Previous

Page - 5

The markets world-wide are getting hammered. The cost of two years contract to protect against any potential decline in the S&P's 500 Index is now over US $ 15,160 on Chicago Board of Options Exchange compare with US $ 6,800 (approximately) in 2007, more then
220% increase in just two years. Since the beginning of the crisis, we have seen over US $ 10.5 trillion of equity value being wiped out. These numbers clearly indicate that we are in the middle of a severe bear market.

Looking at the performance of the global market, we can safely conclude (without a doubt) that none of the markets are immune to this turmoil and the longer this crisis is allowed to continue, the worst it's going to get for everyone.

The world leaders are now beginning to recognize that this is a global crisis of catastrophic proportions, which could have lasting consequences, if left to run its course. The so-called de-coupling of the emerging world from the US has not materialized. It turned out to be a false impression after all.

There is a realization setting in among world leaders that they will have to work together. We are seeing unprecedented level of cooperation among central banks of the world and regional economic blocks, i.e., ASEAN, EU and others. Asian and EU nations have already taken coordinated actions and are closely working with each other. Asian central banks have recently agreed to create a pool of US $ 120 billion to shield the local currency. The idea of an Asian version of IMF to shield the central banks is also gaining ground. Last month, Japanese government agreed to increase its bilateral facility to Indonesia. German government officials have recently said that they may have to consider bailing out the smaller economies in the Euro zone.

We are seeing signs that the governments around the world are now beginning to realize that if their coordinated efforts don't deliver results, then may have to consider combining their resources and efforts to overcome this global economic crisis. Unfortunately, the measures taken by various governments so far on individual basis run the risk of being quickly eroded, if the markets continue to lack in confidence. It is perhaps time to look at the Big Picture and consider a large scale initiative carrying the support of the world.

What could be a possible solution?

It is probably the right time to consider an international entity created by G 20 to rescue the financial institutions from a meltdown under a Global Financial Rescue Initiative (GFRI). This entity could be structured along the framework of an aggregator bank which will compliment the existing bail-out measures taken by various governments and allow them to use the additional resources available through the GFRI, if and when needed, to save their economies from getting buried in the burden of mounting debts that might create hyper-inflation and another asset-bubble going forward.

Next

Sanjeev Kumar is Chief Executive Officer of Delamore & Owl Group of Companies (Website: www.delamoregroup.com), Toronto, Ontario, Canada. He holds dual Master's Degrees - one in Business Administration and another in International Finance. He has been the recipient of the "Southeast Asia Young Achiever's Award" for Year 2002.
Article posted on March 14, 2009.