Global turmoil follows Bear Stearns collapse
18 March 2008 / by Joy Tibbs
The global markets were hit hard following the news that the fifth largest US bank, Bear Stearns, will have to be bailed out by JP Morgan. The latter has agreed to buy the stricken lender for a mere £236 million, and the crisis has caused worldwide upheaval.
FTSE 100 share prices fell 3.9 per cent to 5,414.4 yesterday, its lowest close since 2005, amid fears of impending base rate cuts from the Bank of England designed to prevent a major economic slump. The Bank of England injected £5 billion of emergency funds into the money markets yesterday to help steady the market and to encourage lending between banks.
Other European markets also saw significant declines, with Germany's DAX down 4.2 per cent and France's CAC 40 falling 3.5 per cent. In the UK, financial institutions were among the hardest hit, with HBOS shares dropping almost 13 per cent and Barclays falling 9.4 per cent.
The credit crunch may have finally reached its peaked, and many reports have likened recent events to the dramatic Wall Street Crash of 1929. It is hoped that the US Federal Reserve will cut interest rates by a full percentage point today in order to ease pressure on global markets.
Central banks may also need to act in order to prevent any further decline of the dollar, which has dropped 13 per cent in value since the beginning of the year. The dollar fell to a record low of $1.59 against the Euro yesterday, and to a 12.5 year low against the yen. "Along with other central banks, the Bank of England is closely monitoring market conditions," said a statement from the Bank.
And, although the markets have seen some recovery in early trading today – the FTSE opened 88 points higher – fears of further major collapses have been raised. The crisis cannot simply be brushed under the carpet, despite Gordon Brown's attempts to assure UK businesses and consumers that the British economy is "resilient".
The Prime Minister said in Parliament yesterday that the Government will continue to watch over the financial sector. "While our economy is resilient and fundamentally strong, we will at all times remain vigilant and – particularly at this time of global uncertainty – will continue to take whatever action is necessary to maintain economic stability," he said.
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