Washington
18 September 2008
Central banks of the leading industrialized nations are working together to try to ease a financial crisis that originated in the United States but has roiled markets worldwide. From Washington, VOA's Michael Bowman reports.
Amid widespread fears that the cascading failure of many of America's largest and best-known financial institutions could severely restrict the availability of credit worldwide, major central banks are acting in concert to dampen economic shockwaves that have spread from the United States to Europe, Asia, and elsewhere.
The U.S. Federal Reserve, along with central banks in Canada, the European Union and Asia, have pumped at least $200 billion into financial markets. The action helped boost European stock markets after several days of heavy losses, although trading was again suspended in Russia, and Asian markets closed lower.
At the White House, President Bush took note of the central bank action. In a brief statement before meeting with top economic advisors, a stern-faced Mr. Bush noted a series of aggressive steps taken by the U.S. government in recent weeks - from bailing out ailing investment and insurance firms, and taking over failing U.S. mortgage giants to cracking down on market manipulators.
"These actions are necessary, and they are important," President Bush said. "And the markets are adjusting to them. Our financial markets continue to deal with serious challenges. As our recent actions demonstrate, my administration is focused on meeting these challenges. The American people can be sure we will continue to act to strengthen and stabilize our financial markets and improve investor confidence."
Recent financial upheaval is having a negative effect on the U.S. stock market as a whole, including the stocks of many otherwise-healthy companies, according to Eugene Peroni, a market strategist for the financial services firm Advisors Asset Management.
"The market might be overshooting here at bit [overreacting to negative news]," he said. "In other words, yes there are some companies that are really in trouble, but there are some companies that are simply being dragged down in this [market] rout."
And the string of large financial firm collapses may not be over. A major U.S. thrift bank, Washington Mutual, is reportedly teetering on the edge of insolvency. News reports of panic among some depositors led the Chairwoman of the Federal Deposit Insurance Corporation, Sheila Bair, to remind the public that their bank accounts are secure.
"If you stay within our coverage limits, your money is absolutely safe," said Sheila Bair. "And, yes, that guarantee has been good for 75 years and will continue to be so. Nobody has ever lost a penny of FDIC-insured deposits."
What few economists or market prognosticators seem to be able to predict is when the financial crisis will end. Earlier this week, Treasury Secretary Henry Paulson said uncertainty will prevail as long as the U.S. housing sector remains beset with falling home values and foreclosures.
"Until we stem the housing correction, until the biggest part of that is behind us and we have more stability in housing prices, we are going to continue to have turmoil in the financial markets," Paulson said.
For more than a year, the U.S. housing sector has been stung by a rash of foreclosures, principally among those who acquired mortgages to buy homes despite poor credit ratings. Those so-called "sub-prime mortgages" are no longer being offered by major financial institutions, and leaders in both major U.S. political parties seem to agree on the need for establishing stricter lending standards to ensure that there is no repeat of the financial debacle.