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Bush to meet G7 ministers in hope of tackling crisis

Time is GMT + 8 hours
Posted: 11-Oct-2008 15:39 hrs

G7 finance ministers and central bank governors at the US Treasury Department in Washington, DC. US President George W. Bush is set to hold talks with G7 finance ministers as they search for a coordinated action plan to tackle the financial crisis that has shaken markets from Asia to the United States.

US President George W. Bush will hold talks with G7 finance ministers Saturday in search of coordinated ways to tackle the financial crisis that has shaken markets from Asia to the United States.

The early morning meeting at the White House comes after the Group of Seven finance chiefs agreed Friday to use "all available tools" to support major banks and prevent their failure as they sought to dampen a financial firestorm threatening more mayhem.

The plan followed another day of massive falls on the markets as investors rushed to the exits, putting G7 officials under intense pressure to come up with a convincing accord.

Analysts said, however, there was a lack of substance and nothing that would calm the markets and so allow a more measured approach to the problems thrown up rather than the crisis mode of the past few weeks.

"The G7 agrees today that the current situation calls for urgent and exceptional action," a statement released by the US Treasury said.

"We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth."

The G7 major advanced economies agreed to "take decisive action and use all available tools to support systemically important financial institutions and prevent their failure."

Finance ministers and central bankers from the United States, Germany, Japan, France, Britain, Italy and Canada met in Washington ahead of weekend gatherings of the Group of 20, International Monetary Fund and World Bank.

The G7 statement was "a set of noble goals, the sort of thing one should expect," said Peter Morici, business professor at the University of Maryland.

"There is nothing there to calm the markets, no substance (in the statement) to do that," Morici said, while adding that it did at least contain the things that needed to be done, if not the action to bring them about.

The G7 said they would take "all necessary steps to unfreeze credit and money markets and ensure that banks and ensure that banks and other financial institutions have broad access to liquidity and funding."

The credit markets are crucial because they are used to provide the short-term funding essential for banks and companies to manage their affairs.

Since the collapse of the US subprime or higher-risk home loan market last year, the banks have been saddled with mountains of bad debt, undercutting their finances and making them unwilling to provide any but the safest loan.

As lending has dried up, business has been increasingly affected, in turn hitting employment and consumer spending to leave the US economy prey to a vicious circle of declining demand and activity.

In this respect, the G7 said they would "ensure that our banks and other major financial intermediaries, as needed, can raise capital from public as well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses."

US Treasury Secretary Henry Paulson said the G7 had "finalized an aggressive action plan to address the turmoil in global financial markets and the stresses on our financial institutions."

"This action plan provides a coherent framework that will direct our individual and collective policy steps to provide liquidity to markets, strengthen financial institutions, protect savers, and enforce investor protections," said Paulson, the architect of a 700-billion-dollar bank bailout passed by Congress last week.

Robert Brusca of FAO Economics was critical of the day's outcome.

"Good fluff but fluff," he said, adding that there was "not one concrete promise (only)... a promise of results, (with) no actions specified."

"We can't be sure that they really know what to do. A pledge of everything (makes it) sound like they are clueless."

The G7 agreement came after global stock markets went into a freefall Friday as panicked investors found no place to hide, even though Wall Street managed to stem the losses in a session of ups and downs.

Some markets plunged 10 percent in the worst performance since the 1987 stock crash as part of a global meltdown that began with Tokyo's 9.6 percent nosedive.

"If you could measure the overall confidence level of investors, it would likely be so low that it would frighten the rest of the longs out of the market," said Kevin Giddis at Morgan Keegan.

"This is the scary part of the movie where the slasher is hiding in the shadows around the corner waiting to pounce."

On Wall Street, the Dow Jones Industrial Average saw early losses of as much as 700 points, and two sudden spurts into positive territory before closing down 128.00 points (1.49 percent) at 8,451.19.

The market saw a stomach-churning session at the end of a vicious week of selling that sent the Dow and S&P indexes tumbling 18 percent. — AFP