So, the markets have had the jitters again, what with the credit crunch fears – or mortgage concerns, as it is polite to call them – and the European Central Bank has intervened in the banking sector:
The latest trigger for the slump was an announcement by French bank BNP Paribas that it was suspending three investment funds worth 2bn euros (£1.35bn) because of problems with the US sub-prime mortgage sector.
Sub-prime lenders offer loans to consumers with a poor credit history.
In recent months, the number of loan defaults has increased because of higher interest rates, raising concerns that the wobble in the housing market will affect other parts of the economy and then start hurting other nations.
The worry is that should banks make losses then it would hurt their earnings and their profitability making them less willing to fund the takeovers and buyouts that have underpinned much of the stock markets’ recent gains.
At the same time, banks have suddenly started charging significantly more for the money they lend to each other, signalling that they are looking to limit their risks, analysts said.
In response, the European Central Bank (ECB) said on Thursday that it had pumped 95bn euros into the eurozone banking market to allay fears about a credit crunch and lack of liquidity.
The move represented the ECB’s single largest intervention in the banking sector since the immediate aftermath of the 9/11 attacks on the US in 2001.
Calling it a “fine-tuning operation”, the ECB made the money in the form of loans, an offer taken up by 49 banks and other financial institutions.
In the US, the Federal Reserve, also was reported to have taken similar action, pumping about $24bn (£12bn) into the US banking system.
Analysts said that a credit crunch – when it becomes harder for banks, companies and consumers to get access to loans and cash to run their operations – was a serious occurrence that could lead to a recession.
Speaking after a meeting with his top economic advisers, President Bush acknowledged there had been “disquiet” on Wall Street over the housing slump.
Good news for the war profiteers, though:
Work to re-equip UK and US troops in Iraq and Afghanistan has helped profits to soar at defence group BAE Systems.
The UK’s largest defence firm, BAE made a pre-tax profit of £657m ($1.4bn), compared with £378m a year earlier.
BAE said the “high tempo” of UK and US military operations was increasing demand for land systems to support armed forces overseas.
BAE, which is facing an anti-corruption probe by US authorities, saw its half-year revenues rise by 10%.
The firm said its sales had benefited from its US operations, which achieved organic sales growth of 12% during the period.
Overall sales at BAE’s Land & Armaments business, which includes everything from tanks to munitions, rose 43%.
BAE is facing accusations of illegal payments to secure military orders from Saudi Arabia, although the company denies any wrongdoing.
While an investigation by the UK’s Serious Fraud Office was halted in March after the government said it would harm national security, the US Department of Justice is moving ahead with its own inquiry.
Last month, BAE greatly expanded its US operations through the £2.2bn takeover of US military manufacturer Armor Holdings.
Armor is a leading manufacturer of mine-resistant armoured vehicles – thousands more of which are due to be bought by the Pentagon for use in Iraq.