Thursday 16 Aug 2018 | 06:16 | SYDNEY
Thursday 16 Aug 2018 | 06:16 | SYDNEY

How linked are global financial markets?


Stephen Grenville

30 September 2008 08:40

In a globalised world, financial markets are a potent transmission channel from the US to the rest of us. Indeed, our stock market responds more to the US than to our domestic fundamentals.

At first sight, last week’s policy mimicry might also suggest that the problems are the same. Australia followed the US and UK in banning short-selling of equities, and Australia’s $4 billion mortgage fund might look like a whimpish counterpart to the $US700 billion mortgage rescue package currently with Congress.

In the case of the provision of mortgage funding, it’s easy to differentiate the two countries. The US package will be used to buy existing housing assets. Whether these assets are 'toxic' or just temporarily undervalued by the market, there seems to be an acceptance that the authorities will pay more-than-market value for them, thus assisting the current holders, some of whom may not deserve help. In Australia, the plan seems to be to fund new housing borrowers: innocent bystanders in the troubles. It may be superfluous and populist, but it’s not a sign that 'this sucker could go down'.