G-7 Commit to `All Necessary Steps' to Stem Crisis By Simon Kennedy
Oct. 10 (Bloomberg) -- Group of Seven finance chiefs, meeting after global stocks plunged the most since 1970, pledged to prevent the failure of key banks while stopping short of fresh initiatives to thaw credit markets. ``The current situation calls for urgent and exceptional action,'' the finance ministers and central bankers said in a 266-word statement after talks in Washington. They committed to ``take all necessary steps to unfreeze credit and money markets'' without detailing how that would be accomplished. With a global recession looming, the officials promised to ensure major banks have access to cash and are able to tap public funds for capital. By refraining from specific new measures such as embracing a U.K. plan to guarantee loans between banks, they run the risk of disappointing investors and exacerbating the turmoil. ``It sounds like jawboning,'' said Keith Hembre, chief economist at First America Funds in Minneapolis, which oversees about $100 billion in assets. ``These are broad statements without any details.'' The vow to back ``systematically important financial institutions'' suggests authorities will not allow a repeat of last month's collapse of Lehman Brothers Holdings Inc., which precipitated the latest round of crisis. That may provide some relief for Morgan Stanley, whose stocks and bonds dropped for a fifth day on concern about the investment bank's health. Bank Discussions U.S. Treasury Secretary Henry Paulson said no bank was singled-out in the discussions. The policy makers from the U.S., Japan, Germany, U.K., France, Canada and Italy convened after stock indexes this month plunged more than 20 percent from Japan to Europe to North America. The G-7 nations were under pressure to roll out new policies and adopt a united front to quell the panic in markets after their previous steps failed to do so. Instead, they outlined principles for all nations to follow. ``We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth,'' officials said. Paulson said it would be ``naive'' to think that different nations in different circumstances could come up with the same policy paths. Emergency Actions In the past two weeks alone, global central banks executed emergency interest-rate cuts and pumped more cash into markets, the Federal Reserve said it would buy U.S. commercial paper, European governments bailed out banks and the U.K. and U.S. said they would start taking equity stakes in financial companies. Money markets remain gridlocked even after those efforts, as banks shun lending to each other for fear they will lose the money or because they need it themselves. The resulting jump in borrowing costs is now strangling consumers and companies, prompting Merrill Lynch & Co. to predict the G-7 economies will be the weakest next year since 1982. U.S. stocks fell for an eighth straight day, with the Dow Jones Industrial Average capping its worst week since 1914. The MSCI World Index of equities in 23 developed countries slid 20 percent this week, the most since records began in 1970. ``We have taken a lot of actions,'' European Central Bank President Jean-Claude Trichet said. ``My experience of markets is that it always takes a little time to capture the elements,'' of the decisions taken, he said. U.K. Proposal The G-7 officials shied away from endorsing a U.K. proposal to guarantee lending between banks either by turning central banks into clearing houses for the loans or having governments back them. They vowed to take steps that would give depositors confidence that their savings were safe and to restart secondary markets for mortgages and other securitized assets. The guidelines said any steps taken should protect taxpayers and avoid hurting other economies. Paulson signaled his top priority, having secured $700 billion rescue package from Congress, will be to buy equity in financial companies to restore market stability and ensure economic growth. He added that ``we have more to do in the liquidity area.'' The Treasury is ``working to develop a standardized program that is open to a broad array of financial institutions,'' Paulson said. Canadian Banks The Canadian government today moved to shore up its banks by saying it will buy as much as C$25 billion ($21.6 billion) in mortgages from them. German Finance Minister Peer Steinbrueck and Bundesbank President Axel Weber said they're working on a package of measures to rescue banks that'll be revealed before markets open next week. ``The situation in financial markets is demanding unusual and far- reaching decisions from all policy makers,'' Weber told reporters. ``There is no alternative to these measures because banks have come under strong pressure.'' While the joint statement made no mention of currencies, Trichet said the group viewed excess volatility in exchange rates as detrimental and urged China to allow faster gains in the yuan. Highlighting the stakes facing the world economy, further talks will be held this weekend. The G-7 officials will meet tomorrow with President George W. Bush and gather with counterparts from the Group of 20, which includes emerging markets. Trichet will head to Paris for a summit the next day of European leaders. Bush Statement Bush said today that the U.S. ``will continue to act to resolve this crisis and restore stability to our markets.'' Rifts within the G-7 were exposed by an unprecedented public split in which Italian Finance Minister Giulio Tremonti rejected a draft statement for being ``too weak.'' The ultimate text that won his blessing was shorter than the original and aimed at wielding ``a strong psychological impact,'' said French Finance Minister Christine Lagarde. Tremonti after the meeting described the Basel II accord that regulates accounting for banks as ``dead'' and said he will propose a shake-up of the global financial architecture tomorrow. The G-7 promised to implement high quality accounting standards. Earlier, Italian President Silvio Berlusconi sowed confusion by saying governments may close financial markets, only to reverse himself an hour later. To contact the reporter on this story: Simon Kennedy in Washington at [EMAIL PROTECTED]; John Brinsley in Washington at [EMAIL PROTECTED] Last Updated: October 10, 2008 21:08 EDT --~--~---------~--~----~------------~-------~--~----~ Thanks for being part of "PoliticalForum" at Google Groups. For options & help see http://groups.google.com/group/PoliticalForum * Visit our other community at http://www.PoliticalForum.com/ * It's active and moderated. Register and vote in our polls. * Read the latest breaking news, and more. -~----------~----~----~----~------~----~------~--~---
