FRANKFURT: Central banks pumped billions into money markets for a second day on Tuesday as efforts intensified to stop the demise of Lehman Brothers turning the year-old credit crunch into a credit freeze.
A day after Lehman Brothers filed for bankruptcy and Merrill Lynch, another Wall Street titan once considered invincible, was sold, central banks in Europe and Japan provided a desperately needed 160 billion dollars in liquidity. Total injections since the weekend are now approaching 300 billion dollars. With insurance giant AIG scrambling to prevent its own collapse -- showing that the end of Lehmans is not the end of the crisis -- the money is needed to keep banks lending to each other and therefore to firms and individuals. Sources close to AIG, the biggest insurer in the United States with operations worldwide, were quoted as saying it might go bankrupt if it could not raise massive new finance by Wednesday. "The situation is dire," one anonymous source told The Wall Street Journal. Share prices fell for a second day. In Europe shares fell by 1.44 in morning trading in London, 1.45 percent in Frankfurt and 0.71 percent in Paris. This was less heavily than on Monday, but banking shares were again hard hit. The European Central Bank said it allotted 70 billion euros (100 billion dollars), more than double the 30-billion-euro injection it had provided on Monday. It also said it had lent 150 billion euros to commercial banks in a regular weekly refinancing operation in which markedly higher lending rates paid testament to increased market tensions. The Bank of Japan meanwhile carried out two injections, the first of 1.5 trillion yen (14 billion dollars, 10 billion euros) and the second of 1.0 trillion yen. In Britain, the Bank of England injected 20 billion pounds (35.9 billion dollars), four times Monday's total. Switzerland's central bank said it would supply liquidity "in a flexible manner and generously" to money markets. On Monday the Swiss National Bank injected twice as much liquidity as usual to the market. All eyes were on the what the US Federal Reserve would do next after it had provided 70 billion dollars in extra liquidity on Monday. There was widespread speculation that the US central bank might reverse its policy and cut interest rates to prevent the US financial system from toppling and dragging the economy down with it. Economist Brian Bethune at Global Insight said: "The sudden bankruptcy of Lehman Brothers over the weekend has led to another dangerous escalation of the crisis in the US financial markets -- a crisis that has been seriously harming the performance of the economy for over a year now. "The economy is very weak, the recession wolves are pounding down the door and the financial system faces new deflationary threats from the bankruptcy of Lehman Brothers. This is an emergency situation." Dominique Strauss-Kahn, the head of the International Monetary Fund, said on Tuesday the current international credit crisis was "unprecedented" but cautioned against panic. http://economictimes.indiatimes.com/Central_banks_pump_300_bn_into_markets/articleshow/3490492.cms Credit is a system whereby a person who can't pay gets another person who can't pay to guarantee that he can pay. - Charles Dickens --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [EMAIL PROTECTED] For more options, visit this group at http://groups.google.com/group/kences1?hl=en -~----------~----~----~----~------~----~------~--~---
