Indonesia reeling from US financial crisis 09 October 2008
Al Jazeera English
Transcript
Indonesian shrimps meant for American consumers this Factory exports solely to the United States and already payments are being delayed or not made at all the period before Christmas is supposed to be peak season but orders are slow for the 1200 workers the future looks bleak Alfia has worked in this Factory for 9 years but now she fears the worst yeah because of the crisis in the US and slowing demand the factory will definitely have to lay off workers and it will be really hard to find a new job I'm very worried these are the first victims in Indonesia the credit crisis in the United States in East CH alone tens of thousands of people are making a living out of this export business and nobody dares to predict how many of these people here will lose their jobs this crisis could even be worse than 10 years ago predicts the chairman of the Frozen Seafood Association if I'm comparing to the 98 The Happening of the crisis of financial crisis this is even more serious why yeah because on that time is is only happened to the developing country like us as the producer but this time it's happened on the market side and not only the American Market but also because of this crisis it is influence also to our another market like Japan like European all over the world not only Seafood exports are at risk but also those in textile and food wear manufacturing the head of the employers Association fears serious layoffs yeah it's very hot to to predict you know but I still believe uh that will be a few 100 thousand people will still uh will start to get uh unemployment also because investment is not coming and somebody have to streamline also their activities anymore and this is something according me especially the small and mediums that cannot be I mean much assist by the government the government has urged exporters to explore new markets like the Middle East and Eastern Europe but it's not that simple how how to survive how to maintain our worker how to maintain the industry so need to uh survive how to feel the survival so mean uh we are maybe considering also how to increase the another Market but not switching uh from the America to the Middle East is hard right because they are eating the kebab and then suddenly they they need to eat the Susy for the shrimp peelers here these are uncertain times a crisis on the other side of the planet is now threatening to have a big impact on their lives step fasten AL jazer East Java
Jitters in Japanese stock markets
Al Jazeera English
Transcript
one day following the biggest selloff in the Japanese stock markets in more than two decades there's still plenty to worry about I thought I was playing it safe when I chose stocks but now all the stocks are falling I think I've had enough seeing stock prizes fall this much it almost makes me want to die to be honest that's how much I S is really tough after Panic selling caused the Nick index to drop more than 9% investors remain jittery about whether a worldwide coordinated cut in interest rates will Shore up the markets and whether the United States Bank bailout will do any good by comparison Japan's banks are in pretty good shape they've been through something like this once before in the late 1980s and early '90s when a bubble in Japanese real estate popped they learned their lesson and didn't indulge in the overleveraging that's threatening us and European Banks and which has ruined more than a few but that's small comfort and hasn't kept the diseased US economy from infecting the Japanese stock market the Japanese economy depends heavily on exports you know the big brand name Sony Toyota Honda about half of those exports are sold in America and when Americans stop buying Japanese products they feel it here for example Toyota is predicting 40% lower profits this year mainly because of declining car sales in the US fewer American children will be getting Sony PlayStations and Nintendo wi this Christmas and that puts Japanese workers at risk not just investors making matters worse for exporters the Japanese yen is getting stronger one1 US dollar now buys less than 100 yen the Yen's considered a safe currency in these troubled times but that makes Japanese products even more expensive to sell overseas the fear here is that if the world's biggest economy goes down it'll take the world's second biggest economy down with it David Hawkins Al jazer Tokyo
Turkey's economy in crisis amid global downturn
Al Jazeera English
Transcript
across the Bus Forest stet linking turkey to Western Europe shock waves from the Global Financial meltdown are already Rippling up to 70% of stocks here are held by Foreign investors and there's a fear this crisis could cause long-term damage foreigners have begun pulling their money out and Turkish investors have rushed to buy dollars causing the local currency to fall and yet some think it's just the result of fear not a real problem it is again a well-balanced uh market and uh uh the liquidity has not shrunk uh uh unlike some of the markets uh especially within Europe and Eastern Europe we have seen drops in the total volumes by over 40 50% and uh this year we have not seen a drop in our volumes at all it is at the same level as 2007 Turkey's economy is vibrant thanks to recent reforms designed to please the EU and the relative political stability since the ascent to power of the justice and development party in 2007 turkey ranked as the 17th largest economy in the world but as they watch the world's strongest economies tumble down some analysts believe turkey will not remain immune on the side of stock exchanges and uh foreign exchanges there is no stability and there is no trust in the market that's why we influence too much and we have lots of losses the Turkish economy has probably one major strength right now the fact that mortgages are rare here mortgage or any kind of uh credit uh uh problems related to mortgages is extremely limited the total mortgage credits within the banking sector is less than 3% of their total uh uh credits so it's a very small part of the uh the Turkish uh banking system because mortgage regulation is a very new one it's it was passed on a couple of years ago on the streets of istambul people have a different story the world financial crisis will create poverty in the west but these Turks don't need a crisis to make them poor our situation is very bad our pension is small and as retired laborers savings for my life is very hard we can't pay our rent and we are in debt turkey could be politically and culturally on the fringes of Europe but it is not on the fringes of capitalism in 2001 they were able to solve a similarly dramatic Financial meltdown of their own today however the opinion is divided as to whether that experience will help if Turkey is severely hit by the present financial crisis around the world
Dow Drops Below 9000 in Massive Sell-off
Associated Press
Transcript
was just a a a real freeall it was painful to watch after a relatively calm day the Dow took another 600 point hits all in an hour the momentum built on itself in the last half hour first was off 100 points then was off 200 then it cascaded 300 400 when it was all over the Dow lost more than 675 points part of the massive selloff was fueled by the downgrade of General Motors stock one of the Dow components some of the stocks at year low a 50e lows General Motors like a 54e low so I mean there was a lot of things out there building on it some of the veteran Traders here on the floor were visibly spent they were rubbing their eyes in disbelief they've seen 7 800 drops before but today it was different when it broke that 9,000 level that's a technical level and you saw a lot of cell programs through the system computer driven programs come in and sell the market off to where it was now by the end of the explosive session the Dow closed down 6 78 at 8579 the S&P 500 Index closed down 75 at 99 while the NASDAQ was off 95 at 1,268 but even given a market that turns on the drop of a hat there's still some optimism on the trading floor you talk to a lot of Traders they think we're nearing a bottom and I know that sounds insane when you walk away from a day where we're down 500 points but if you look at unemployment numbers are dropping a little if you look look at pending home sales they were up over 7% housing is what's got us into this problem housing is going to get us up so there are little hints that things are starting to ease up very so slightly Bonnie go the Associated Press New York
Money Minute: Retail Sales, National Debt, AIG
Associated Press
Transcript
AP money B dismal sales from mbased clothing chains offered more evidence that American consumers spooked by the financial meltdown shut their wallets tight last month same store sales Rose just 1% for September the weakest performance since 2001 the news fueled more worries about the holiday shopping season which was already expected to be Bleak concerns about the health of American International Group were renewed Thursday a day after the insurance giant said it would receive an additional 37.8 billion loan from the Federal Reserve AIG is apparently facing a liquidity crunch greater than was anticipated a month ago the new loan will help AIG cover requests from clients to redeem borrowed Securities it's a sign of the times literally the national debt clock in New York City has run out of digits to record the growing figure as a short-term fix the digital dollar sign on the billboard style clock has been switched to a figure the one in $10 trillion it's marking the federal government's current debt at about10 .2 trillion I'm Mark hamri with ap money minute
Stocks Fluctuate As Worries Dog Investors
Associated Press
Transcript
markets opened this morning with more news from washington talks that the federal government is considering taking ownership stakes in banks across the country now how that would work is that the fed would step in loan banks money in exchange for part ownership on those banks it's all part of that 700 billion dollar bailout plan where the fed is authorized to inject cash directly into banks to get them to start lending again this is the latest in a series of first of its kind moves by the government to get those frozen credit markets moving again now the details on this plan have yet to be released everything's still very preliminary right now but officials hope that between this plan the move to buy up short term unsecured loans and the half point interest rate cut will be some type of significant sustained improvement in those credit markets which have plagued not only wall street but the markets across the globe right now it seems the theme is to act quickly to head off any type of global recession yesterday britain announced a similar type of a plan to inject capital into their banks and we also saw a coordinated effort across the international banks and other countries to also cut interest rates right now the european markets seem to be on the mend the asian markets also reported steady performance overnight and of course here on wall street investors would love to see some type of a rally although right now the first priority is to inject some confidence back into those markets in new york bonnie goes the associated press
Financial Advice By Age Group
CBS
Transcript
in the past 15 months pensions and 401ks have lost $2 trillion so what do we do now here with advice is our financial adviser Ray Martin and you've brought some props that'll make it really easy for us to understand what we should do that's right number one all these people who are saying maybe I should just get out maybe I should just stop investing in my 401k what do you say to them you know I understand people are scared and they're worried about this with the market down 30 35% this year the right time to have sold was a year ago your 401k is a long-term investment and if you sell your stock positions now and almost every 401k account should have some stocks in it to some degree if you sell right now you're selling in the hands of folks who are selling out of Panic or fear or folks who are forced to sell because they need cash and you are not getting a fair price right now for your stock Investments here's an example a lot of folks own homes another long-term investment if home for home values are forecast to fall again before they recover if you sell your home right now for cash and have to get cash by the end of the day today what might you get $10,000 for your home 20,000 you wouldn't do that it would be ridiculous you'd wait 1020 years to sell you'd get 1020 times that your 401k and stocks in it are the same thing you wouldn't shouldn't sell when conditions right now are not getting you a fair price all right so I guess the question is you stay in your 401k but how much do you invest in stock and that would depend on your age if you're in your 60s if you're getting your retirement I imagine you don't want to put a lot of money in stocks well that's right and it's not just your age it's when you're going to use the money if you think you're going to be withdrawing money out of your Forum okay the money you need to draw down to supplement a pension in Social Security to pay your monthly expenses that money and f that you're drawing out in 5 years should not be in stocks instead it should be in bonds and cash okay so if you're going to need it in five years don't put it in stocks it shouldn't be invested in stocks and if that 5-year money is in stocks wait for the next year or two to pull it out when you get a better price but an allocation for folks in their 60s would be about 50% in stocks here the other 50% would be in bonds and cash to the degree that you mix that uh is is up to what you need to withdraw but about 50% in stocks in that age group that seems high 50% in stocks think about it though if you're 60 65 years old some of that money will be invested until you're 85 years old which is still a 15 or 20 year time frame for folks right so it makes sense let's move to our 50s I guess you can afford to take a little more risk here okay here your time frame is even longer you've got another 10 years here so your stock money could be about 2/3 of your account the other third of your account you're going to be Diversified in bonds and cash here so you can do that but the most important thing for folks in their 50s increase your savings now you're at your Peak earnings Years hopefully your kids are out of the house now and you have more discretionary income to save and you can do something folks can't do and that is catchup contributions younger folks can't contribute as much as you can you can contribute $20,500 a year to your 401k pre-tax you should be contributing as much as you can because the number of years you have to save is only 10 or 15 more years great Point all right let's move to our 40s the stock allocation keeps growing the younger we are that's right now here again long-term time frame you should be Diversified you could have 75% of your account in stocks or 80% the other 25% of your account would be in bonds and cash here but here are folks in their 30s or 40s have a lot of savings interrupts you know starting a family buying a home going back to school new job or changing careers and they put off saving for their retirement which is no less important it's just not as urgent as those other things do not stop saving for your retirement you're not going to have the pensions and Social Security that the older Generations have here you need to stay in your 401k and keep saving all the time all right last 30 seconds we don't want to forget people in their 20s what should they be doing well here your time frame you know 30-year investment time frame you're going to have most of your account 80 90% in stocks I didn't say all of it though another 10% or so in cash and bonds here and here join your 401k at a minimum save 6% you should be saving 10% of your pay all the time according to the National savings rate guidelines so get in that 401k plan and stay contributing now all the time all right thank you so much Ray remember you can watch this on our website early show. cbsnews.com [Music]
Forbes' 2 Cents On Crisis
CBS
Transcript
the big question can wall street break its six-day losing streak let's turn to cbs news business correspondent anthony mason at the new york stock exchange this is getting old anthony it sure is maggie i'm sorry you're not down here with me today there is some good news this morning most overseas markets rebounded overnight after several asian central banks followed the fed's lead and cut interest rates there are also reports that the us government is now considering taking ownership stakes in many u s banks to try to unlock the credit markets the fed and the treasury have been throwing everything they can think of at this financial crisis loans bailouts rate cuts but so far nothing has been able to crack this crisis of confidence for the sixth straight trading session stocks slid not even the fed's emergency rate cut was enough to turn the markets around it's taken us 20 years to get here and it'll take us a while to get out as the credit markets remained frozen treasury secretary henry paulson urged patients while the rescue package is implemented the turmoil will not end quickly and significant challenges remain ahead paulson refused to predict when the u.s economy will recover but recession warnings were flashing as three out of four major retailers reported disappointing september sales setting the stage for a grim holiday season it was one year ago today that the dow hit its all-time high at more than fourteen thousand we have fallen more than nearly i should say thirty five percent since then the dow is now below ninety three hundred and traders are still wondering where the bottom is maggie hi anthony that's the million-dollar question where is the bottom so let's ask the billion dollar man joining us now is steve forbes president and ceo of forbes incorporated also an economic advisor to john mccain good morning mr forbes good morning maggie thank you thank you i know that no one can predict where the bottom is but what do you think are we just beginning this slide no i think actually uh where we're getting near the bottom and the trouble with these bottoms is when people give up hope that's when the thing turns what they call a capitulation so in this kind of a market the thing to keep in mind is your emotions are your enemy that's why most people do so poorly in the market when the market's going up they say is it too late to get in and they get in at the highs when it goes down they say is it too late to get out the key thing is be steady if you're a younger person keep putting in a certain amount each month into mutual funds with low expenses because it means when the market recovers you'll have more shares dollar cost averaging it works if you're an older person as as you get older just make sure you put more of your assets into bonds and cds so if market takes a hit you're not going to lose what's left of your hair i'm sure you've taken your own advice has this crisis affected you personally uh sure it has uh in terms of the if i have a few equities for mutual funds they've gone down i just remind myself we had big market breaks in the 1970s we had a big one in 1987. this crisis is unprecedented and uh unprecedented measures have to be taken but the fact the matter is we will eventually recover and those who panic usually end up with less than those who have the steel and don't let their emotions get in the way hard not to panic when nothing seems to be working i want to ask you about a couple of headlines today the u.s government may now buy ownership stakes in some banks to encourage lending do you think that will work when nothing else has well the key thing is the 700 billion dollar facility they passed don't try to set up a nice elaborate program realize this is an emergency get the money out another thing they've got it so you know take equity stakes whatever it is get the toxic loans off the books so banks can start lending again there's no shortage of money in the system but people fear so they clutch the cash they're not willing to put it to work so the economy gets hurt and another thing they have to do is this crazy accounting rule that is forcing banks to write down the value of assets at distressed sale prices be as if you're told sell your home tomorrow morning at whatever price you can get well you're not going to get a huge loss don't do these fire sale price accounting do was if you're going to hold the asset for the long term uh if you look at most losses in these banks those are book losses not cash losses so they do a few sensible things we'll start to climb out of this thing we don't have much time left but you know the presidential candidates were asked who they would choose to replace hank paulson as treasury secretary you interested in the job uh there they're not going to offer it in part because they're they're afraid i might accept the thing but uh but uh but but the bottom but the bottom line is the key is uh you need capable people but you need the right policies and one thing would you lobby for it no uh but one thing that president next president has to do is realize they've got to do a good stimulus for the economy the way john kennedy did in the early 60s the way ronald reagan into the early 80s a big tax cut a look in what's clogging the system and then we'll get grown again you must be twitching with all this talk of part nationalization of banks and all these government bailouts you're a republican and a capitalist well when you have an emergency take whatever steps are necessary to get the system working this is about saving free markets you do whatever it takes to get them revived again when a patient has cardiac arrest you don't worry about the brand of the defibrillator get the job done all right steve forbes maggie thank you thank you very much
Bad economy hits restaurants
CNN
Transcript
Step this way, your table's waiting. And in Paris these days, there are plenty to choose from. And no shortage of elbow room. The economic crisis, decreased buying power, and changing habits are a recipe for gastric distress among restaurateurs. For years, the leisurely two-hour business lunch over a glass of wine has been disappearing, a victim of slimmer expense accounts and shorter lunch hours. But now, global economics are accelerating the trend. Today, a long wait to order is as likely as not to occur outside a minuscule pasta takeaway shop or a high-end sandwich counter with low-end prices. Well, I think that's the price that people are willing to pay, not much more today. The mere thought of how the impact of the financial meltdown will eventually hit pay or severance checks is enough to drive even more people off the plush banquettes and unbucket. But the real question is, how will the pandemic affect the food industry? And how will the pandemic affect the food industry? The food industry is a big part of the food industry. And it's a big part of the food industry.
Couple loses life savings
CNN
Transcript
The International Financial Meltdown doesn't only affect big banks, little people are hurting as well. Folks like Hans Dieter and his wife Doris. They invested their entire life savings, more than $100,000 in stocks of Lehman Brothers. And now that Lehman has gone bust, they've lost everything and are even in danger of having to move out of their home. Our entire foundation is gone. Our pension is gone. Everything is gone. Now we have to try to do the best we can. A lot of grief there. Of course, this is an especially tough case. Nevertheless, analysts believe that the entire German economy could be affected by the financial meltdown. And that's what we're going to see. And might be in for a major downswing. Fred Pleitgen, CNN, Berlin.
Markets hit again
CNN
Transcript
There's far too much volatility. The intraday swings are just unreal. I mean, the last couple of weeks have just been unthinkable. As you say, this afternoon the Dow opened up. Within an hour and a half it was trading 100 points lower, after being 150 points higher. But the volatility, it's volatility trend sharply downwards, isn't it? What does that tell us? It does seem to be trend downwards, but there is a lot of value out there. And if the likes of the guru Warren Buffett are buying in at the moment, he is the man to follow. We talk about capitulation. That's the point at which investors say, right, I'm getting out whatever the cost. I'll sell whatever I've got in my portfolio. I just want to get completely out of the equity market. Have we reached that point yet? Probably not yet, but very close. Again, it's that thing of buy fear, sell greed. People are now panicking to sell their stocks, yet now is the best time to be picking up stock. Well, is it the right best time? Or do you think that stocks could go a long way south from here? Well, I don't think they'll go a long way south from here. Certainly over the next few weeks, we should be bottoming out, whether today, tomorrow, the next couple of weeks. But we are reaching that point where there is so much value in big blue chip companies globally. The UK, for example, where I'm based, they're a large company. They're a large company.
What's driving wild swings
CNN
Transcript
It's hard to make sense, really, of what's going on in the market right now. This is not a market that's operating on fundamentals. You can see from the big board, we're seeing selling accelerate. We opened higher. We're seeing selling accelerate. The Dow heading lower with losses of over 200 points, although, of course, it's bouncing around a lot. This is a market that's trading on emotion right now. Every time there's a feeling, especially down here among traders, that this is looking oversold, that maybe there are some buying opportunities here, but every time someone tries to step in, they get slammed down. The rallies just do not hold, and that creates an environment of fear. You heard in the piece before us, there are a lot of headline risks. Anyone who comes in is afraid that there's going to be a big headline that comes out, and they're going to get stuck in a position that's maybe illiquid. That's also causing people to sit on the sideline. And then, of course, you have the average Americans, average citizens around the world who are watching banks in trouble, their retirement savings either stuck in accounts or going down sharp. It's a year anniversary from when we hit that high. The Dow has lost a third of its value. So those people are saying, should I just get out of this? So that sort of emotion is overwhelming, swamping out the fundamentals. And there are some very, very powerful fundamentals here for this market. Governments around the world are taking unprecedented measures here, including what we're hearing in the latest talk, that U.S. Treasury might be thinking about doing some sort of direct injection of capital, taking a direct stake in U.S. banks, very much along the lines of what we saw in the U.S. and the U.K. I mean, this is unprecedented, and yet it really hasn't helped calm the markets. We're seeing credit markets still frozen. So those sort of fundamentals are not really driving things right now. It's really the emotion and fear that's sort of feeding on itself. Jim? Does anybody have a timeline here? A lot of people that if you talk with people in the financial sector, they say the worst is not over. It hasn't come down yet to Main Street. You haven't seen the layoffs yet. The banks are going to want more, just as we saw AIG asking for more. That's right. You bring up a really good point, and that's exactly what people are focused on. You know, the governments are throwing, it seems like, everything they have at this problem, and yet it doesn't seem to be enough. That itself causes some concern. And then, you know, the ripple effect. What are we seeing? How many layoffs is this going to cause? Are businesses going to suffer, go out of business, see a downturn? What does it mean for the economy? We heard very sort of dire warnings from the IMF saying, listen, global growth is going to slow. In some cases, in some countries, it will be significant. And no country will be immune. So, again, investors around the world taking stock, saying we may be looking at a global recession here, if not a recession for some countries that we're seeing a lot of growth, much slower situation, and they're reevaluating where share price system should be. Again, I want to point out that things are very volatile. Markets here, it's a Jewish holiday, so not all market participants are in. And there is a feeling maybe things are getting overdone. But those are big issues about global growth that investors have to confront, Jim.
Central Banks Around the World Cut Interest Rates
VOA News
Transcript
the rate Cuts come as Global Financial markets are feeling the impact of the US financial crisis in Great Britain where several prestigious banks have collapsed investors are losing confidence you know we've had the tsunami everything's collapsed that's gone and in Asia stocks continue to Tumble down 8% in Hong Kong on Wednesday and nearly 10% in Japan British prime minister Gordon Brown called it an important signal that the world is prepared to work together to deal with economic problems and this is the means by which by taking coordinated action as a whole and leading the world in doing so I believe we can get our banking system on a sound footing and that is the key to the Future US Treasury secretary Henry pson said the central bank's rate cut is just the beginning this weekend I'll I will be meeting with my G7 colleagues to discuss the steps that each of us are taking to confront this crisis and ways to further enhance our Collective efforts but invest vors remain unconvinced in New York the Dow Jones Industrial Average closed nearly 200 points down Securities Trader David Henderson summed up the mood on Wall Street I think that uh there's you know a lot of fear out there people are you know hey now they're seeing that we're getting this um coordination among all the central banks where they're you know cutting the rates which is all fine and well and good but the damage has already been done basically but the international monetary fund believes the action by central banks will help IMF Chief economist Olivier Bernard says the actions come at a time when the global economy is slowing down with the stabilization of oil in commodity prices the room for using monetary policy has substantially increased in most advanced economies what happened this morning namely the coordinated decrease in interest rates uh is clearly a step in the right direction officials are hopeful lower interest rates will ease the credit crunch that has made it difficult for some businesses to operate Millar Sega vaa news
U.S. Financial Crisis Began with Subprime Mortgages
VOA News
Transcript
the financial crisis started because people like Darnell Horton who bought a home near Atlanta Georgia could no longer afford to make payments on their subprime mortgage loans subprime is a term that refers to risky loans that initially had low interest rates but after a few years the interest rates jumped these loans required less verification like whether borrowers had jobs as long as home prices were Rising borrowers who had difficulty rep paying loans could sell their houses at a profit and pay off the loan but when home prices fell homeowners with financial problems lost their homes to foreclosures Banks and other lending institutions lost Revenue the impact was magnified by mortgage backed Securities George Mason University Professor Gerald hanwick says these were created by companies that bought mortgages from lenders mortgage back security is basically a bundling of of individual mortgages uh maybe upwards of 1,500 within one entity investment firms not only bought bundles of risky subprime mortgages as mortgage back Securities they also borrowed money to buy some of these bad debts the use of borrowed money to make investments is called Leverage it's also risky University of Maryland Professor elinda kiss so you can amplify your return on that investment but you also can amplify your loss when mortgages went sour some highly leveraged that would be deeply indebted corporations went bankrupt some of them like Leman brothers were huge companies that played a major role in the global economy their collapse frightened investors and sparked a steep decline on stock exchanges worldwide many banks and other lenders stopped offering loans because they thought they might not be repaid Professor kiss says without credit business slows down and some companies have to lay off workers those workers reduce their spending and that hurts other businesses but they're not going to go to restaurants they're not going to buy new clothes those those stores lose business they have to lay off workers and it spreads throughout the economy in the end the economy stalls Advocates of the government bailout say the plan to buy up bad mortgage back Securities will restore confidence spur lending and get the econ growing again others question whether that will motivate the average American to start buying again and stimulate the economy Jim Randall vaa News Washington
Robert Zoellick on the financial crisis
Al Jazeera English
Transcript
It's been hard over the course of the past year because of the high fuel and food prices which have pushed probably another 100 million people into poverty. And as we emphasize this week, we estimate that some 44 million more people are now suffering from malnutrition because of this. But what I've been trying to draw attention to this week is is that I think that the problems in the developed world could now flow over to the developing world which up to now has had good growth and it could become a tipping point for many economies. It could lead to a slowdown in the developing world and many of them uh don't have the same uh cushions that you might have in the developed world. But as the wealthy nations are in crisis mode trying to really sort out their own finances, can the World Bank really mitigate the effects of this global Well, and it's exactly as you said, it'll also lead to a fall off in investment and some of them because of the food and fuel prices have higher tighter monetary policies uh as they get business failures, you could lead to problems in the banking system. So So what can you do? What can you do in specific? Well, we can expand our our lending to countries. Uh we're very well positioned. Uh we did about a $ 38 billion of business last year. We're well capitalized. we're liquid, we can expand that. The scope of this problem is much larger than what we can uh deal with. So, we're well positioned to be of help, but what we also have to try to do is continue to get the developed world to follow through on their promises in Glenn Eagles and also try to work with developing countries so that they can tap some of their own resources with the right investment policy. What is the solution though because you have said recently that uh you are advocating turning the group of seven industrialized countries into a steering group that would also include the economic uh rising powers. It almost suggests that this whole financial global crisis could have been averted if these countries would have gotten a seat at the table. Does it make sense to offer more countries to join the G7 when the G7 itself should be fixing its own home? Well, I think the logic is that the change in the world economy means that if you're going to tackle financial problems, development problems, trade issues, environmental and energy issues, you're going to need other players at the table. Now, it's always the case you bring more countries in and it makes it harder uh to be able to try to achieve a solution. So, in the short term, I think what the G7 needs to do is to try to uh take the actions it's starting to take. You saw the coordinated central bank actions and that included some developing countries for example China but also uh to try to clean up the assets to try to make sure there's liquidity in terms of of banks being willing to provide funds to corporations and others recapitalize the institutions and if you think about it going back to the sovereign wealth fund creation they're going to be part of the solution to putting capital but they were never part of the the negotiating process to begin with. They were never given that seat at the table. Why ask them suddenly to share the burdens and the risks? Why the sudden change of heart? Well, because we're all in the same boat together. We need to help make the rules for the new global economy. And I think how would you though look at the origins of this whole financial problem? Many voices including here in the US Congress have talked about criminal liability and criminal negligence on the parts of the CEOs of certain financial institutions and indeed on the part of the Bush administration for some of its policies of deregulation. How do you look at this problem? To what extent is the Bush administration and its policies? Oh, I think the problems extend far beyond the Bush administration. Part of this goes to the fact that you've had a lot of liquidity sloshing around the international system for a long time. This partly deals with monetary policies. It partly deals with some of the uh the effects of the uh economic rents that have gone into sovereign wealth funds and other reserve funds. They have to invest the money in different places. So I think you've had an environment also where with a lot of the developing countries coming into the global economy they dampen prices. So you had an unusual situation in past years where you had things that would dampen prices but you also uh had a lot of money. Normally you don't have those together. I I think frankly I it's not my purpose nor do I really feel that this is a blame game. You need to figure out the solution. You need to figure out what happened in the past and I think then you need to try to move forward together. So you know you're the questions you ask or people legitimately want to know for example if people did criminal activities. We're not a criminal prosecuting institution. It's my job to try to help poor people.
Global reaction to economy
CNN
Transcript
Yes, we buy less right now. Especially bigger investments. No cars or things like that. We're waiting to see what happens. My trust is eroding. You give the little private money you have to the bank and they just play with it. It is that simple. Well changing how we shop has already started since the beginning of the year. This recession is nothing new, even if things get better economically from reading the newspapers. We monitor by reading newspapers daily, not just one, watching television and some things have changed. In what we buy, a little more conscientious. No, no, I haven't had to change how I shop. We don't eat much, honestly. Plus, I'm not afraid of this financial crisis, honestly. I hope in what the government says. I hope it's not true. All the catastrophic things we eat. One hears around. Well, we hope. I hope in Unicredit. No, not for now, because we didn't have particularly demanding habits to begin with. My lifestyle for now hasn't changed. We'll see if in the future, for example, we will be able to go on vacation. But there's still time for that. There is a little anxiety, but for now I still think that by being careful, even on a daily basis, everything can be dealt with well. I'm still spending large money. And you're still as confident about spending the money? Yeah, it doesn't bother me as long as you're earning it. It doesn't matter, does it? Yeah. It's just whether or not the work stays there or not is another thing, but come to that when you come to it. Why is it just depresses you? So, I'm quite happy spending my money. Brilliant. It doesn't bother me. I guess my job was a luxury, so when the company decided to do cutbacks, the first job to go was mine, unfortunately. So, spending habits have obviously gone right out of the window. I'm actually standing here waiting to see more work, hopefully. But apart from that, not very good, really. Yeah, I've stopped spending money. Making my own clothes, stuff like that. Cool. That is really cool. Well, I mean, it's not very cool if you see them, but in theory, yeah, it should work really well. Right. And so, you're actually just really watching your money? Yeah, absolutely. Okay. What else have you been doing? Making packed lunch. Just trying not to spend money where it's not really worth it. So, you're actually just really watching your money? Just trying not to spend money where it's not necessary, basically. My love for bread is like 100 extra. I can't buy a can of cold drink anymore. I can't buy three cans of Coke anymore. I have to buy two a day. I wonder what's going to happen next year, maybe, for us in terms of, like, I finished school this year and then I'm going to work. So, I'm wondering, am I going to earn enough or how is it going to, like, affect my life? I'm still confident with the government and the finance industry, but I will, you know, I'm not going to be a big fan of the government.
Iceland hit hard by crisis
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Here in Reykjavik, the financial situation just gets gloomier and gloomier. The government has taken control of the country's largest bank, Copthing. Now that means that the top three banks in the country are now in government hands as this financial crisis continues. It's estimated that banks have a combined $600 billion in debt, something the government could never, ever bail out as they're doing in Britain and in the U.S. It's also believed the banks are nine times the size of Iceland's gross domestic product. That's why the government cannot bail these banks out. On top of that, there's a growing row between Britain and Iceland because many people in Britain put their money, their savings, into Icelandic Internet banks. That money has been frozen in the governments of the U.K., and Iceland continues to hash it out of which government insurance funds should cover those investments, those savings. Finally, the currency. The currency is now floating again. The central bank has given up on trying to peg the currency. The currency here in Iceland has plummeted over the last few days, and the stock market is now closed until Monday. Without the banks, there was very little left in the stock market. Jim Bolden, CNN, Reykjavik, Iceland.
World Bank weighs in
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MS. Zelleck, thank you very much for being with us. You said that this is a momentous time, and people, especially in developed countries, are very concerned about what's happening. There's a lot of talk about what is happening and how this is affecting people on Main Street. You pointed out that there are a lot of Main Streets around the world. How is it affecting the rest of the world's Main Streets? Well, for the past year, when many people have been focused on the financial markets, I've been trying to draw attention to the food and fuel hits in the developing world, which pushed some 100 million people into poverty. We reported this week that another 44 million people now suffer malnutrition, which is particularly hardest for the children, stunts their whole life. But this week, I think I've tried to identify that we're now at a tipping point for some developing countries, where up to now, they've been good growth stories, but we are now facing a context where we're not. We're at the slowdown in the U.S. and Europe and Japan. It's going to start to flow back through the developing countries, and then that will have ripple effects coming back to the developed countries as well. The average person, let's say, in the developed world can't get credit. They can't buy what they want. Do you have enough money to lend to countries that really need it? Well, we at the World Bank play a role where we can expand. We're very well capitalized. We don't have problems getting to the markets to borrow what we need. But could you foresee that maybe some developed countries, the governments, would say, I'm sorry, we are in a crisis. We simply cannot follow through on those commitments. There's always a risk of that. They tend to, under some attention and pressure, follow through on the basic commitments that they've made. But one of the messages that we have is that sometimes they're going to get it harder. Developed countries are under stress. People are focusing on Wall Street and Main Street. And our message is, while you're focusing on Wall Street, you're focusing on the U.S. economy. While you're focused on the financial rescue, keep your eye on the need for a human rescue, too. Let's go back a few years. International institutions like IMF, World Bank, et cetera, would tend to tell developing countries, you should really open up, accept the free market. And now we see the reverse in developed countries, more, let's say, government interference and control in the economy. Does this underpin that? Does this undercut the whole issue of free market capitalism? Should people be looking at a different model? Well, there is undoubtedly a big debate on this. And there's going to be, because of these, the traumatic events, in part out of anger and frustration, people are going to try to say, well, who do you blame, just as they are in the United States with the financial problems. What we found over time, though, and this was affirmed by a growth commission that we had with leaders in the developed and developing world, it was chaired by Michael Spence, who was a Nobel Prize laureate. He said, you know, the world is going to be a great place for the world to be. And he said, well, we're going to be a great place for the world to be.