Wall Street Meltdown: Global Fallout

It sometimes takes a good financial crisis to remind us just how interconnected we are. When the New York stock market crashed in 1929 the economic shockwaves reached London, Paris and beyond, in one of the first examples of global economic contagion. News travels a little faster these days, and markets don’t just follow Wall Street’s lead, they anticipate it: stocks in parts of Asia dropped even before New York awoke last Monday, previewing the bloodbath that was to come in the U.S. Here’s the buzz (and gloom) from five global financial centers — along with the drop in their main stock index between the moment before opening on Monday and the close of trading three days later.

Mumbai -5.2%
(Sensex, 9/15-9/17)

In an elegant old colonial home tucked into a back lane in south Mumbai, a fashion party is in full swing. Fey young men in low-slung jeans, willowy models in backless silk dresses and other well turned-out, well traveled Mumbaikars laugh, air-kiss and dance into the night.

From inside this world it’s easy to be dazzled and forget for a moment that India’s markets, like those around the globe, are in the throes of financial turmoil. But even here, worries are starting to surface. Mumbai is India’s financial capital, but it’s also the center of the country’s booming fashion industry and contemporary-arts community. Those three worlds feed each other here, just as they do in London, Tokyo and New York. As the markets plunge — the main Mumbai index, the Sensex, is down 36% since January — many of Mumbai’s wealthy financiers are beginning to spend less in the city’s galleries and luxury boutiques. “I’m extremely worried,” says Jai Bhandarkar, owner of an art gallery in Colaba, one of Mumbai’s toniest neighborhoods. “The spending power of the people who collect art is going to be affected. The art market has already gone down so much.”

Uncertainty is everywhere. India’s financial services and technology companies, which rely on Wall Street for so much of their business, are still waiting to see exactly how badly they’ll be hit. Estimates of potential job losses in India reach as high as 25,000. Tata-AIG, an Indian joint venture with troubled U.S. insurer AIG, has been asked by Indian insurance regulators to show proof of its solvency. The market turbulence is especially worrying for India’s middle classes, who have just begun investing on their own in a big way. (A new Bollywood movie, Saas, Bahu aur Sensex — Mother-in-Law, Daughter-in-Law and the Sensex — captures the craze.) Bhandarkar, an avid investor himself, is worried: “How can a $60 billion loss not have an impact?” When it does, the party may finally have to end. — by Jyoti Thottam

London -9.4%
(FTSE 100, 9/15-9/17)

Joe Kennedy, scion of America’s most famous political family and a wealthy investor in his day, told of selling his holdings before the 1929 market crash because a shoeshine boy had offered him stock tips. The story may well be apocryphal, but in the decades since, shoeshine boys have become a kind of insider’s measure of how a market’s doing. In the main shopping center in London’s Canary Wharf financial district David Peralta is one such oracle, though not because he hands out investment tips.

Peralta, 30, works at a double-seater station and charges just under $8 a shine. Clients had warned him months ago that this year would be tough, he says, “but after that, no problem.” A few weeks ago, though, Peralta noticed a change in the way his clients’ feet moved. Customers began to say, “they can’t talk right now, they have their mind on something else, or they just work on their BlackBerry,” Peralta says. “It can be a pain for me, because when people are stressed or moody they tend to fidget and I have to grab their ankle to keep their foot still.” In the days leading up to the Sept. 15 nosedive, and since, the clients still talking to him have all been asking the same question. “They want to know what everyone else is saying. ‘What are you hearing?’ is what they ask. Basically, they want to know how bad people think it is.”

That sense of panic is palpable just down the corridor from Peralta’s stall at the Rejuvenation MediSpa. Business at the spa, which comes almost exclusively from finance workers, has remained steady over the past year, though manager Hayler Parker says she’s getting fewer requests for facials and many more for massages. “You can feel the difference in their bodies,” Parker says. “Everyone is so tight at the moment. We have women [clients] who are really too small to withstand deep tissue work without significant pain, but they request it because the knots in their back are so big. Our clients are usually very tense and stressed, but it’s as if they are even more crunched up.” “Like the credit crunch?” a reporter asks.

“Yeah, like that,” she says. — by Eben Harrell

Dubai -1.7%
(DFM, 9/15-9/17)

About three years ago, when Saddiq Khan graduated from university in Pakistan and began working for a real estate brokerage in Dubai, it seemed impossible not to make money. Foreign buyers from Europe and the U.S. were flocking to the Gulf to take advantage of the region’s low taxes and resort lifestyle, and to get a slice of the energy boom. Developers were launching the headline-grabbing megaprojects for which Dubai is now famous — a ski slope inside a shopping mall, luxury skyscrapers, condos on artificial islands shaped like a giant palm tree — one after another. “It was crazy,” says Khan, 25, now a marketing executive for Clifton, a Dubai real estate agency. “Projects would sell out a couple hours after opening.” Khan used to collect checks from clients wanting a new apartment and wait in line overnight at developers’ offices like a teenager looking for rock-concert tickets.

Times have changed. Foreign buyers are scattering, oil prices have fallen sharply, and Arab stock exchanges are down as much as a third since the beginning of the year. Dubai hasn’t been hit as hard as neighboring Saudi Arabia but the stock prices of real estate firms such as Emaar Properties are still off more than 50% this year. Instead of dealing with customers beating down his door, Khan has to drum up business over the Internet or by advertising in magazines. “No one’s got cash in their account,” says Khan. “Now in the back of their mind everyone is thinking: Is this going to be the crunch?”

Still, Khan has faith in the seemingly inexhaustible ability of Dubai developers to wow. “Who ever thought you could build a palm island?” he says. “You can never imagine the things they’ll come up with next.” In fact, if prices come down a little more, Khan’s thinking of buying a few properties of his own, perhaps a villa for when he grows older and starts a family. “My grandfather had a saying: Land will never let you down.” Dubai’s shifting sands are about to put that theory to the test. — by Andrew Lee Butters

Shanghai -7.3%
(Shanghai Composite, 9/15-9/17)

According to centuries-old Confucian tradition, children are supposed to take care of their parents as they age. For retired Shanghai schoolteacher Zhu Jing Mei, that obligation has been cruelly flipped — and now, because of the free fall in China stocks, it has become much more difficult to fulfill.

Zhu, who spends most of her time helping her chronically ill daughter, was once a self-professed “stock market addict.” Over 10 years she built up a substantial nest egg by consistently investing small amounts in Chinese companies listed on the Shanghai stock exchange. She and her friends even formed an informal investment club, discussing stock picks over weekly games of cards at a brokerage’s trading hall on the Puxi side of Shanghai. They rode out market slumps and celebrated together when China stocks soared in 2006 and 2007.

But last year, Zhu, 64, wanted out of the stock-picking game because her 36-year-old daughter’s heart condition was getting worse. So she sold her holdings, worth about $7,300, and invested all the proceeds in a mutual fund for Chinese blue chips — then promptly forgot about it. “I didn’t have time to worry about it,” she says, because she was too distracted caring for her daughter. “I thought it would be OK. It was supposed to be a conservative, fairly safe investment.”

The fund may have been conservative in terms of the stocks it holds (China Telecom and Bank of China, among others), but it hasn’t been safe. China’s stock markets have fallen by 63% this year. Alerted to the severity of the slide by one of her investment-club friends, Zhu checked on the mutual fund earlier this week as Shanghai’s stock index plunged below the 2,000-point level for the first time in nearly two years. Zhu was stunned to see that her investment had lost nearly 70%.

The money represented almost all of her and her husband’s life savings, she says. It had been intended to help her navigate the Chinese medical system on her daughter’s behalf, and was going to be used to settle what Zhu calls “the fees and occasional small payments” (bribes) that are critical to making sure she gets the best care. “We own our apartment, so that’s OK,” she says quietly. “But now I don’t know whether I’ll have enough. I should have been paying more attention.” Putting the money under the mattress might have been a better idea. — by Bill Powell

Singapore -5.9%
(Straits Times Index, 9/15-9/17)

Philip Aee is a patient man. Patient — and very, very concerned. The 60-year-old retiree was among some 150 other Singaporeans waiting in a long line outside the offices of U.S. insurance giant AIG’s Singapore subsidiary, AIA, during the afternoon of Sept. 17. Aee had been standing in the searing sunshine for three hours, but he wasn’t giving up. He and his fellow petitioners were desperate to cancel their insurance policies and withdraw investments, just in case AIG went belly up, leaving assets held by AIA in limbo. Aee was well aware that the U.S. Federal Reserve had extended an $85 billion lifeline to AIG several hours before. But the news did little to calm his nerves. “I never thought this would happen to AIG,” said Aee, shaking his head in amazement.

With over 4,000 agents and 2 million policies in force in Singapore (population 4.6 million), AIG is one of the city’s largest insurance operators. Its pervasive presence underscores the global reach of the U.S. financial companies that have been torpedoed by the subprime crisis — and the worldwide consequences of an unfolding crisis of confidence among their customers and business partners. The Monetary Authority of Singapore, the city’s financial regulator, stated that the financial resources of AIA currently met its requirements — an attempt to assure the public that there was no reason for panic. But after the failure of investment bank Lehman Brothers, the sale of Merrill Lynch, and the bailout of home-mortage giants Fannie Mae and Freddie Mac, hundreds of Singaporeans were taking no chances. Standing in the crowd outside AIA’s offices, Karen Foo, 29, said she was only dimly aware of the underlying assets in the investment trust her insurance policy is linked to, but she was determined to sell the financial instrument at the earliest opportunity. “I’m a little worried,” Foo said with a tight smile.

Aee, who holds an AIG-linked trust worth roughly $7,000, said if he managed to get inside the insurer’s besieged offices — which could take him many more hours — he planned to close out his investment. “There’s nothing like cash in your hands,” he said. It seems the expression “like money in the bank” has fallen out of favor with a public that is weighing what they stand to lose as the shakeout of financial-industry titans continues. — by Neel Chowdhury