Although the sub prime mess originated in the US, this has always been a global credit crunch. European banks were some of the biggest buyers of sub prime securities so when the crisis developed, any one of the world’s major banks could have been holding toxic assets. This in turn led us to the historical coordinated action by the world’s central banks today. Each government has attempted to deal with the crisis with specific interventions in their area but only a coordinated act like the rate cuts we have seen to day could truly hope to have any real impact.
Markets still do not know what to make of today’s dramatic intervention. UK banks such as Lloyds and Barclays are off their lows of the day, but traders are not exactly piling in like no tomorrow. This might possibly be a function of fears about the UK ‘part nationalisation’ bail out severely crimping any hope of significant shareholder return over the coming years. With an electorate footing the bill and politicians possibly having a say in the running of affairs, juicy dividends for shareholders may be a thing of the past. European markets are still down around 2-3% on the day and the Dow is swinging 50 points in the blink of an eye. Around the quiet period and intermediate high of August, the FTSE had a daily range of around 60 points. Today it is moving that much every 15 minutes. These are extraordinary times and many technical indicators are flashing at levels never seen before. At best central governments are hoping that the coordinated rate bomb has stopped Armageddon, there is now no hope of the UK, US, Irish and Spanish economies avoiding recession. The worse case doesn’t bare thinking about. If today’s coordinated intervention doesn’t at least start breath life into the frozen money markets, one has to wonder what surprise moves the global governments can take next.
