Accessibility links

Global Markets Fall on Fears of Credit Crunch


Stock markets around the world suffered sharp losses Friday as investors worried about tightening credit. Key European indexes fell more than three percent and Japan's Nikkei index lost almost two percent. As VOA's Jim Randle reports, U.S. stock indexes also declined in volatile trading.

Some investment analysts, including Lars Christensen of Danske Bank, say the stock market is likely to be troubled for a while.

"It is far too early to say that this is over. I think there is widely a feeling that it is not over, that we will see more chaos and potentially more turmoil. So I do not think this is a buying opportunity in general."

Stock prices plunged as investors worried about problems in the U.S. subprime mortgage sector. Subprime mortgages go to people with poor credit histories and come with higher interest rates. Many homeowners have been unable to repay those loans, hurting investors who put money into securities backed by such mortgages.

Subprime problems hit international markets Thursday when a major French bank stopped trading in some mortgage-backed securities.

The bank's action made investors think subprime problems might prompt lenders to make credit harder to get, which could slow the economy and hurt profits.

To ease concerns about financial liquidity, central banks in Japan, the United States and Europe, have been injecting hundreds of billions of dollars into the financial system.

But investment analyst Marc Faber thinks central banks helped create the crisis by making too much loan money available with low interest rates and other policies that made it too easy to borrow.

"Basically, world wide, interest rates are still way below nominal GDP growth and that is an expansionary policy that has led us into some problems," he said. "Now they want to solve the problem with even more money-printing, basically ."

Faber says putting too much money into the economy is likely to cause inflation, hurting everyone including investors.

In the meantime, news reports say U.S. officials are examining some major U.S. banks to see just how vulnerable they are to home loan defaults.

XS
SM
MD
LG