The World View
U.S. Appeals Abroad Fall Flat as Leaders See No Crisis at Home
Thursday, September 25, 2008
As the world watched Congress struggle yesterday with a plan to bail out the U.S. financial system, foreign leaders balked at similar fixes for their own economies, a few even dismissing the credit meltdown as an American problem. Some foreign investors who had previously provided crucial injections of capital remained on the sidelines.
Senior U.S. officials, notably Treasury Secretary Henry M. Paulson Jr., have in recent days urged the leaders of other industrialized countries to help prop the global financial system. But the appeals have fallen short. While policymakers and economic analysts in Europe and Latin America said yesterday that they recognized the severity of the challenge facing the global financial system, they saw little need at the moment for major rescue packages in their own countries.
"The situation we face here in Europe is less acute, and member states do not at this point consider that a U.S.-style plan is needed," said Joaquín Almunia, the European Commissioner for Economic and Monetary Policy in Brussels.
Meanwhile, the sovereign wealth funds of Asian and oil-rich Middle Eastern nations, which have come to the rescue of U.S. firms before only to see these investments erode, showed little interest in taking a similar gamble.
"We are not responsible for saving foreign banks," said Badr al-Saad, managing director of the Kuwait Investment Authority, in remarks broadcast by al-Arabiya satellite television Tuesday. "This is the duty of the central banks in these countries." Kuwait's sovereign wealth fund pumped at least $3 billion into Citigroup in January, but the stock has lost a third of its value since then.
Major overseas holders of cash, including foreign banks, are hoarding their money, declining to lend to each other, much less to distressed financial institutions in the United States.
With the global flow of money seizing up, the U.S. Federal Reserve yesterday pumped billions more dollars into central banks overseas. The Fed channeled $30 billion to central banks in Australia, Denmark, Sweden and Norway to relieve the stress of the global credit crunch. That came on the heels of the $247 billion the Fed made available to central banks in Europe, Canada and Japan last week, an action that roughly doubled the dollars previously available to them.
The Fed money is designed to alleviate a massive shortage of dollars that has made it nearly impossible for banks to get the short-term loans needed for daily operations and international transactions, which are still largely conducted in U.S. currency.
As part of the deal, the foreign central banks set aside their own currency as collateral in exchange for the new lines of credit from the Federal Reserve. The Fed hopes to dampen the need for other central banks to buy dollars, which could spread the crisis to international currency markets.
Some foreign companies with strong stomachs and balance sheets are seeking opportunities to exploit the crisis and scoop up U.S. assets or buy into U.S. firms for fire-sale prices.
Japanese firms, in particular, have turned into bargain hunters, looking to buy the best of troubled U.S. firms while leaving the chaff for U.S. bankruptcy judges, regulators and taxpayers. In recent days, Nomura Holdings, Japan's biggest brokerage firm, bought the lucrative Asian operations and part of the European unit of bankrupt Wall Street investment firm Lehman Brothers. Mitsubishi UFJ, Japan's largest bank, reached a deal to buy 20 percent of Morgan Stanley for $8.5 billion.
The Japanese banks have reemerged after going through their own upheaval following the burst of the Japanese stock market bubble in 1989 and its real estate bubble in 1990. Although saddled with bad debt for almost a decade, consolidations and restructuring turned those banks around in the early 2000s, emboldening them to reach out now.