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Bush, Fed pleas fail to sway markets
Huge inventories of “toxic” loans on the books of the nation’s banks has caused the commercial paper and other major loan markets to seize up in recent weeks. The Fed said it is prepared to buy both secured and unsecured commercial paper.
Mr. Bernanke sent a clear signal the U.S. central bank was prepared to go beyond the bailout package and Tuesday’s actions to prop up the economy.
But Wall Street turned sharply lower after Mr. Bernanke stopped short of promising an interest rate cut.
Addressing the National Association for Business Economics, Mr. Bernanke said the world financial system remains under “extraordinary stress.”
“The Federal Reserve will need to consider whether the current stance of policy remains appropriate,” he added, a comment many took as a green light for the Federal Reserve to cut interest rates during its Oct. 28-29 meeting.
The Fed’s commercial paper announcement helped to bolster European stock markets, with both the main British and French stock markets posting modest gains. But the losses resumed when the U.S. markets opened.
Treasury Secretary Henry M. Paulson Jr. and other G-7 finance ministers will be trying to improve policy coordination to stem an economic implosion that has rocked stock and credit markets from Reykjavik and London to Moscow and Sydney. Banks and financial firms around the world are still reeling from asset problems that began with the troubled in the U.S. home mortgage market.
Russia, whose banks and stock market have been particularly hard hit, will pump another $36 billion into the banking system, President Dmitry Medvedev announced, on top of some $170 billion in loans and other aid the government has already put up.
In Luxembourg, finance ministers of the 27-nation European Union agreed to guarantee private savings of up to $68,000 in EU-based banks and set up blocwide guidelines to deal with the crisis. The European Union has been under heavy criticism as individual governments have announced policies and bailed out national firms with little apparent coordination from Brussels.
The IMF, in a sobering report on world financial stability, said policy coordination across the globe is vital is the economic downturn is to be checked.
“The time for piecemeal solutions is over …,” IMF Managing Director Dominique Strauss-Kahn said. “National governments must closely coordinate these efforts to bring about a return to stability in the international financial system.”
In an apparent bid to do just that, the White House said Mr. Bush discussed the crisis by phone with British Prime Minister Gordon Brown, French President Nicolas Sarkozy and Italian Prime Minister Silvio Berlusconi. Mrs. Perino said the administration’s efforts are focused for now on the meeting of financial ministers Friday, but she said Mr. Bush had not ruled out a proposal by Mr. Sarkozy for a summit of global leaders to address the crisis.
“It is critical that everybody gets on the same page,” she said, although she did not say whether the leaders had talked about coordinating interest-rate cuts.
• Jon Ward contributed to this article, which was based in part on wire service reports.
About the Author
Raised in Northern Virginia, David R. Sands received an undergraduate degree from the University of Virginia and a master’s degree from the Fletcher School of Law and Diplomacy at Tufts University. He worked as a reporter for several Washington-area business publications before joining The Washington Times.
At The Times, Mr. Sands has covered numerous beats, including international trade, banking, politics ...
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