MARKET CRISIS Crisis plans face acid test in Asia October 13, 2008 AFP
An unprecedented worldwide effort costing trillions of dollars to tame the financial crisis faces an acid test when battered Asian stock markets pass a critical judgment on the measures.
World finance leaders have mounted an extraordinary unified front in recent days in a bid to calm investors' nerves and draw a line under the worst financial turmoil since the 1929 market crash.
The 15 eurozone leaders agreed on Sunday to guarantee inter-bank lending at an emergency summit in Paris, French President Nicolas Sarkozy, the current president of the European Union, announced on Sunday.
That followed a Group of Seven industrialised nations action plan and a US bank bailout costing $US700 billion ($A1.02 trillion) as governments tried to halt the meltdown.
Sarkozy said that while individual eurozone countries would unveil the scope of their own domestic plans on Monday, all had agreed a specific series of measures designed to restore confidence in the economic system.
The head of the International Monetary Fund, Dominique Strauss-Kahn, hailed the eurozone plan, saying at a news conference: "Altogether we are going in a good direction."
Shaken markets in the Middle East continued to tumble on Sunday but the Saudi stock market, the region's largest, managed to close slightly higher for the first time in two weeks ahead of the eurozone announcement.
But all eyes were on Asia, where the bellwether Japanese stock market was set to reopen in a few hours after having lost some 24 per cent last week, its worst five-day rout in its 50-year history.
Other markets from Wall Street to London to Sydney suffered a torrid time too, with massive falls coming without stop as investors fled stocks in an worldwide collapse of confidence.
Strauss-Kahn, asked if all the measures now announced would work and be enough to stabilise the Asian markets, said he could not forecast what stocks would do precisely but added: "I am confident (they will work)."
After a record rout on world markets last week, investors were holding their breath for the reaction in Asia, where markets reopen as the IMF and World Bank wind up a second day of meetings in Washington on Sunday night.
On Friday the Group of Seven advanced economies agreed an action plan which was later endorsed by the IMF and the Group of 20 rich and emerging countries but analysts were worried that a lack of specifics would see it fail to soothe anxious markets.
The G7 statement is "a set of noble goals ... there is nothing there to calm the markets," said Peter Morici, a University of Maryland economist.
US Treasury Secretary Henry Paulson said last week the government would invest directly in troubled banks for the first time since the 1930s Great Depression, shifting the focus of the Treasury secretary's 700-billion-dollar bank rescue package.
Billionaire businessman George Soros lobbed criticism on Sunday at the US administration's "ill-conceived" handling of the global banking crisis, reserving especially harsh words for Paulson.
"The Paulson plan was ill-conceived," Soros told CNN television.
"It was basically the same kind of financial engineering that got us into the trouble that they wanted to use for getting us out of it. And it was just the wrong thing," he said.
The cost of the 14-month-old financial crisis is estimated at trillions of dollars. The United States alone will have $US1.4 trillion ($A2.05 trillion) in declared losses due to the worst housing slump in decades which has triggered the credit squeeze, according to a recent IMF estimate.
The US and its allies already have pumped massive amounts of cash into what so far has been a losing battle against the fast-moving firestorm since September.
In addition to the 700-billion-dollar bank rescue, the US has undertaken a series of drastic actions to rescue troubled firms, including nationalisations of two mortgage finance giants in early September, costing $US100 billion ($A146.32 billion) each, and of insurance giant American International Group, at nearly $US123 ($A179.97) billion.
The United States is the epicentre of the financial turmoil that erupted in August 2007 from the collapse of the US subprime, or high-risk, home loan market amid rising defaults as a residential real-estate boom cooled.
"It's been a long week in the history of the financial markets," said Joshua Raymond a strategist for City Index in London. "What is happening now is not just history repeating. If you map out every single event along the way, we are setting a whole new precedent."
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