Wednesday, October 08, 2008
Well, you could see this one coming and, after an initial lackluster response, it looks like equity markets have gotten the message. In a coordinated action, banks in the U.S., Europe, U.K., Canada, Sweden, Switzerland, and China cut short-term lending rates this morning. This is what it looks like in the U.S. with the Fed funds rate now at 1.5 percent.
Here's a summary of the before and after lending rates:
The Bank of Japan would have cut rates also, but they're still stuck at just 0.5 percent - they lent moral support instead.
Somehow, it seems like this is just the beginning and, if this Bloomberg report is any indication, it surely is.
After an initial rally, European shares and U.S. stock indexes headed lower. Some analysts said the central banks should have lowered rates by more, and predicted further reductions. Economists at Goldman Sachs Group Inc. and Morgan Stanley now project another half-point move by the Fed at its Oct. 28-29 meeting.The British government separately announced an enormous £500B rescue package for its banking sector, a plan that will partly nationalize the banking system.
Futures on the Standard & Poor's 500 Stock Index dropped 3.7 percent at 9:19 a.m. in New York, after plummeting 15 percent in the past five trading days. Europe's Dow Jones Stoxx 600 Index slumped 3.9 percent. Japan's Nikkei 225 Stock Average lost 9.4 percent to 9,203.32 earlier today, before the announcement.
``It should have been 1 percent to have a real impact,'' said Robert Leonardi, a senior lecturer on European Union politics at the London School of Economics.
According to this report in the Guardian, the rescue comes in three parts:
The plan is expected to cost British taxpayers £2,000 each.