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Credit markets freeze, global stocks plunge -

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ELEANOR HALL: With Wall Street in a frightening freefall today, market strategists are trying to
predict when and where the next crisis will emerge.

Already banks in the United States and Europe are preparing survival plans that could see more of
the big names of the financial world disappear in hasty mergers and acquisitions.

Investors are diving into gold and treasury bonds as the only havens in the financial storm and
with capitalism in an unprecedented crisis, pundits are racing to decide where to lay the blame.

This report from business editor Peter Ryan.

COMMENTATOR: Now yesterday it was AIG capital concerns. Today you're seeing capital concerns, still
in this market, still regarding financial stocks...

PETER RYAN: On the floor of the New York Stock Exchange frantic activity and high emotion after the
bailout of American International Group failed to ease the panic about sinking financial stocks.

COMMENTATOR: It's a lack of faith in general and trust in the entire brokerage structure right now
people just don't trust the model and that's the bottom line, a lack of confidence, a lack of trust
here. Also worth mentioning...

PETER RYAN: The Wall Street freefall has engulfed the entire market in a new level of fear and
suspicion. While market-watchers worry, the AIG deal won't stem the blood bath. They know what
would have happened today if the US Federal Reserve let the insurance giant fail.

Economist Jeremy Siegel:

JEREMY SIEGEL: It's my opinion that if the AIG deal wasn't done yesterday, instead of down 300
points we'd be down 1300 points.

PETER RYAN: Even so the two remaining Wall Street banking giants were caned today as investors
worried about more bad news in the pipeline.

Morgan Stanley lost as much as 44 per cent and Goldman Sachs fell as much as 26 per cent on a day
when Wall Street lost around half the gains made in the official bull market since 2002.

Now a race for survival is under way while there's still time. Morgan Stanley is weighing up a
merger with the Wachovia Bank while Morgan Stanley itself is said to be in talks to be acquired by
China's CITIC Group.

At the same time, another potential domino, Washington Mutual, is also teetering from guilt by
association, desperately looking for a marriage.

All in all it's a frightening and vastly different financial landscape, full of new and unknown
risk.

JEFF KLEINTOP: For the markets it's about uncertainty and not about getting out of the woods, you
know. It's just how big the forest is.

PETER RYAN: Financial analyst Jeff Kleintop says the fear is now swiftly moving from Wall Street to
Main Street.

JEFF KLEINTOP: A lot of what's been going on here has really been a Wall Street problem. But
obviously when you start to question the solvency of money markets, well that hits the man in the
street. And so you know, you've started to see some of that.

You're starting to see money move very much into the safest securities you talked about. And the
Fed has been on top of that in recent days but clearly needs to put a lot of money to work very
short term in this market to ensure there isn't a seize up among banks as investors really, really
question their money market funds and where the safest place to put their money is, in these
turbulent times.

PETER RYAN: As a result, investors are jumping into the perceived safety of US Treasury bills.
Today yields on three-year notes fell to their lowest level since World War II.

Economist Jeremy Siegel hasn't seen such a rush.

JEREMY SIEGEL: All these ripples about oh my God where is my money safe? Where do I have to be?
I've never seen... Treasury bills, three-month treasury bills are selling for four basis points, five
basis points.

I mean this is, I don't even think in my lifetime, I think you have to go back to the Great
Depression to get T bill rates that low. Everyone says, get me into governments, get me safe. You
know, like the whole world is coming down and that's the hunkering down the market is doing right
now.

PETER RYAN: Another haven in times of war and instability is gold. It's now up around $US97 an
ounce. And oil jumped $US6 overnight as part of the share market exit.

While so much money looks for a safe home, the blame game continues about whether this is a blow to
capitalism and whether greed really is good.

WILLIAM BEACH: You know in some respects this is the way that capitalism works. Some people say,
well it's all about greed and they're trying to get as much money as they possibly can and rake in
as many assets as are out there. But capitalism really does discipline greed.

PETER RYAN: But William Beach of the Heritage Institute says despite criticism about the
privatisation of profit and the socialisation of failure, capitalism still works.

WILLIAM BEACH: These are the kinds of corrections which are brutal, fast and very effective.
Companies are wiped out. All the stockholders right now in AIG have lost their holdings.

It is maybe too brutal for some and so that's why governments sometimes step in and say, well we
can't let this pain go on. Sometimes it isn't pretty. But in this particular case AIG maybe was too
big to fail. And we'll see. History will tell whether or not the titans of Wall Street made the
right decision or not.

PETER RYAN: The outlook though remains gloomy as credit markets freeze over. Central banks are now
racing with emergency liquidity injections to ensure the wheels of the financial system don't grind
to a halt.

ELEANOR HALL: Business editor Peter Ryan.