Global financial system increasingly resembles a burnt-out shell. The worst stock market crash since 1929 has left the free market ideology for which former Federal Reserve chairman Alan Greenspan served as poster boy from 1987 to 2006 in charred ruins. Promising “urgent and exceptional” action to stabilise the stock market, protect banks and restore the mortgage market, the Group of Seven communique put together by financial leaders was bolder than pessimists had forecast. But it stopped short of offering a convincing, co-ordinated, quantifiable plan, leaving markets once again to reopen this week in a state of tense uncertainty. To add to the drama, Wall Street and Tokyo are closed on Monday for holidays.
“The situation really is quite disorderly,” said George Magnus, senior economic adviser to UBS investment bank. “There’s a clock ticking, but we don’t know where the hands are.” Last week as the London stock market fell 21 per cent, Tokyo 23 per cent and New York 18 per cent policymakers came close to falling out.
The UK and Iceland engaged in a slanging match that might have been comic were it not so serious and tragic for the UK depositors with savings frozen in the Nordic country’s bust banks. Germany and France balked at joining the US in copying Britain’s plan to invest directly in banks as a way of easing their debt burdens.
Adding another touch of gallows humour, Italian president Silvio Berlusconi suggested that the world close all its banks on Monday, while the Italian delegation to the finance ministers meeting in Washington publicly declared it would not sign the G7 communique because it was too “weak”, before bowing to international pressure.