As the ongoing widespread credit crisis threatens the very survival of many renowned financial institutions, the most pressing and also the hardest job is to restore the already collapsed investor confidence, analysts say.
The mortgage crisis in the United States last summer has caused serious upheavals in the financial sector in the country and the rest of the world, with many banks facing bankruptcy.
The collapse of Lehman Brothers Inc. and the sharply falling share prices of HBOS, Britain's biggest mortgage lender, have made the situations more sensitive and jittery investors now become more cautious when making investment decisions.
The process to rebuild market confidence can be painstaking and determination to make systematic overhauls is needed to breeze new life into the beleaguered financial sector, analysts say.
Lack of transparency causing confidence crisis??
"It was a problem at the very core of the financial system which in size and scale meant everyone was affected and from which no-one escaped," said an article appeared on the CNN website.
The article titled "Banks vulnerable as 'rotten' foundations crumble" argued that the basic financial instruments that make up the core of the world's investment banks are problematic.
The operation at an investment bank has to be transparent for investors to be able to judge for themselves, it said.
What's happening now is nobody knows for sure "if counterparties to deals are financially secure and will be around tomorrow," it noted.
The opinion was echoed by Hector Sants, Chief Executive of the Financial Service Authorities (FSA), regulator of all financial services providers in Britain, who also believed a lack of transparency in asset management has led to a loss of confidence.
"The loss of confidence was, in many ways, due to a lack of transparency and understanding, with both sellers and buyers of products forgetting the golden rule of 'don't sell or buy a product you don't understand,'" he said.
World join hands to face squeeze
Authorities around the globe have taken emergency actions to quell the upheavals.
The US Federal Reserve, the European Central Bank, the Swiss National Bank, the Bank of England, the Bank of Canada and the Bank of Japan Thursday pooled up to 247 billion US dollars to rescue the plummeting stock market.
The US government is considering a more comprehensive solution to the financial crisis. Reports said that Treasury Secretary Henry Paulson is mulling the formation of a vehicle like the Resolution Trust Corp. which was set up during the savings and loan crisis in the late 1980s and early 1990s.
Buoyed by Paulson's rescue plan, the Dow Jones industrial average Thursday jumped 410.03 points, or 3.86 percent, to 11,019.69, and the Nasdaq Composite Index shot up 100.25 points, or 4.78 percent, to 2,199.10.
In the latest developments, the US Securities and Exchange Commission's new rules against abusive short selling of stocks in all publicly traded companies have also taken effect.
British financial regulator has also adopted a similar measure, announcing on Thursday a ban on short-selling against financial companies on the London Stock Exchange to quell speculation.
"We have taken this decisive action, after careful consideration, to protect the fundamental integrity and quality of markets and to guard against further instability in the financial sector," said Sants.
Fundamental changes deemed necessary
Among all the measures to ensure order on the stock market and boost investors' sense of security, analysis pointed out that what matters was whether or not they could effectively repair the instruments of the financial institutions and make operations in banks more transparent.
Otherwise, they said, the rescue could only be partial with some banks getting saved while others going bust, and their effect would not last.
That can also help explain a widespread sense of perplexity among Americans when the US government Tuesday provided a loan of 85 billion dollars to bail out insurance titan American International Group Inc. (AIG), only two days after the venerable Wall Street investment bank Lehman Brothers went bankrupt as the government refused to offer a helping hand.
The US authorities are becoming increasingly aware of a "systematic problem" in its financial market.
"What we are working on now is an approach to deal with the systemic risk and the stresses in our capital markets," Paulson said Thursday at a brief Capitol Hill news conference.
"We talked about a comprehensive approach that will require legislation to deal with illiquid assets of the United States on their balance sheet," he said.
(Xinhua News Agency September 19, 2008)
