Morning Line: Trouble Down Under as crisis spreads across the globe

The financial crisis that erupted in the US subprime housing market close to a year ago now seems to have spread to every corner of the globe. So much, then, for the supposed ‘decoupling’ of the world’s major economies – one of the great fund manager sales pitches of the past decade.

Today, for example, further news of the worsening economic crises in Australia and New Zealand. Share markets in those countries have taken a beating in recent days and weeks as investors have woken up to the fact that the economic outlook for the region is just as bad – if not worse – than in the US and UK.

The latest trigger for investor panic in Australia was yesterday’s decision by National Australia Bank (NAB) to refund some A$590 million to investors who had participated in a bond sale completed just a week or so before.

Described bizarrely by the NAB’s management as a ‘gesture of goodwill’, the refund in fact appears to be a forced concession to angry investors who believe they have been kept in the dark about the true sate of the bank’s finances.

In particular, NAB investors were furious about Friday’s surprise announcement that the bank would need to make fresh provisions of more than A$800 to cover its investment in collateralised debt obligations (CDOs) – those dreaded investment vehicles directly linked to the US subprime mess. This, of course, despite the fact that the securities held were previously rated ‘AAA’ by the global ratings agencies.

That bombshell understandably wrecked already-shaky confidence in the Australian banking sector.

It’s a sorry tale, and one with obvious echoes of ongoing troubles at major banks in the UK, Europe and US. Australian banks now join their western counterparts in coming under massive pressure to come clean about their true subprime liabilities, something Merrill Lynch appeared to go some way to doing earlier this week.

In New Zealand, meanwhile, the tanking property market and the ongoing global credit crisis is putting severe pressure on that country’s financial sector. Yesterday it was the turn of Hanover Finance – the nation’s third largest mortgage fund – to unnerve the market, when it announced it was suspending withdrawals due to ‘liquidity difficulties’.

Overall, some 23 finance companies have gone bust in New Zealand over the past 12 months, The Telegraph reports today.

More generally, it is little surprise that both Australia and New Zealand have hit the economic skids, given the extent to which their economic miracle has built on uneven and fragile foundations.

Inflated house prices; unsustainable levels of personal debt; plummeting consumer confidence; reckless and unchecked bank investment in US subprime assets – the list of problems facing Australia and NZ is depressingly familiar. Indeed, it is strangely reassuring to see that the British cultural influence down under is as strong as ever.

Elsewhere in the global economy, there are plenty of worrying omens for those who want to see them. A stalling Japanese economy, for example, perhaps entering a recession yet again; or today’s 0.5% increase in Indian interest rates, the latest attempt among the emerging economies to try and contain the spiralling inflationary problem.

And of course we haven’t even mentioned the failure of the WTO talks in Geneva, something which may have profound long term repercussions for the global economy. For now, for many economies, it is a simple case of survival.