Wednesday, September 17, 2008
This is a race against time to prevent a global financial collapse, and on Tuesday, the clock was ticking louder than ever. Markets went into a tumble — with Wall Street slumping more than 4%, its worst loss since the immediate aftermath of 9/11, seven years ago. Policymakers went into a huddle. And investment bankers gathered in droves — on social networking sites and at offline watering holes — to rage against the seismic change in their fortunes from ‘masters of the universe’ (to quote bestselling author Tom Wolfe) to a tribe living in fear of the pink slip. Already shaken by the bankruptcy of Lehman Brothers and the sale of Merrill Lynch, markets tanked further as major credit rating agencies downgraded US’ largest insurer American International Group (AIG), leaving it fighting for survival. The company, whose stock plummeted 61% to $4.76 in New York on Monday, is such a big player in insuring risk for institutions around the world that the prospect of it going under raised fears of a cross-border meltdown.The London and Tokyo markets tumbled more than 4% on Tuesday, hitting their lowest levels for more than three years. Central banks hit back, with the Federal Reserve, European Central Bank, Bank of England and Bank of Japan together injecting $210bn into money markets. But the Fed stunned the market by holding interest rates steady, dashing rate cut hopes and sending the Dow sliding again. The Dow had earlier steadied on hopes that the government would bail out AIG and that Barclays would buy some US assets of Lehman. In India, AIG has two insurance joint ventures with the Tatas — Tata-AIG — one for life and another for general. IRDA on Tuesday said according to accounts on March 31, 2008, both companies ‘‘have satisfactory solvency margins which are adequate to meet their liabilities’’, but following the US crisis, it has asked them to submit reports. The fear of a global slowdown drove oil prices to below $90 a barrel, down almost 40% from the record high of above $147 per barrel in July. Unfortunately, the declining rupee means this benefit is unlikely to reach consumers.