The former head of the US Reserve System, Alan Greenspan, described the current financial crisis as an even that occurs once in 100 years. Indeed, the world has not witnessed such a massive financial collapse for a very long time already. The bankruptcy of Lehman Brothers will become the largest bankruptcy in the corporate history of the United States. USA’s largest insurance company, AIG, also stands on the brink of collapse. The market remains in a state of shock, being unable to realize and cope with all consequences of the recent events, The Vremya Novostei newspaper wrote.
The decision of the US financial authorities not to render support to Lehman Brothers means that the state virtually makes the investment and bank sector to deal with its problems alone. Furthermore, the decision of the Federal Reserve System to keep the interest rate on the level of 2% is another proof of the fact that the authorities are not ready to take the risks of the system.
It became known Tuesday morning that the FRS intended to conduct currency interventions to maintain the liquidity of the market. The FRS decided to invest the additional $50 billion in the national financial system. Market members were 100% certain that the interest rate would be reduced, thinking that the two measures would logically supplement each other. As it turns out , they thought it wrong .
The bankruptcy of Lehman Brothers and the FRS decision have aggravated the international crisis of liquidity even further. The financial authorities of world’s largest countries took urgent measures yesterday to hold multi-billion-dollar currency interventions on their markets with a hope to avoid the crisis. Investors panicked and started selling their shares, which made European and Asian stock indexes drop by 2-5 percent.
It will obviously take long for the market to realize the consequences of Lehman Brothers bankruptcy. The world financial system will be different afterwards.
The Bank of Japan assigned $25 billion to maintain the liquidity of the Japanese market. The government of the country also held a special meeting with the participation of the chairman of the nation’s central bank and ministers for economy and finance. The meeting was held in connection with the bankruptcy of Lehman Brothers.
The ministers decided to coordinate all further steps in the financial field with the USA and the EU. The collapse of Lehman Brothers will evince a restricted influence on the Japanese financial market, although it does can affect the economy of Japan on the whole in the future.
The stock indexes of Japan, Hong Kong, South Korea, Taiwan and the Philippines dropped by over 4 percent.
The European Central Bank invested $70 billion euros Tuesday, which was 700 million euros more than the amount invested by the bank on September 12 2001, after the terrorist attacks in New York.
The Bank of England offered market members 20 billion pounds, although the demand was evaluated at 60 billion.
The British FTSE dropped by 3.43 percent to 5025.60 points. The German index DAX Xetra 30 dropped by 1.57 percent to 5968.90. The French CAC 40 closed with a reduction of 1.96 percent on the level of 4087.40. The composite European index Dow Jones Stoxx 600 lost 2.64%, to 263.54 points.
The Finance Ministry of the Russian Federation will assign the additional 350 billion rubles to maintain the liquidity of the Russian market. The bankruptcy of the USA’s fourth largest investment bank and the collapse of the US financial market triggered a sudden reduction of Russian stocks too.
The prices of Russia’s liquid shares reduced by 8-30.6 percent. RTS and MICEX, Russia’s two major stock exchanges, were forced to close the tender one hour ahead of scheduled time. The RTS index dropped by 11.47%, to 1131.12. The MICEX index reduced by 17.45%, to 881.17 points .
Such a large financial collapse has not been happening in Russia after the default of 1998.
Russia ’s Finance Ministry will reportedly assign 350 billion more rubles to maintain the liquidity on the home market. The total sum of the financial support thus makes up 825 billion rubles or 33 billion dollars, which is quite comparable with the amount invested by the US Federal Reserve System.
Russian experts say that the economic potential of the nation will let the country survive the financial crisis without considerable losses. The Russian economy today is a lot bigger than it used to be ten years ago. Most likely, Russia will experience a depression during two or three years.
Others say, though, that the growing bubble of Russia’s prospering oil economy will begin to deflate.