IMF chief Dominique Strauss-Kahn said the global financial system is on "the brink of a systemic meltdown" as financial leaders from the IMF and World Bank's 185 member nations descended on Washington in search of a solution to the crisis.
View our special report on the financial crisis: 'Capitalism on the brink?'
The IMF warned on Saturday that the global financial system was on the brink of meltdown, while
At a joint news conference, French President Nicolas Sarkozy and German Chancellor Angela Merkel said they had "prepared a certain number of decisions" to present at a Sunday meeting of European leaders as they work feverishly to restore blocked credit markets to working order. [ID:nLB553857]
"Intensifying solvency concerns about a number of the largest U.S.-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown," IMF chief Dominique Strauss-Kahn said.
President George W. Bush huddled with Group of Seven economic chiefs and officials from the IMF and World Bank, and said top industrial nations grasped the gravity of the crisis and would work together to solve it.
"I'm confident that the world's major economies can overcome the challenges we face," Bush said, adding that
"The benefits will not be realized overnight, but as these actions take effect, they will help restore stability to our markets and confidence to our financial institutions."
Confidence has been in short supply and panic has swept through global markets, driving stocks to a five-year low on Friday and prompting banks to hoard cash. That has choked off lending to businesses and households, threatening to turn a global economic slowdown into a dangerously deep recession.
U.S. Treasury Secretary Henry Paulson said risks to the global economy were "the most serious and challenging in recent memory."
An emergency meeting of euro zone leaders on Sunday will discuss a bank rescue package, taking a British initiative to guarantee lending between banks as a reference point, a source close to the French presidency said.
The world's rich nations vowed on Friday to take all necessary steps to unfreeze credit markets and ensure banks can raise money but they offered no specifics on a collective course of action to avert the recession threat.
In a surprisingly brief statement after a 3-1/2 hour meeting, the G7 -- the
Kenneth Rogoff, a
"Saying that they'll take all steps necessary leaves hanging the question of whether they know what is best and necessary," he told Reuters. "It was a signature moment for the G7. I think markets are going to be very disappointed."
European Central Bank President Jean-Claude Trichet said markets needed time to digest a series of dramatic steps taken by world central banks in recent days, including pouring billions of dollars into financial markets and lowering interest rates in the broadest coordinated cut on record.
WORKING AROUND THE CLOCK
U.S. Treasury's Paulson said it was "naive" to think that the G7 would endorse a one-size-fits-all approach to ending the credit crisis because there were major differences between the countries and their financial systems.
He said the Bush administration was scrambling to put together a plan to buy direct stakes in American banks to shore up balance sheets riddled with heavy credit losses from the 14-month crisis that began with failing
"We're going to do it as we can do it in a proper way that will be effective. Trust me, we're not wasting time, we're working around the clock," Paulson said late on Friday after the G7 meeting broke up.
But even as Paulson and his fellow finance ministers insisted that they were working as fast as possible, there were signs the economy was credit-starved and deteriorating fast.
Financial weekly Barron's reported that GM was preparing to approach the U.S. Federal Reserve about borrowing money directly from the central bank because the logjam in credit markets had shut it out of other kinds of borrowing.
Date created : 2008-10-11