- The Washington Times - Sunday, October 12, 2008

The handiwork of the world’s top finance ministers and central bankers gets its first meaningful review as stock markets around the world are poised to reopen Monday after a week of record losses and bank failures.

U.S. Treasury Secretary Henry M. Paulson Jr. and his G-7 counterparts offered few concrete proposals to stem a global credit crunch over the weekend, instead appealing for global unity and decrying any isolationist or protectionist sentiment in the face of world credit crunch.

“Isolationism and protectionism will not offer a way out,” Mr. Paulson told a meeting of the World Bank’s Development Committee on Sunday. “Although we in the United States are taking many extraordinary measures to ease the crisis, we are not pursuing policies that would limit the flows of goods, service or capital.”

Related article:Paulson: Protectionist policies won’t solve crisis

Democratic lawmakers used Sunday’s talk shows to urge the Treasury Department to move quickly in fulfilling a pledge to make direct purchases of bank stocks and unfreeze lending. They also began to lay the groundwork for a post-election lame-duck session to consider the second major stimulus package for the U.S. economy this year.

“We are going to do a stimulus,” House Financial Services Chairman Rep. Barney Frank, Massachusetts Democrat, told ABC’s “This Week.” “I think the stimulus package is to give the middle class and the average citizen the same kind of relief that we tried to give to the financial sector.”

House Speaker Nancy Pelosi and the Democratic leadership in Congress are eyeing a $150 billion package, designed to give the economy a boost in the face of job layoffs and plunging stock values.

House Minority Whip Rep. Roy Blunt, Missouri Republican, said he was open to a stimulus program “that made sense.”

“But let’s not use the stimulus package as an excuse to do what Democrats have wanted to do from Day One of this Congress, which is a huge public works plan,” he added.

Coordinated action to date — including last week’s synchronized move by the Federal Reserve, the European Central Bank and four other central banks to slash interest rates — has failed to reverse the market slide or thaw frozen credit markets.

Since the beginning of the month, all three leading U.S. stock indexes — the Dow Jones index of industrial stocks, the Nasdaq and the Standard & Poor’s 500 — have lost at least 20 percent of their value. The S&P 500 was off 18.2 percent last week alone, its worst weekly loss ever. U.S. stocks staged a late rally Friday afternoon, ahead of a critical meeting of G-7 finance ministers. But some analysts say the weekend G-7 meetings, including a Saturday afternoon White House summit with President Bush, produced a lot of rhetoric but few concrete proposals.

“The markets wanted maybe more assurance that there would be a unified global backstopping of the banks, and it doesn’t sound like that’s in there,” Kim Rupert, managing director of global fixed income for San Francisco-based Action Economics LLC, said.

French Foreign Minister Christine Lagarde said of the G-7 joint statement, “Some of us hoped it had had more teeth or more muscles to it, but at least it was endorsed.”

In Paris, European leaders gathered Sunday in a second bid to coordinate policies to halt market sell-offs across the Continent.

Related article:Draft statement: Europe would guarantee bank debt

Apparent policy differences between officials in Germany, France and Britain spurred market fears last week. German Chancellor Angela Merkel has resisted calls to join in a Continent-wide rescue plan for Europe’s banks, which are being dragged down by their holdings in the imploding U.S. mortgage market.

“I want Europe to speak with one voice for Europe and for the world because this is a global crisis,” French President Nicolas Sarkozy told reporters.

Democratic members of Congress pressed Mr. Paulson to press ahead with a plan under which the Treasury would begin directly recapitalizing U.S. banks, giving the government an equity share in troubled lenders. The Treasury’s original plan had been simply to purchase the bad loans on the banks’ books in hopes that that would get them lending again.

“I am hopeful that tomorrow the Treasury will announce that they’re doing it,” said Sen. Chuck Schumer, New York Democrat and chairman of the Joint Economic Committee. “And they have to do it quickly. Markets are waiting.”

Richard W. Fisher, president of the Federal Reserve Bank of Dallas, said the U.S. central bank stood ready to consider any policy options to ease the banking crisis and restore confidence among lenders. Mr. Fisher said the Federal Reserve’s governors were even ready to drop their usual secretive ways to reassure the markets.

“This morning I am casting convention aside,” Mr. Fisher said in a panel discussion at the Institute of International Finance in Washington. “I speak for all of us when I say that the Federal Reserve will continue to explore every avenue and consider every option to see the credit markets through the crisis.”

The markets may get a clearer signal of the U.S. government’s plans Monday morning when Neel Kashkari, the Treasury official in charge of the bailout effort, addresses a gathering of international bankers in Washington.

In Iceland, one of the countries hardest hit by the economic meltdown, officials said Sunday they were considering asking for IMF aid in the wake of the collapse of the country’s three biggest banks. As Icelandic officials prepared to depart for Moscow this week to begin negotiations for a multi-billion-dollar emergency loan from Russia, a top minister said Iceland was strongly considering asking the IMF for help.

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