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What the Pros Say: The Disease Is Spreading

The confidence crisis is spreading and authorities around the world are busily putting out fires. But it is not clear whether governments will succeed to bring trust back into the banking sector, and downside potential remains high, experts say.

WALL STREET IN CRISIS - A CNBC SPECIAL REPORT
WALL STREET IN CRISIS - A CNBC SPECIAL REPORT

Banking Disease Runs Deep

"The disease runs very deep … this is a very necessary but an insufficient solution for the banking condition," Tim Harris from JPMorgan Asset Management told CNBC.

UK Banks Not Immune

"The fact that a bank is well capitalized does not mean it is immune to problems," Angela Knight, CEO of the British Banking Association, said.

"I doubt that the gloomiest of commentators expected the worldwide financial system to close as it did."

Not Buying the Asian Growth Story

"The correlation between Asia and the U.S. unfortunately is still high," Gabriel Yap, senior dealing director at DMG & Partners Securities, said.

"Unfortunately Asia is going to take its cue very much from the US. bearishness….will continue to drag Asia down."

"Most international investors are not buying the growth story," Yap said, adding that there could be more downside for Thailand, Indonesia and Malaysia while India and China are going to cruise along, but towards the lower end of the market.

Too Little Too Late

In its current form, the US bailout package is not likely to save the country's credit markets, as it is just not enough money to stop the crisis, according to Ralph Silva from TowerGroup.

"This is going to be the very last resort for these organizations because none of the senior management is going to want this, because they are going to lose money," Silva told CNBC.

"It's going to deter these banks from successfully growing afterwards because if you're not going to be able to pay your senior management the same prices as bank B sitting right next to you, then the people in the world are going to go to bank B instead of the bank that can't pay you enough money," he added.

"I think they need to put in the entire $700 billion extremely quickly," Silva said.

Bailout Still 'Opaque'

"I think the size of the intervention is welcomed, $700 billion is a sizeable amount of money. What is really more opaque is the price discovery mechanism that is going to involve this liquid assets. It's going to be quite difficult to establish prices on all this liquid and strange securities," Marino Valensise, CIO of Barings said.

"To be honest, I would have gone another way. I would have followed what Warren Buffett did with Goldman Sachs - Recapitalized the banks at the preferred equity level and get some warrants for the upside. I think that would have sorted out many of the issues at the recapitalization level, avoiding the risk of this opaque discovery mechanism on the price side."

Curing the Disease

"Low interest rates are going to be a feature of our economy for the foreseeable future. I don’t think we will see anything but rock-bottom rates in order to provide enough liquidity to the banking system to continue the consolidation and the healing, absorb the writeoffs and make sure there is enough low cost credit available for consumers and for businesses, so the rest of the economy isn’t too badly damaged as we go through this period really shrinking this financial system," Margie Patel from Evergreen Investments said.

We’ll Lose More Banks

"We're going to lose some more of the marginal banks," Robin Griffiths from Cazenove Capital said. "So the industry contracts to fewer but bigger players."

"It is a global recession condition we've got here," Griffiths added. "We are now at the start of that capitulation phase…it's going to go down until roughly the middle of October. Then, we could get a strong fourth quarter from a capitulation level."

Fears Turn to Europe

The US bailout package will go a long way towards helping the credit markets. It has got the crucial elements and will be stabilizing within the US, Giles Keating from Credit Suisse said.

Keating added that concerns will turn to Europe, as the continent does not have a comparable bailout plan.

A Rescue Package for Europe?

"It has been watered down in the sense that we don’t get the $700 billion up front. There is a lot of uncertainty there, a lot of bells and whistles being instigated. Of course, it's very clear we have a problem here in Europe as well. We go all the way back to Northern Rock, more recently over the weekend, we do have a global crisis here. The question here is if the European side should do more?" Padhraic Garvey from ING Wholesale Banking said.

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