PHOTOS: Major Shakeup in Financial Sector
A woman tracks information on an electronic screen at a brokerage house in Shanghai. Stock markets in Asia, closed Monday, hit two-year lows today in the wake of Wall Street's shakeup. (Photo: Reuters)Central banks pumped tens of billions of dollars into the global financial system today in an effort to ensure that banks and financial firms have adequate cash to operate through the current crisis, while global stocks continued falling in the wake of Wall Street's weekend shakeup.
From Tokyo to New York, central bankers continued a second day of larger-than-normal cash infusions, as financial institutions clamored for the short-term loans they need to operate. In calmer times they often get that cash from one another, but given the widespread sense of crisis, the interest demanded for such loans spiked overnight -- hitting as much as 6 percent, far above the target rate of 2 percent established by the Federal Reserve.
The New York Federal Reserve said this morning that it had put an
additional $50 billion into the banking system -- part of a global wave
of liquidity offered by its counterparts in other countries. The
European Central Bank added about $100 billion to the system, Tokyo $24
billion, and London $36 billion.
The banks had taken similar steps yesterday, with the Fed adding some $70 billion, the most since the Sept. 11, 2001, terrorist attacks.
Stabilizing the day-to-day operating environment for banks, however, did little to stop a global stock sell-off triggered by the failure of Lehman Brothers, the disappearance of Merrill Lynch as an independent company and the shaky state of American International Group, the U.S.'s largest insurance company.
The Dow Jones industrial average fell more than 160 points in the opening minutes of trading, adding another roughly 1.5 percent decline to the 4.4 percent, 500 point drop yesterday. The Standard & Poor's 500-stock index and the Nasdaq experienced similar losses. But all three moderated by midmorning.
A new profit report from Goldman Sachs showed that it is possible to make money in the current environment. The investment bank, which has fared better than many in the turmoil caused by the troubled mortgage industry, said it earned about $845 million in its recent quarter -- a steep decline from its results of a year ago but better than analysts expected.
There was good news on inflation as well: Consumer prices fell 0.1 percent in August, the federal government reported, as a decline in energy costs helped reverse sharp price increases during July and August.
That could figure into Federal Reserve policy discussions this morning, as the central banks weighs whether an interest rate reduction is needed to boost an economy where rising unemployment and falling production are now twinned with a sense of full-blown upheaval in the financial sector.
But it might be all but lost in a flow of events that remains fast-developing. Under close scrutiny: efforts to set up a loan facility for AIG, hit by its exposure to mortgage-related investments, and an announcement by Barclays that it might try to buy a portion of Lehman Brothers out of bankruptcy.
Stock markets in Asia hit two-year lows today, and European exchanges were headed for a second day of steep losses.
Asian markets were closed yesterday but reacted sharply to recent events when they reopened.
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