Crash continues G7 meets

Friday morning October   10 2008 8:00a.m.

Overnight Asian markets fell by as much as 8 % after the Dow fell by close to 700 points to the 8500 range. A good part of this carnage was probably due to program trades and the fact that the ban on short selling was prematurely lifted. Unrestrained short sellers drove the market down to take profits from those long in stocks. This particularly hurt the stock of General Motors now down to late 1940 levels and the financial sector stocks as well. The markets are now down by close to 50 % over last years peak.

The drop in values in Japan and the world wide crisis caused the bankruptcy of the Yamato insurance company a major firm and has alarmed the Japanese Government to consider increasing its stimulus package. Meanwhile G7 finance ministers and officials are meeting in Washington to try to co-ordinate their strategies and tactics in order to stop the panic and unblock the financial and credit sectors. It seems almost a certainty that partial nationalization of the banks through the injection of liquidity in exchange for preferred share ownership along the lines of what Gordon Brown's Labour administration has done in the U.K. will be part of the discussion. The massive global deleveraging that has followed the collapse of the bubble is a major shock to the global system and its effect will reverberate for some time to come.

In the meantime   Governments have to get on with task of reregulating, nationalizing where necessary and acting as lenders and equity managers of last resort to ensure that the restoration of stability occurs as quickly as possible. There will be plenty of time later to assign the blame where it properly belongs.

Saturday 5:45 pm. the markets closed yesterday down further. The Dow closed in New York down 128 points after very sharp rises and falls in its value. It for a time broke through the 8000 barrier and the market plunged by 700 points but a few brave souls with optimistic outlooks or different strategies bought back in at this point and losses diminshed until the close. The markets are shut over the Thanksgiving weekend in Canada. On reopening it will be very interesting if the downword trend continues or if finally the current bear has scraped bottom. Part of this will undoubtedly depend upon what agreements are reached on a common strategy by G7 officials and finance ministers meeting in Washington. Speed and aggressive intervention is of the essence.