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Bankers downbeat on impact
Weakness in US residential housing market likely to spread to personal consumption.
- Reuters
- Published: 23:40 September 27, 2008
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Tianjin, China: Senior bankers delivered a gloomy message on the global economy on Saturday, with one calling the current financial crisis the worst since the Great Depression and another saying that the US consumer is "toast".
The comments, made at a meeting of the World Economic Forum in the northern Chinese port city of Tianjin, come as the US Congress continues to wrangle over a $700 billion package to rescue the country's financial system.
"I think it's fair to say we are in the worst financial crisis since the Great Depression," William Rhodes, senior vice-chairman of Citigroup, told the forum.
Rhodes, who predicted the subprime crisis early last year, well before its effects started to be felt, said urgent steps were needed to revive confidence in financial markets.
"Until you restore that confidence, I think we have some real problems in the overall economy worldwide," Rhodes said.
Stephen Roach, Asia chairman of investment bank Morgan Stanley, called for "forceful and effective" action to bring the situation under control and said the world economy was doomed for a period of slow growth that would probably last through 2010.
He said weakness in the US residential housing market was likely to spread to personal consumption, which he said had been sustained in recent years by bubbles in property and credit.
"America has been on the biggest consumption binge of any large economy in recorded history," Roach told the forum. "The American consumer is toast, done, finished."
Roach criticised the US Federal Reserve for having kept interest rates relatively low for a prolonged period. This had set the price of risk too low and thus led to the property and credit bubbles. "We had a huge blunder in monetary policy. We need to rethink the role of monetary policy in an increasingly sophisticated set of financial markets," he said.
Solutions
Rhodes said what needed to come out of the current crisis was better global co-ordination on financial issues, particularly some form of internationally accepted regulatory norms.
He noted that Chinese authorities, notably the People's Bank of China, were in consultations with the Federal Reserve on measures to alleviate the crisis. "One of the things that's coming out of here is that the major central banks are talking about making liquidity facilities available in various currencies," he said.
European Union Trade Commissioner Peter Mandelson agreed that the crisis exposed the need to improve global financial oversight. "And it's an international system in which not just the G-7 or G-8 will be reaching out and inviting the emerging economies for a cup of tea to hear their views and then politely ask them to leave as we take the decisions," Mandelson told the forum. "The world is completely changed irreversibly, and for the better."
Rescue act: Fortis talks to continue
Financial authorities are holding discussions over the future of Fortis this week, while the troubled Belgian-Dutch financial group is seeking to close key divestments deals.
As of yesterday, financial authorities were contacting other institutions, a source said, although no particular solution was preferred and nothing concrete was likely to emerge before today.
Fortis investors faced a weekend of uncertainty after the banking and insurance group went out of its way to reassure them that it was solvent and in no danger of collapse following market talk the company could become another casualty of the credit crisis. Veerle De Schryver, a spokeswoman for the Banking, Financial and Insurance Commission (CBFA), said: "The parties will discuss scenarios for Fortis in a cooperative way."
She declined to say exactly which parties would be involved in the talks. Another CBFA official told Flemish radio talks would include the government, market regulators and the Belgian central bank.
The Dutch central bank declined to comment, although Nout Wellink, also a European Central Bank governing council member, cancelled a Chicago trip to return to the Netherlands.
Fortis is hoping to announce deals to sell off parts of its business by tomorrow in an attempt to show investors it can raise cash and restore confidence in the business, while buyers for the business may emerge over the weekend, local media reported.
As its shares plummeted more than 20 per cent to 15 year-lows on Friday, Fortis called an emergency news conference to say its position was strong and that it would expand assets sales to 10 billion euros ($14.6 billion, Dh54.7 billion) to raise cash.
- Reuters
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