From: "cwright" <cwright-AT-21stcentury.net>
Subject: AUT: Financial crisis deepens
Date: Tue, 8 Oct 2002 00:03:06 -0500


http://www.observer.co.uk/economy/story/0,1598,805683,00.html


Global crash fears as German bank sinks

Faisal Islam, economics correspondent and Will Hutton
Sunday    October   6, 2002
The Observer <http://www.observer.co.uk>

   Stockbrokers around the world are braced for a potentially calamitous
week as alarm mounts over a looming, Thirties-style global financial crisis.
A leaked email about the credit-worthiness of Commerzbank, Germany's third
largest bank, yesterday increased fears of the international stock market
malaise exploding into a fully-fledged banking crisis.

Commerzbank lost a quarter of its value last week, raising the spectre of
Credit-anstalt, the Austrian bank that collapsed in 1931, sparking global
depression.

US stock markets have fallen for six consecutive weeks, to their lowest
levels in five years. European markets have collapsed even further, wiping
out nearly half of the value of European corpora tions in this year alone.
Japan is struggling to put together a plan to save its banking system,
riddled with bad debt after a decade of recession and falling prices. Now
the German economy threatens to follow.

'There are strong parallels to the Thirties after an unsustainable "new era"
boom,' says Avinash Persaud managing director for economics and research at
State Street Bank. 'Then, the stock market decline was not just steep, it
was long, taking three years to reach the bottom.'

'Commerzbank being affected is a sign of the severity. But in today's crisis
risks have been offloaded from the banks to the markets and ultimately our
pensioners, which makes the problem more difficult to deal with,' he says.
The leaked email about Commerzbank was in response to an inquiry from a US
investment bank about rumours of huge losses on credit derivatives, which
aim to spread risk.

Figures due to be published on Friday will show that a toll of stock market
falls, rising joblessness and war fears is finally denting the spending
habits of Americans. Economists fear that the result may be a 'double-dip'
US recession, taking much of the world with it.

Europe's finance Ministers, including Chancellor Gordon Brown, will meet in
Luxembourg on Tuesday amid deepening concern about the stability of the
financial system. Tomorrow evening, the Eurogroup of finance ministers,
excluding Brown, will discuss reforming Europe-wide tax and spending rules
along the lines of the British system, taking stronger account of economic
difficulties.

In the US, the concern is that Alan Greenspan, chairman of the US Federal
Reserve, has insufficient room to cut interest rates if the economy falls
into recession. 'The [Bush] Administration has two lines of action: tax
relief for the rich [and] reliance on the Federal Reserve. Both are without
effect,' says US economist JK Galbraith in an interview with The Observer.




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