What the Pros Say: Preventing a Global Meltdown

Fears about the credit crisis spread sharply over the European continent this weekend, despite approval of the U.S. bailout package, as various European governments took it into their own hands to rescue their banks. How can a global financial meltdown be prevented? This is what the experts say:

All Together

"What we would like to see is greater degrees of cooperation amongst regulators around the world. Financial institutions really are global businesses now, and I think what has happened over the last few weeks has been that the interaction between markets and between companies has been very graphically illustrated. And I think greater transparency and greater cooperation amongst regulators is something we would really like to see," James Bateson, head of financial institutions at Norton Rose.

"Unfortunately it’s exactly what we predicted. If national governments continue to deal with the problem, they will make a hodgepodge out of it, having one approach in one country, another in a different one doing deals over the weekend which unravel the next one, and it’s going to be a big mess," Daniel Gros director at Center for European Policy Studies said.

"Germans still think the problem is elsewhere, the French think ‘we don’t have a problem the Germans have one’. Until we have a crisis in both at the same time, both Germany and France, I think it will be very difficult to get a deal out of the present crop of European leaders."

"The national interest at stake is very high and that is why we are probably are not going to see a pan-European solution to these problems. That is why we are seeing the nation states moving ahead on their own. Any political leader would have a great problem answering the question why, did we through the EU, pay a giant bank figure in some other country," David Karsbol, market strategist at Saxo Bank told CNBC.

Do It Like the Irish

"If we do not solve the credit risk issue, we are not getting anywhere," Hans Redeker, global head of foreign exchange at BNP Paribas said.

"What the Irish were doing is the only right thing to do, because you have to lend a strong balance sheet of the government into the banking industry. The government has to work as an insurance here… It is now a question of survival."

No Systemic Risk for Europe?

"You have two different problems going on (when discussing the difference between the European bailouts and the US bailout). The American situation goes far more to the core of individual savings and individual mortgages and the degree of individual leverage. In Europe, it's significantly more institutionalized in a far more socialized economy. And as a consequence, what you're seeing is what I call spot bailouts occurring here. I don't think there's anything systemic as such in Europe to come," Philip Manduca, head of investments at ECU Group told CNBC.

Rate Cuts Won't Help

A coordinated rate cut by global central banks in unlikely to return trust into the banking system, Harry Ida, senior analyst at Thomson Reuters believes.

Interest rates in the U.S. and Europe will come down, soon. But that won't do anything, Philip Manduca, head of investments at ECU Group, said.

"The problem isn't interest rates, it's a lack of willingness to lend to your counter party because you're worried that they won't pay you back and that you might need the money as well," Trevor Williams, chief economist at Lloyds TSB Corporate Markets said, adding that he's doubtful there will be a coordinated effort from global central banks to cut rates as it won't solve the problem.

We Need Confidence

"What we need is a price in the underlying securities, the mortgage-backed securities, for them to start to get trading, and then I think confidence will gradually return to markets. But then we're wrestling with another problem, which is that others watching this saga unfolding before them are losing confidence in the banks generally, and that's what seems to be causing governments now to be guaranteeing savings," Trevor Williams, chief economist at Lloyds TSB Corporate Markets suggests.

Recapitalization, Recapitalization, Recapitalization

"Recapitalization of the banks globally is a given. We estimate that there's something like $10 trillion of deleveraging to come out of the banking system," Tim Harris, senior portfolio manager at JPMorgan Asset Management said.

"They're (European governments) turning a monetary issue into a fiscal issue and clearly the state has an enormous amount on their plate right now."

"Coordinated interest-rate cuts? Yes… Yield curves badly need to steepen. So I think it is as much about controlling what's happening at the long end of the market as it is at the short end."

"The key to the recapitalization of banks is to "concentrate resources on those where it is most useful," said Paul Mortimer Lee, global head of market economics at BNP Paribas, and to decide "who can survive with help."

China Tackles Short-Selling

China's plan to start a trial in short-selling and margin lending is done in a bid to boost liquidity and curb speculation in the markets, Lan Xue, head of China research at Citi Investment Research said.

Is China Safe and Sound?

The Chinese Premier said local financial institutions have grown stronger amid the crisis and the financial system is "safe and sound." Stephen Green, senior economist at Standard Chartered Bank agrees.

Bailout Impact

Discussing what the passing of the U.S. bailout package means for the markets with Christopher Low, chief economist at FTN Financial and Michael Yoshikami, founder, president and chief investment strategist at YCMNet Advisors.

"The banks in (South) Korea can't get their hands on dollars and that is going to pressure the won because they will have to continue to sell their assets to try to get these dollars. The prevalence of U.S. dollar loans in Asia is a problem. There's been a long bear market of the dollar and that's created a lot of U.S. dollar leverage and that now has to be deleveraged and that's painful," Pierre Gave, head of Asia research at GaveKal Holdings told CNBC.

US Bailout Approach Not the Answer for Europe

The European "piecemeal" approach isn't working, but a bailout plan similar to that adopted by the US isn't either, said Julian Pendock, partner at Senhouse Capital.

He said a better plan is to recapitalize by investing in the banks directly, much like the Swedish model used in the 1990s.

© 2008 CNBC.com