The Panic Attack

We are gradually to witness more of the impact of U.S. financial crisis on the global market. Slump of Asian stock markets has been widely reported as investors are pulling their money away. Even E.U. nations go separate ways scrambling to save their own banking institutions, render the original purpose of E.U. formation seemingly irrelevant. I think it is remarkable to arrive at this stage, where most of these nations have virtually no investment exposure to the toxic mortgage backed securities and derivatives in the first place, even if overall U.S. economy slows because of credit crisis, it is going to take some time before global business operation is actually affected and reflected on lower stock market performance. There is still time for these nations to adjust incrementally and for investors to weigh and react accordingly. But by now, no verified U.S. credit crisis related impact on global business operation especially in emerging markets has been reported, so what is driving the investors away?

This sort of phenomenon is nothing new whenever a major financial crisis hits, it is all panic driven and creating an irrational craving for extra security. Investors want to avoid volatile stock markets at all cost even though their fear is unfounded. How else can you explain the fact that they flocked to short-term U.S. treasury bills which yield zero interest? Even if business expansion in general is supposed to thrive in emerging markets or foreign denominated debts are still manageable, this has sort of becoming irrelevant. All statistics, facts and figures are irrelevant. Panic reigns dominant over investors at this moment.

This is indeed a very unhealthy environment to conduct business. Without credit flow, economy simply does not go anywhere. Not to mention currency speculators and short-sellers are lurking behind to make opportunistic attack. There are already reports of increased speculator activities in Brazil hurting Brazilian Real.

Here we are in the age of globalization with closely interconnected economies, inflow and outflow of fund can happen at a short moment of notice in times of crisis, plunging any nation into completely unexpected sort of trouble triggered by irrational panic. Global institutions are still unprepared for this gigantic task, so we are left with respective governments to contain the panic spread. I keep my fingers crossed.