker: This is the beginning, actually I mean one way it plays out is you’re going to see a lot of houses for closure that are going to go back on the market at much lower prices, house prices will continue to fall, you’re going to see a further contraction of our housing sector. Already housing Stats are down almost 60% from where they were a couple of years ago. It’s going to fall further and you’re almost going to see a recession. Probably a very bad recession because people have been using houses to finance their consumption and that’s going to stop when their house prices fall. So we’re looking at a very serious situation. What we’re seeing now is just the tip of the iceberg.


Linda DUPHEN: So with all this debt mayhem America’ biggest export right now is financial fear. South of its long border with Mexico, the markets have been sinking in sympathy right across Latin America. Raphael De Lafuente is an economist at BMP Paribar specializing in finance in the region.


Raphael De Lafuente: Currencies have been hit, equity markets have been heavily hit as well and local market securities have also sold of market lay in most countries, so you could say that we’ve had a major sell off on the back of these Global Jitters.


Linda DUPHEN: Who is this going to affect down the line? I mean what sort of people are losing money? Are we just talking investors or are we talking ordinary people in the street?


Raphael De Lafuente: There is a loss of capital that affects anybody who participates in the market. In many of these countries, there’s been a large surge in domestic capital investors base so the losses will be shared among foreigners and locals alike.


Linda DUPHEN: How bad is this in your experience? Are we looking at the sort of crash we had in Latin America 10 years ago? Could it get that bad?


Raphael De Lafuente: I think it’s far too early to think in those terms. I think what’s important here to note, is that Latin American looks very different than it did 10 years ago in the case of most countries. They are sitting on very large international serves. They therefore have a cushion to withstand the sort of drought in capital implodes that we could see going forward if the crisis in global markets continue. They’re in good shape in the short to medium term. Long term if this global crisis were to turn into full blown recession in the U.S and potentially elsewhere in the developed world. That would hit these markets heavily.


Linda DUPHEN: Well the crisis is far from over but already the search is on for what or who to blame and today the European Union has joined in pointing a finger at a new suspect. It’s going to investigate the companies that are supposed to keep an eye on risky investments. Credit rating agencies assess just how dangerous or risky an investment is and how likely it is that borrowers will pay back their debts. They’re hugely influential but there are suggestions that they have been too slow to warn of the sub prime loans crisis. Antonia Mochan is the EU’s internal market spokeswoman.