NorthEast

Morgan Stanley Asia chairman Stephen Roach talks to Vikram Khanna about the global financial crisis and where it's headed. FOR several years now, Stephen Roach, Morgan Stanley's chairman for Asia, has been flashing the orange light on the state of the US economy. In press articles, research reports, speeches and interviews, he's been hammering home his gloomy message: the US consumer is overstretched, the stock and property markets are in bubble territory, the US current account deficit is out of control and this party can't keep going on. The party did, however, go on far longer than he predicted. As stocks and property values kept rising, Mr Roach, a former economist at the US Federal Reserve, earned himself a reputation as 'the perennial bear'. Market optimists would murmur 'there he goes again' everytime he spoke. But then, around August last year, the bubble burst, the markets went into a tailspin, culminating in a financial meltdown and a near coll...

Japan's stock market lost more than three quarters of its capital over two decades - it might be enough to bring tears to the eyes of even the most inscrutable investor. 'Pushing on a string'' might sound like a daft if harmless activity but I fear it will be seriously bad news for all of us if the phrase ever enters mainstream usage. Devotees of the dismal science of economics use it to describe the point at which interest rate cuts and other attempts to boost activity - such as pumping billions into bust banks - fail to restore confidence. For a Chancellor or Prime Minister to discover he is pushing on a string is akin to a sailor being blown onto a leeward shore and, seeing he is running out of sea room, discovering that the auxiliary engine will not start. I first heard the phrase nearly 20 years ago when the Japanese stock market began its long decline from a peak of 38,000 in the Nikkei index, despite a series of increasingly desperate rate cuts. It came to mind a...

While share prices plunge and bears – or pessimists – rule the stock market, analysts are seeking comfort from their history books. They scrutinise charts of previous slumps, hoping for clues on how to survive stock market shocks and beat the bears. Experts believe that lessons from history can stop us repeating the mistakes we have already made, and give us some tips on how to do better in future. Statistics show that no stock market downturn lasts forever. They also show that, even when downturns are swift and terrible, the way up can also come quickly.Current stock market shocks have been likened to everything from the 1970s oil crisis to the Great Depression. "This downturn is new," says stock market historian David Schwartz. "But it is important to realise that every downturn is new. They are never exactly the same." However, he claims that there are lessons to be learnt from studying what happens in the past. Schwartz says that he is confident that things are ...

The roar was visceral: a gutsy grunt of defiance. For a few heady minutes on Friday afternoon, traders on the floor of the New York Stock Exchange cheered aloud as they briefly heaved the stock market into positive territory. The effort was Herculean: a dwindling band of optimists pouring billions of dollars into a few selected shares in the hope of encouraging others to rally round. Twice they succeeded, only to see the forces of panic overwhelm them each time. Finally, New York closed for the weekend, once again in the red: bringing temporary relief to a global rout that has reduced the value of most international markets by a fifth in just five brutal days. Listening to the animal language of the trading pit, it is easy to forget that securities trading is just a mathematical invention – nothing but the abstract agglomeration of pricing data. The sober Reuters wire service wrote on Friday of investors being “castrated”. Scandinavian bank Enskilda warned clients that markets were “at...

Thursday's calamitous chain reaction on Wall Street continues this morning in Asia and Europe. In Japan, the Nikkei slumped another 9.6 percent Friday, the New York Times reports, on a perfect storm of events. Asian "investor sentiment was battered by the overnight rout on Wall Street, confirmation that Singapore has slid into recession and news of a financial-sector bankruptcy in Japan," the NYT writes. There were similarly deep plunges in Europe with markets in London, Paris, and Frankfurt all opening at least 9 percent down , the BBC writes. Back in the States, investors are still trying to make sense of the market's 20-percent drop in the past seven days. The Dow on Thursday sunk to its lowest level in five years , below 9,000, the Wall Street Journal reports, adding "the decline leaves America in one of its worst bear markets in decades, a slump that is triggering comparisons to long-running declines of the 1930s and 1970s." Market pundits say we'v...

Generations of Americans have been trained to follow the Dow Jones Industrial Average for a quick snapshot of how the economy is performing or is expected to perform. There's a lot that's ill-advised [1] about that habit, but, most importantly, attending to the ups and downs in the Dow won't tell you much about the current financial crisis. Ours is a crisis of credit: Financial firms are unwilling to lend to each other (at all-but-exorbitant rates) for fear that borrowing firms may fail or that they themselves may need the cash to fend off their own crisis. Whereas the hourly fortunes of the Dow or any stock index are, at best, indirect reflections of this reluctance to lend, the TED Spread [2] measures credit conditions directly. Bloomberg tracks the TED Spread here [3]. What sounds like second-rate Nutella is actually the difference between the interest rate banks charge each other on three-month loans and the interest rate on three-month U.S. Treasury bills. Why TED? ...

Iceland: a transit point between Greenland and Britain in the board game Risk to some, a source of lush adventurous pop music for others, and a blank to many. The small, rocky outcropping of 300,000 people and (allegedly) 500,000 sheep usually doesn’t get our attention. But this week, the banking crisis that has swept across North America and Europe is dealing a mortal blow to the entire country. The government nationalized or took control of its three biggest banks this week, its debt has been downgraded, and its plunging króna currency is barely trading on the international market. The crisis has even taken on a geopolitical tint; our NATO ally is in talks with Russia for a 4 billion euro loan, a move that would nearly double its foreign-currency reserves. Why are Iceland’s banks so big, and why are they, the currency, and the national economy in such trouble today? Quite simply, leverage. Like a light-swinging baseball player who’s just discovered creatine, Iceland’s banks bulked up...

It's been 14 days since Henry Paulson injected the mega-bailout into all of our lives. Fourteen days since he lumbered on stage at the Treasury Department to propose a rescue plan of hundreds of billions of dollars. Fourteen days since the presidential race was thrown upside down. Fourteen days since the country started explicitly living under a threat of a total credit drought. Fourteen days since the country saw its elected leaders promise salvation, fail to deliver, and promise it all over again. And yet, 14 days later, we still don't know much about how the bailout is actually going to work. The man in control of it all is Henry Paulson-the former CEO of Goldman Sachs and the new symbol of American capitalism . Despite two weeks of back-and-forth on the bill, Paulson is nearly as short on bailout details as he was when we began this process. Part of this is necessity-he didn't know the kind of leeway Congress was going to give him to work with-and part of it is prudent ...

The Senate's approved version of the $700 billion financial rescue legislation, laden as it is with tax breaks and other help for special interests, begs a question: Who could run this huge fund of taxpayers' money without getting distracted by the power that comes with so much money and the potential for political interference? Warren Buffett's name should be high on the list. Sure, the legendary investor and chairman of Omaha, Neb.-based Berkshire Hathaway almost certainly has more rewarding things to do. But it's worth a hypothetical look at how he might go about it. To start with, he clearly thinks taxpayers could eventually do just fine with the Troubled Asset Relief Program, as Treasury Secretary Hank Paulson's rescue package is called. "I would love to have 1 percent of the action," he told CNBC on Wednesday-he said that was the most he could afford-and believes the rescue is likely to make money. Provided, Buffett added, that the Treasury takes ban...