And there was no shortage of gloomy economic data for investors and traders, despite the international rate cut.
cBritain and Spain became the latest countries to roll out major bailout plans for their banks, dragged down by their investments in the U.S. mortgage markets and by overheated housing markets at home. British Prime Minister Gordon Brown served up a $438 billion rescue package to “restructure the banking system,” including $88 billion for the government to purchase ownership stakes in Barclays, Lloyds TSB and six other British lenders.
cIceland, whose small economy has become a global poster child for the difficulties posed by the credit crunch, was forced to drop plans to nationalize the country’s second-largest bank, placing failing Landsbanki in receivership instead. With confidence evaporating in the country’s financial system, Iceland officials also said they were abandoning a doomed effort to defend the value of the krona, the country’s currency.
The move by the Federal Reserve and other central banks was a rare instance of international cooperation on lending rates.
Federal Reserve Board Chairman Ben S. Bernanke had hinted broadly in a Tuesday speech that the U.S. central bank was preparing its first rate cut since late April, but many had assumed the move would come at the board’s scheduled Oct. 28-29 meeting.
The Fed funds rate was cut from 2 percent to 1.5 percent, with major U.S. banks like Wells Fargo and Bank of America almost immediately cutting the prime rate given to top-quality borrowers from 5 percent to 4.5 percent.
In Europe, where continental leaders have scrambled to coordinate their response to the economic implosion, the European Central Bank cut its key rate from 4.25 percent to 3.75 percent, while the Bank of England also sliced a half-percentage point off its leading rate, to 4.5 percent.
The Bank of Canada and Sweden’s Riksbank also cut their benchmark rate by 0.5 percent. The Bank of Japan, which already has historically low lending rates to boost the long-suffering domestic economy, said it “supported” the global rate cut, but left its benchmark rate alone.
In a joint statement, the central bankers said that the recent market woes had increased their fear of a global slowdown while easing, for now, fears that the rate cuts could spark inflation.
“Some easing of global monetary conditions is therefore warranted,” the group said in its statement.
The central bank action comes after extraordinary moves by governments around the world - conservative and liberal alike - to intervene in private markets, bail out banks, claim new regulatory powers and cushion losses for investors, all financed with taxpayer money.
“There can be no isolated response to the global challenges we face,” French President Nicolas Sarkozy, a leading proponent of government action in the markets, told reporters on a trip to Brussels.
Raised in Northern Virginia, David R. Sands received an undergraduate degree from the University of Virginia and a master’s degree from the Fletcher School of Law and Diplomacy at Tufts University. He worked as a reporter for several Washington-area business publications before joining The Washington Times.
At The Times, Mr. Sands has covered numerous beats, including international trade, banking, politics ...
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