Heavy losses on global markets
Updated on 16 August 2007
With investment banks, pension funds and corporations linked to the US housing market crisis, are we heading for meltdown?
Not since March this year has the FTSE dropped below 6,000. The index of the top 100 shares opening this morning having lost more than two per cent of its value.
This latest turbulence in global markets started in the Unites States. Last night the Dow Jones plummeting below 13,000 points for the first time since late April.
'I think there is a feeling that there is still more bad news to come with respect to who is holding what bonds and what they are worth - and we don't think the equity market is going to be able to put a significant rally together until people get a sense that the worst is out there.'Alec Young, Equity strategist, Standard and Poor's
Serious concerns about bad loans in the US housing market - which have prompted a slump in property prices - have triggered the drop.
As US stocks tumbled it became clear America's top mortgage lender, Countrywide, was among the biggest losers; its shares falling 13 per cent. And many believe the worst isn't over.
Global markets take their cue from the United States and within hours of the Dow closing, Asian stocks fell to their lowest levels in months.
This morning Japan's Nikkei index closed down two per cent, while China and Singapore lost almost double that. The Korean and Australian markets followed suit.
Credit crunch
- What happened? Stock markets around the world have dropped. The 'credit crunch' began last week, but after a brief recovery, markets have plummeted to a 30 year low.
- Why? The crisis of the US sub-prime mortgage market (lending to people with poor credit histories) has exposed financial institutions to bad credit. Banks are now trying to protect themselves by charging more for the money they lend. Concerned traders have, as a result, become more cautious on the market floor.
- Which means? It'll be harder for banks, companies and consumers to access loans and cash which could, in turn, lead to a global recession.
What's worrying traders around the world is that investment banks, pension funds and large corporations are linked to the crisis in the US housing market.
Sixty per cent of mortgages in America have been given to sub-prime clients - people with poor credit ratings who are now defaulting on their payments.
The result is that properties are flooding back on to the market and prices are dropping. The debts taken on by mortgage companies have been sold and re-sold around the world.
And as they turn bad the effects reach around the globe. Big names are affected. In recent days Goldman Sachs having to pour two billion dollars into troubled funds.
Central banks are also having to inject funds into money markets to stabilise the situation. Some observers say it's so serious, investment funds could go under.
So it will be another nervous day on stock markets worldwide. The big question: will the credit crisis turn into a full blow meltdown and how will it affect economies around the globe?
