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Contours of global crisis response take shape
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16:25, October 15, 2008

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· U.S. financial crisis triggered global turmoil
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After intensive actions taken for increasing coordination in the past weekend, the American, European and Asian stock markets bounced on Monday, October 13. The Wall Street saw the biggest one-day-surge on that day after deep losses, as the Western governments came up with plans to support the global banking system.

What really marks a landmark significance is that the Dow Jones rose 936.42, or 11.08 percent to 9378.61, the record for a one-day point gain in the past 75 years since 1933. When the bell rang Monday afternoon to close trading in the New York Stock Exchange, its trading hall resounded with enthusiastic cheers and applauses, sweeping away traders' gloomy mood arising from the sinking of stock market from early October.

Financial markets, and the Wall Street in particular, have long been awaiting this moment. The Wall Street has been in a grip of predicaments ever since the sub-prime mortgage crisis erupted in August 2007. Terrified banks and financial institutions were unwilling to lend money to each other, and still less to grant credit to ordinary clients. So, credit market stagnated with an impact brought initially to economic entities.

Moreover, a financial crisis that originated in the United States has roiled markets worldwide. And the European nations, which had looked on with much indifference with an apathetic or detached air, now has a sense of urgency. Amid a growing panic that financial crisis may possibly punch global economy, the World Bank-IMF annual report in 2008 even asserts categorically that the U.S. and European nations and other developed economies would fall into recession.

Both the U.S. and European countries have adopted a package of moves to retrieve the market confidence. The U.S. House of Representatives approved a revised 700-billion-dollar bailout plan, authorizing Bush administration the largest financial intervention after the Great Depression of the 1930s; the U.S. Federal Reserve opened up its coffers further in a bid to ease a crippling credit crunch by offering to buy up to some 1.3 trillion dollars worth short-term debts or commercial paper to increase market fluidity.

Furthermore, on Wednesday last week, the U.S. Federal Reserve, European Central Bank, Bank of England, and peers in China, Canada, Sweden and Switzerland all resorted to an emergency interest rate cut simultaneously. Nevertheless, credit crisis globally did not alleviate to the least despite the fact that such large-scale measures can be rated as rare and unprecedented in history.

A crisis at the present era of globalization calls for an overall plan for global solution. Hence, it is rather inappropriate or inopportune for each nation to act on its own. The past weekend is the very weekend in which broad, overall contours of a global response to the financial crisis took shape, and its contents encompass those efforts, among others, to inject funds directly into banking system, to guarantee banks deposits and inter-bank borrowing and deposits, and for the government to directly purchase equity shares in some banks so as to nationalize them in essence. In this increasingly distinct global market rescue endeavor, the most revolutionary change is nothing more than to directly purchase equity shares by the government.

The U.S. Treasury, however, did not like to take this move into account a week ago simply for the fear of an excessive intervention by the government. But it has now become clear that the direct purchase of banks' equity shares poses a most viable, useful tool in the toolkit the government employs to ease the credit crunch.

On Monday afternoon, U.S. Treasury Secretary Henry Paulson reportedly outlined and conferred a detailed plan in a meeting with high executives or representatives of several leading Wall Street financial institutions. Under the 700-billion-dollar financial rescue package approved by the U.S. House in early October, disclose the media, the first sum of 250 billion dollars will be injected into banks to directly buy equity shares. This move of the U.S. government is undoubtedly a timely help for those struggling banks or financial institutions in trouble.

Although the global stock market response is inspiring, it is still too early to say that frightened investors can thoroughly rid themselves of panic resultant from the last week's dumping of equity shares in large quantities. The core of the current crisis is the stagnation of credit fluidity, and so the time is still needed to cope with it since market prospects hinge entirely on the eventual restoration of confidence between banks and in the short-term credit market.

Dow Jones soared 936 points in a day of historical gains to 9378 on Tuesday, note media reports, but it is still a far cry from its historical peak of 14165, set a little more than a year ago. American market, nevertheless, is still full of variables in view of such unfavorable factors as its housing slump, unclear economic prospects and a drastic slide in consumption spending.

By People's Daily Online, and its author is PD resident correspondent in U.S. Ma Xiaoning



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