The Global Rate Cut

Central banks across Asia joined those of Europe and the U.S. today in a coordinated interest rate cut aimed curbing "the risk of the credit crisis sparking a severe global recession," writes the Financial Times. China was the first to join in—a rare piece of financial cooperation that underlined the severity of the situation—followed by central banks in Taiwan and South Korea. "The global scope of the move was unprecedented," writes the Wall Street Journal, and reflects "fears that the financial crisis could cripple the global economy are spreading rapidly." "Staring into the Abyss" is how the Guardian saw yesterday's events unfold. But will the rate cut work? So far this morning the signs are sort of encouraging. The U.K.'s FTSE 100 is up 1.5 percent (buoyed by new found interest in British bank shares following yesterday's part-nationalization of the retail banking sector) reports the BBC, and Hong Kong was up 3.6 percent after an 8.2 percent fall the day before.

Government ownership of banks seems to be catching on. U.S. Treasury Secretary Henry Paulson yesterday, in a far more activist interpretation of the $700 billion bailout than had been previously been articulated, announced that the government may take "ownership stakes in many United States banks to try to restore confidence in the financial system," writes the New York Times. The still sketchy financial policy (is there any other type at the moment?) would take a lead from the U.K., where the British government has offered banks "up to $87 billion [plus an extra $800 billion in various lines of credit] to shore up their capital in exchange for preference shares." In essence Paulson's plan would "directly address the worries that banks have about lending to one another and to other customers." The scheme is voluntary, but if the U.K. banks' joyous capital grab is anything to go by, Paulson should take on some extra staff when he opens the Treasury's teller window for business. Paulson can get some tips from his British counterpart, Alistair Darling, when they meet later with other world financial leaders to discuss further joint action to tackle the credit crisis. Whether Paulson will choose to hash out his deal over a late-night curry remains to be seen. But as the politicians take action, business continues to burn. One London property entrepreneur lost "£1bn in just 24 hours" due to Iceland's economic collapse, while in Iceland itself, people are coming to terms with the fact that the whole country has gone bust, writes the NYT. But perhaps no one should be more reflective than former Fed chief Alan Greenspan, says another NYT piece. While leading financial minds like Felix Rohatyn and Warren Buffett had long avoided dabbling in the types of derivatives that proved a catalyst for the collapse, Greenspan has "fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street." That position will mean taking a "hard new look at a Greenspan legacy."

Guess what? AIG needs more cash—$37.8 billion to be exact, and it's coming from the New York Federal Reserve in exchange for "investment-grade, fixed-income securities that it had previously lent out to other institutions for a fee," writes CNN Money. AIG isn't the only insurer in trouble. Shares of MetLife, America’s largest life insurer, fell 27 percent in trading yesterday (it had large investments in Lehman Bros., AIG, and Washington Mutual), while Allstate Corp.'s value dropped 21 percent. Times are tense over at Morgan Stanley, as tough-talking chief exec John Mack works overtime to "convince shareholders, trading partners and employees not to believe the latest round of doom scenarios swirling around the firm," writes the WSJ. Meanwhile, Bank of America Corp. will "buy back as much as $4.7 billion in auction-rate securities to settle charges that it misled thousands of customers about the risky investments," reports CNN Money.

There is at least one U.S. company doing well. IBM reported a 20 percent third-quarter profit after the New York Stock Exchange closed last night. IBM's results are viewed as a "bellwether for corporate health and world-wide capital spending," as it sells almost exclusively to big companies and government agencies, notes the WSJ. By beating Wall Street expectations, IBM's results "could provide support for a market that has been buffeted by the financial crisis and ebbing economic confidence." Shares in IBM jumped 4 percent in after-hours trading.

Finally, if you can't get enough of the credit crisis, why not check out Custom Communication's breaking-news Twitter digest of all the global madness. We'll keep updating it until a modicum of calm returns or we pass out. Whichever happens first.