Global leaders strengthen up as IMF confident governments acts in time to avert market meltdown
Global leaders race the clock As IMF confident governments will act in time to avert meltdown. News from WASHINGTON — Policymakers from around the globe are united in their resolve to avert a global financial meltdown, the International Monetary Fund said Saturday.
Although the talks in Washington this weekend haven’t come up with the specific solutions needed for each nation, the whole world is committed to do whatever it takes to unfreeze credit markets, said Dominique Strauss-Kahn, the IMF’s managing director.
“No one is going to let an important financial institution fail,” Strauss-Kahn said. Earlier in the day, he opened up the discussions by warning that worries about the insolvency of major banks had pushed “the global financial system to the brink of systemic meltdown.”
The IMF specifically endorsed the plan of action put forth Friday by the Group of Seven nations, which calls for public funds to recapitalize banks. Critics said the G7 plan was woefully short on the specifics needed to calm jittery investors.
Although different countries may use different methods, they are all resolved to act as needed, said Youssef Boutros-Ghali, head of the IMF’s International Monetary and Financial Committee. “No tool will be spared.”
Even as urgent talks continued in Washington, authorities in the United Kingdom were preparing to unveil the specifics of their plan to recapitalize its banking sector, according to a report in the Wall Street Journal. See full story.
Many observers say the officials are working against the clock, with global markets set to open on Monday, with or without a credible plan from the world’s governments.
The plan put forth by the Group of Seven on Friday was seen by many as only a first step.
President Bush urged global finance leaders on Saturday to work together quickly on a “serious global response” to “the serious global crisis” in credit markets.
Top policymakers from the Group of 20 largest economies were meeting later Saturday to work on a coordinated response to calm markets that have been shaken by massive losses and bankruptcies.
“We’re in this together. We will come through this together,” Bush said Saturday after meeting with finance leaders of the G7 industrialized nations at the White House.
Leaders of the 15 euro-zone countries will meet in Paris on Sunday to discuss a rescue plan based on the British model, which includes massive recapitalization and an explicit guarantee of all interbank credits, as urged by the IMF, U.K. Prime Minister Gordon Brown and many outside experts.
On Friday, U.S. Treasury Secretary Henry Paulson said his staff was working as quickly as they could to implement a plan to recapitalize important U.S. financial institutions. Paulson was able to provide few details, however.
The G7 response was a five-part plan similarly lacking in details, although it did provide a common framework, calling for recapitalizing banks with public and private funds, insuring depositors and unfreezing credit markets. Pointedly, however, the G7 plan did not include one of the two major suggestions made by Brown: government guarantees of all bank liabilities.
The G7 said that “urgent and exceptional action” is needed to stabilize financial markets.
The G7 vowed to use all available tools to support systemically important financial institutions and prevent them from failing.
At first blush, some analysts were not too impressed.
Vincent Reinhart, a former top staffer at the Federal Reserve Board, said markets had no interest in pledges but wanted to know exactly what the G7 would do before trading resumes Monday.
“I think the finance ministers just failed a test, or at best got a C minus,” wrote Paul Krugman, a Princeton University economics professor and New York Times columnist.
But Sherry Cooper, chief economist at BMO Capital Markets, said she thought the principles expressed by the G7 would reassure markets.
Ahead of the meeting, Ken Rogoff, a Harvard University professor and former chief economist at the IMF, told MarketWatch that there needed to be an “overwhelming” G7 statement.
“I think the worst thing to do would be to come out with a very tepid response,” he said. “It would be the end of the G7.”
On Saturday, Rogoff told Reuters that “markets are going to be very disappointed” by the G7 statement.
The Group of Seven includes the United States, Japan, Germany, France, Italy, the United Kingdom and Canada. The European Union is also a participant. The G20 includes those eight and adds China, Brazil, Russia, India, Mexico, South Korea, Saudi Arabia, Argentina, Australia, Indonesia, South Africa and Turkey. Together, the G20 account for about 90% of global gross domestic product.
The weekend meetings came as global stock markets endured another volatile day on Friday, capping one of the worst weeks ever. Investors around the world scrambled to move their funds into the safest and most liquid investments, such as cash and government bonds, fearing that the seizing up of credit markets could lead to a major recession and the failure of large corporations. End of Story. Editing by Jason Cook
The following are just comments. Please leave your views afterwards:
Two weeks after persuading Congress to let it spend $700 billion to buy distressed securities tied to mortgages, the Bush administration has put that idea aside in favor of a new approach that would have the government inject capital directly into the nation’s banks — in effect, partially nationalizing the industry.
As recently as Sept. 23, senior officials had publicly derided proposals by Democrats to have the government take ownership stakes in banks.
The Treasury Department’s surprising turnaround on the issue of buying stock in banks, which has now become its primary focus, has raised questions about whether the administration squandered valuable time in trying to sell Congress on a plan that officials had failed to think through in advance.
It has also raised questions about whether the administration’s deep philosophical aversion to government ownership in private companies hindered its ability to look at all options for stabilizing the markets.
Some experts also contend that Treasury’s decision last month to not use taxpayer money to save Lehman Brothers worsened the panic that quickly metastasized into an international crisis.
I love you guys. I really do. Entertainment is rife on this blog. “The world is coming to an end” ….”So & so is to blame”….”The grand conspiracy is afoot”. Perhaps if you spent a little more time studying (dispassionately) history, you would understand that this is another event that demonstrates the failings (in the form of greed and fear) that are the price we pay for allowing a free market to propel our society. This is a cycle. It is at its nadir (I believe) at this point in time. It is a wonderful opportunity for those with the perspective to realize it, but for most of you, the contrived threat of Armageddon will prevent the benefits from being realized. Nobody can (or should) legislate the ability for some to benefit, (using the same information) from others who choose not to. My condolensces to those who choose to remain in the darkness at this time, but (for now at least) it’s a free country that allows the bold and informed to profit. If you really would wish it otherwise, I would be curious to know why.
I would love to believe this is a cycle. The issue here is that the rules of the game are changing and I’m not sure what the game is anymore. The uncertainty is why we are seeing this”reaction.” Why try to put a wedding ring on a greased pig. I’ve got better ideas for the wedding ring and the pig. None of these involve lipstick.
We haven’t had free markets for quite some time now. Only with government meddling could things have gotten so screwed up, and I’m not talking about the mop up job they are trying to do now. We will find out the truth in ‘09.
History is littered with the rubble of previous civilizations that believed they were too big, too powerful, too secure, more intelligent, too wise, too whatever you would like to assign to them. They all had one thing in common, invincibility, or so they thought…and yet we choose not to learn from the historical events of the past…at least you are wise enough to label our country as free “for now at least”…there are many powerful forces at work that could easily bring not only our government down but a substantial part of the “free” world.
Many are basically insolvent. The government is going to recapitalize the most important institutions, sounds great right. That is like a death sentence for the ones that don’t get government backing. Any bank that gets a cash infusion from the government, will be deemed to be safer and will be where people want to keep their money. The others will lose their deposit base.
I began moving to all cash positionssome months ago. We began slowly stockpiling non-perishable goods and medicines several months ago and we’ve got about 1yrs supply perhaps a bit more. Weapons are for hunting purposes… 
Hope is of course it doesn’t come to that but given the global climate an ounce of prevention is definitely worth a pound of cure. Our area has already seen a sharp drop in routine deliveries to local merchants due to our remote location. Predictions that will only get worse in months ahead.
Larger shippers are not shipping from loading dock unless payment is secured.
I would like to start a movement to vote out every incumbent member of congress wether it be democrat of republican, we need to send a message of never again,will we allow them not to have our best interests at heart, and then do it again the round 2 years later.. Every incumbent, untill we have all new people, that will send a message like no other
that’s a well framed question. and i think the market is up Monday. why?
1) you’ll have a slew of new dumb money sellers just now realizing the world is in crisis vs….
2) the people who’ve known the news and are ready to buy because they truly believe the bottom is in. joined by….
3) the windfall institution “smart” money who’ve profited from the LEH auction and are ready to pump this market up like no tomorrow. (not like they care about anything, keep that in mind.)
i think the buyers are going to swamp monday.Two weeks after persuading Congress to let it spend $700 billion to buy distressed securities tied to mortgages, the Bush administration has put that idea aside in favor of a new approach that would have the government inject capital directly into the nation’s banks — in effect, partially nationalizing the industry.
As recently as Sept. 23, senior officials had publicly derided proposals by Democrats to have the government take ownership stakes in banks.
The Treasury Department’s surprising turnaround on the issue of buying stock in banks, which has now become its primary focus, has raised questions about whether the administration squandered valuable time in trying to sell Congress on a plan that officials had failed to think through in advance.
It has also raised questions about whether the administration’s deep philosophical aversion to government ownership in private companies hindered its ability to look at all options for stabilizing the markets.
Some experts also contend that Treasury’s decision last month to not use taxpayer money to save Lehman Brothers worsened the panic that quickly metastasized into an international crisis.
The bottom is when we get some months of stable market. Not yet, sorry. We can have a poor statement of G8, and some strong action from them. It is always better than strong statement and poor action. May be I’m dreaming.
We were for several years in the globalization process. But here, seems like every countries will take their own measures, mainly by deciding who will survive or not. Not only this back step to “protectionism” (and germany seems the leader in this politic !) by our leader, but the sheople will be incline to do the same.
Seems like Women and children first, and if any place left, men can have a place in the liferaft.
Once thing we will see is a huge force in the gold market. And there will be a coordinate action from the central bank like may be it was on friday. The really do not want you to exchange their currency to gold.
Bush admin used same tactic (WMD and fear) they used for iraq war to pass the bailout and you can see both were big handouts to few wealthy. One thing this administration did good is that they prove over and over that the republican party is not a conservative party but a rich socialist party in disguise. Hope conservatives are smart enough to understand that founding principal of republican party were thrown out of the window long time ago.
Ps: small government, fiscal conservatism, lower tax were founding principal..Abortion was not…it was brought in by some weirdo to buy some votes
Morgan Stanley may benefit from latest Treasury plans on buying equity in banks. U.S. mulls buying equity in banks as Morgan Stanley awaits MUFJ injection.
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