Page last updated at 08:11 GMT, Tuesday, 23 September 2008 09:11 UK

Global reaction to financial turmoil

BBC correspondents report from around the world on reaction to last week's turbulence in US financial markets.

HUGH PYM, LONDON

News of the collapse of Lehman Brothers last week sent shockwaves through the banking community and shivers across the wider City of London. Hopes had persisted till the last minute that a rescue takeover could be conjured up.

Bank workers did not have long to clear their desks
Lehman Brothers employees clear their desks and leave the building

But the reality of the bankruptcy stunned everyone in financial services. In such circumstances jobs go quickly and a lot of skilled workers enter the labour market at the same time.

The administrators at Lehman are hopeful of selling some parts of the business and so salvaging some jobs. But with Merrill Lynch being taken over by Bank of America, and HBOS by Lloyds TSB, thousands more are likely to be looking for work.

London's restaurants, car dealers and estate agents will be the first casualties of the ripples from the banking crisis. The already depressed housing market will take a further knock.

The wider British economy will be hit by the City downturn. Around 15% of British economic output is accounted for by financial services and related professions like law. The chancellor of the exchequer may want to go to war on excessive City bonuses. But there is unlikely to be much excess for a year or two and he will lose tax revenue when he can ill afford it.

CHRIS HOGG, JAPAN

Until Lehman brothers collapsed, Japanese financial institutions were pretty confident they had weathered the worst of the credit crunch. But this was different.

In the biggest banks in Tokyo, staff were scrambling to check the deals they had entered into with the bankrupt bank. Such was the complexity of some of those transactions it was not clear even by the end of last week how badly affected they would be. That meant the banks had to set aside large sums just in case they needed to cover huge losses, which of course reduced the amount of funds they had available to trade.

Individual investors who had Lehman's products in their portfolios were also not sure how much they had lost, and analysts report that many lost their nerve.

Funds were being pulled out of the market and converted into cash, and placed in three-month or one-year deposits in banks.

Japanese people have far greater savings than those in the US or the UK, so when the stock market falls they do not immediately feel as poor, perhaps, as those in other countries who are seeing their house prices falling and their stock portfolios losing value too.

But many individual Japanese investors are worrying for the first time that earthquakes on Wall Street can shake the foundations of the financial institutions here and it will be hard to persuade them that it is safe to start taking risks again.

QUENTIN SOMMERVILLE, CHINA

The Olympics ended, the stock market collapsed, the government cut interest rates and everyone in China got the message: The world's most super-charged economy is slowing down.

Chinese investor looks at the shares index in Chengdu on 22/09/08
Eyes of the world are on the markets

The government's decision to cut the stamp duty on share purchases has put the Shanghai index firmly back into positive territory, much to the relief of ordinary investors who hold most of the shares.

China is not as reliant on exports as it once was, but western consumers do not have as much money to spend as they once did and that is already having an impact here. Smaller factories are closing and jobs are being lost. Even with strong domestic demand, China's economy is expected to slip from double digit growth, to somewhere around 9% this year.

There has already been one interest rate cut - the first in six years - and more are expected to follow. But the hope is that this lower level of growth will be sustainable.

The country is shifting down a gear. It is no the longer a "superfast" economy - just "very fast", according to one economist. But even with that downshift China will still likely be powering ahead of countries in the West.

NEIL HEATHCOTE, INDIA

"Let me assure everyone," says Indian Finance Minister P Chidambaram, "there is no cause for any alarm that any Indian bank is exposed or vulnerable."

The Indian government has been busy trying to calm investors about events on the financial markets further west. Apart from the occasional bout of nerves, they have needed little persuading.

Domestic investors, at least, seem convinced that India's growth will remain strong, even if companies now find it harder to fund their expansion plans.

Indian banks have relatively little exposure to the toxic loans that have plagued Western banks. Although that is not to say the markets cannot be spooked by rumours.

Shares in ICICI, India's largest private bank, fell more than 20% until the bank pointed out that its total exposure to foreign markets was just 4% of its balance sheet.

The rupee has fallen on fears that demand from the US and Europe will slow. But economists point out that this will make Indian outsourcing companies cheaper.

And with the price of oil also falling, many here discreetly wonder whether there might not be a silver lining to the storm clouds hanging over Wall Street, at least where India's economy is concerned.

And assuming, of course, the worst is now behind us.

JAMES RODGERS, RUSSIA

Even the wisest financial heads in the Russian capital were spinning.

"Trading on Friday was very confused with the bourses opening and closing almost with the regularity of a cuckoo clock," said Chris Weafer, Chief Strategist at Uralsib.

That day, trading was halted because the markets were rising too quickly. Before that, they had been closed for almost 48 hours because they were falling too fast.

It gave the government time to decide on its response: billions for the banks and a cut in some oil export duties.

By the end of the week, most losses had been reversed.

Outside financial circles, the rollercoaster week had little impact. Relatively few Russians own shares.

That does not mean the country is not cautious. Finance Minister Alexei Kudrin says that the world economy will be unstable for another six to 12 months, and the Russian economy "will also experience certain difficulties".

TIM HIRSCH, BRAZIL

Brazilians' view of this financial crisis has been largely as spectators gripped by a drama unfolding in a different hemisphere.

Asked about it last week, President Luiz Inacio Lula da Silva replied, "Ask Bush, it's his crisis, not mine", noting that the days were over when the US sneezed and Brazil caught pneumonia.

The left-leaning government's policy of high interest rates (currently 13.75%) has helped deliver big profits to Brazilian banks, meaning they were not so exposed to risky finance such as the US sub-prime mortgage market.

Ironically the orthodox economic policies which help Brazil weather this storm were largely dictated by the very banks that now face collapse, a fact not lost on Lula who sarcastically lamented the demise of "meddling" foreign banks that used to spend their lives telling Brazil what to do.

There have been impacts, such as a sharp fall in the Brazilian Real against the dollar, raising predictions of a retail slump due to costlier imported components for items such as electrical goods.

And some commentators warn that many firms face tough times if foreign investment wanes.

But for older Brazilians with grim memories of hyper-inflation and savings disappearing in a 1990s banking collapse, the predominant feeling is how the world has changed.




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