Dow Jones witnesses record one day surge

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From Fazle Rashid
NEW YORK, October 14: The news that the US federal government would pump-in $250 billion to shore up the capital base of the troubled banks had its immediate impact on the Wall Street as the Down Jones industrial average witnessed a record one day surge only 48 hours after it slipped to the lowest. Dow Jones ended the day 936 points higher, the biggest single day percentage gain in 75 years.
Stock markets in Europe and in many other countries recorded most powerful one day rally last Monday. Stocks in Paris and Frankfurt had their best one day gains rising more than 11 per cent. The upward swing followed as governments and central banks around the world mounted an aggressive and concerted move to unlock the global credit flow. Wall Street observers greeted the upward swing stating that it will be a turning point in the slow motion crash. The slowdown has erased five years' worth of value from the stock market.
There were many skeptics as well. They were swift to warn that the problems at the centre of the current crisis, global credit squeeze, deteriorating economic conditions etc., were far from over and could again trigger more volatility in markets. US treasury would today (Tuesday) announce a wide range of measures to inject life into a totally moribund economy. Measures are infusion of $250 billion to shore up the dwindling capital base in the troubled banks, government standing as guarantor in inter-banking and cross border banking transactions. The treasury for instance has assured Mitsubhishi Bank of Japan that $9.0 billion it would lend to Morgan Stanley would be fully protected.
Treasury Secretary Henry Paulson held an important meeting with top bank executives to tell them they need not worry about government's takeover plan of the sinking banks. Half of the $250 billion set aside from the overall rescue package of $700 billion will be used to inject life into nation's nine banks, now tottering. The beneficiary banks include Citigroup, Bank of America, Wells Fargo, Goldman Sachs and JP Morgan. The other half will go to revitalise the smaller banks, whose definition has not yet been defined.
The question uppermost in the minds of the Wall Street observers is: Will the move presage a more forceful government hand to control the financial markets or will it be brief stint as capitalism's protector? This was reported by the New York Times reported today. This is clearly a crisis measure in crisis time, the others predicted. Britain announced a 64 billion dollar package to inject into three of country's biggest banks, Germany has allocated $680 billion in credit guarantees and capital injection and France would spend $489 billion in credit guarantees and loan capital.
The Netherlands, Spain, Italy, Austria, Portugal and Norway have joined the unified effort. Sign of relief was evident in the frozen credit markets. The plans have been welcomed by the International Monetary Fund. Dominique Strauus-Kahn, the IMF chief said 'the peak crisis is perhaps behind us'.
In another development, Pakistan president Asif Ali Zardari now a visit to China, his first as president, will seek a soft loan of $1.5 billion from the Chinese government to help shore up a stagnant economy beset with warnings of a possible debt default. Pakistan rupee sank to an all time low, down grading its sovereign debt to level to C-plus
In separate development, the Commerce Bank of Syria and Bank Saderat of Iran are in talks about forging a joint venture to finance increasing business links between Damascus and Teheran. The news would frustrate Washington which has sought to isolate Iran over its nuclear policy and both countries over concerns that both back militant groups in the region.
Apropos the current global financial crisis, investors fear over the risk of many emerging market countries' defaulting on their debts has risen sharply.. The countries in trouble are Pakistan, Argentina, Ukraine, Iceland, Kazakistan and Turkey. Iceland tottering under a collapsing economy has turned to two women to rebuild its shattered financial system. Elin Sigfusdottir and Birma Einarsdottir have been made CEOs of the two nationalised banks created by the government following collapse of the economy. It will set a new culture within the banking system. The two Iceland banks earned notoriet for their aggressive international expansion collapsed. Iceland economy is now on the brink of bankruptcy. There have recriminations galore over who is blame for the collapse. British government is a popular target.
In a related development, Citigroup with Vikram Pandit as its CEO and a Saudi Prince its major stakeholder is making changes in the pay packets of its top executives. The officials in bank's investment and security units are being encouraged to go for greater cooperation and minimise the internal battles that have hampered its functioning in the past. They have been told the perks and bonuses they receive will depend on their performance.
The bank has written down loans of more than $40 billion during the crisis. The bank is now making allout effort to regain its old stature.