WASHINGTON – Finance officials from the world’s top economic powers endorsed a plan Friday to stem the worst financial crisis in more than a half-century.
Officials from the Group of Seven (G7) countries issued the five-point plan aimed at reversing a credit crisis that has unhinged Wall Street and markets around the globe. They pledged to take “decisive action and use all available tools.”
Under the plan, the countries vowed to protect major banks and to prevent their failure. They also committed to working to get credit flowing more freely again, support the efforts of banks to raise money from both public and private sources, safeguard bank depositors and revive the battered mortgage financing market.
“The current situation calls for urgent and exceptional action,” the G7 finance ministers said in a joint statement.
To that end, Treasury Secretary Henry Paulson said the US government will move ahead with a plan to buy stock in financial institutions. The Bush administration received authority to make direct purchases of stock in banks in the $700-billion financial rescue bill Congress passed last week.
Paulson and Federal Reserve Chairman Ben Bernanke met with their counterparts from the world’s six other richest countries as the rout of financial markets sped ahead in the face of dramatic rescue efforts in the US and abroad.
Besides the United States, the G7 countries are Japan, Germany, Britain, France, Italy and Canada.
“There was an overwhelming consensus that a coordinated approach is necessary,” German’s Finance Minister Peer Steinbrueck said after the meeting.
Japan’s Finance Minister Shoichi Nakagawa echoed that sentiment. Although the United States is the source of the financial “earthquake” roiling world markets, countries need to work together and not assign blame, he said.
Earlier in the day, Nakagawa said Japan was set to propose that a joint fund be set up to give emergency loans to nations hit by the crisis. He did not, however, provide details after the G7 meeting.
Bold measures
Aside from the important details on bank stock purchases that Paulson offered, the finance officials did not provide specifics beyond their five-point action plan.
The one-page joint statement from the G7 financial officials was rare in its brevity. The statements usually issued by the G7 run multiple pages.
By adopting a broad set of common goals, individual countries will have leeway to develop specific remedies that best suit their needs, Paulson explained.
The United States and other G7 countries have unveiled a number of bold plans already aimed at shoring up banks, protecting bank depositors and thawing frozen credit.
Whether Wall Street will be buoyed by the finance ministers’ pledges is another matter.
“I think the markets will wait and see whether all of these policy steps will make a difference,” said Mark Zandi, chief economist at Moody’s Economy.com.
“I think investors are panicked. They are not going to stop selling until they are convinced that these steps will work,” he said.
As individual countries move forward on relief efforts, actions “should be taken in ways that protect taxpayers,” the finance officials said.
Fear has tightened its grip on investors worldwide even as the US and other countries have taken a series of radical actions including unprecedented coordinated interest rate cuts by the Federal Reserve and other major central banks.
In a meeting with G-7 financial officials, US President George W. Bush said the world’s wealthiest nations will work together to attack the credit crisis spreading around the globe.
“We will do what it takes to resolve the crisis and the world’s economy will emerge stronger as a result,” he said.
Bush said that in past crises, some countries sought to ‘wall themselves off from the world” or gain advantage over one another. He said” “This time is different. The leaders gathered together in Washington this weekend are all working together.” – AP