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Governments Worldwide Move to Stanch Panic
After two days of temporary trading suspensions, Russia took the extraordinary step yesterday of keeping its main stock exchange closed for the day. The government announced a plan to directly invest as much as $20 billion in the markets, and is lending $44 billion to the country's three biggest banks.
President Dmitry Medvedev, his face grim, convened a meeting of the country's top finance officials in an ornate Kremlin hall and sought to reassure investors that the government was acting aggressively. "There is no more important task for Russian authorities than the stability of our financial system under the current circumstances," he said in the first part of the meeting.
Prime Minister Vladimir Putin, the country's paramount leader, also reassured investors. Though capital flight has gripped Russia since its August invasion of Georgia, Putin blamed the economic turmoil in the United States and Europe for his country's financial problems. Putin left open the possibility of diverting oil and gas revenue. "I don't think the time has come to spend the oil and gas revenues, but we have them. Of course, we can use them, if necessary, to support the financial markets," he said.
In Germany, officials stewed over the discovery that a key state bank, KfW, had sent Lehman Brothers $435 million Monday, even though the news was full of reports the day before that Lehman was about to fail.
By day's end, European markets were mostly down, but by much smaller percentages than in previous sessions. The FTSE 100 was down 0.66 percent and the CAC 1.06 percent, while the DAX rose 0.04 percent. Brazil's Bovespa was up 5.48 percent.
The Japanese central bank yesterday and this morning injected large amounts of cash into financial markets as Tokyo's Nikkei average fell yesterday to a three-year low. Asian markets rebounded in early trading today, with the Nikkei up more than 3 percent and Hong Kong's Hang Seng index up 7 percent, as investors reacted to news of a possible U.S. government plan to revive the stalled financial system.
In words, the Bank of Japan played down the fallout from Wall Street. "I am not concerned that the recent events will destabilize the financial system in Japan," said Shirakawa, the bank's governor. But the central bank moved aggressively to control damage to the world's second-largest economy. It agreed with the Federal Reserve on a dollar-yen swap agreement worth up to $60 billion and left the door open for more help.
"The Bank will supply U.S. dollar funds appropriately in view of the prevailing market conditions," the bank said in a statement.
Brown, the British prime minister, pledged that "we will deal with some of the problems that have arisen because of the irresponsible behavior that has happened," but he did not detail that behavior. "We are cleaning up the financial system where there have been problems, and we are going to continue taking whatever action is necessary so we have a stable financial system."
Brown was personally involved in the HBOS-Lloyds merger talks. Analysts said regulators would have blocked the deal as anti-competitive in ordinary times. "We have taken the right decision and the tough decision that was necessary to protect the stability of the financial system and to protect the depositors," Brown said.
In India, newspapers published front-page stories about employees of U.S. investment firms in Mumbai, India's financial capital, polishing up their résumés. Lehman Brothers employs about 2,500 people in India.
Analysts said one of the biggest impacts of the crisis is to undo the long-held image of the United States as a fail-safe place to invest money. Hundreds of billions of investment dollars have poured into the United States in recent years, much of it from Asian economies where a powerful culture of individual savings contrasts with the earn-and-spend philosophy of the United States.
Many of those Asian investors were feeling burned by the failure of U.S. institutions once promoted as the safest of bets. Though Asian and Middle Eastern sovereign wealth funds lavished rescue money on U.S. lenders earlier this year, those funds appeared to be showing increasing caution.
"The big risk for the United States is that people will begin to feel that we really don't know what we're doing and lose complete confidence in the Federal Reserve, the Treasury and the U.S. financial system," said Edwin M. Truman, senior fellow at the Peterson Institute and a former Treasury assistant secretary. "That hasn't happened yet, but it is a risk."
Pan reported from Moscow. Correspondents Mary Jordon in London, Craig Whitlock in Berlin, Karin Brulliard in Johannesburg, Blaine Harden in Tokyo, Ariana Eunjung Cha in Shanghai, Emily Wax in New Delhi, Ellen Knickmeyer in Yemen and Joshua Partlow in Miami contributed to this report.