Bush: US to work with partners on credit crisis

October 11, 2008 12:00:00 AM PDT
President Bush emerged from a meeting with foreign financial officials on Saturday and said they were cooperating on a global response to the credit crisis that will lead toward a "path of stability and long-term growth." Bush announced no new strategies to attack the economic woes circling the globe, stressing instead, "We will do what it takes to resolve the crisis and the world's economy will emerge stronger as a result."

Bush spoke in the Rose Garden outside the White House, joined there in a show of solidarity not long after daybreak by finance officials from the so-called G-7 -- Japan, Germany, Britain, France, Italy and Canada, in addition to the United States. Treasury Secretary Henry Paulson and Secretary of State Condoleezza Rice also attended.

"The United States has a special role to play in leading the response to this crisis," the president said. "That is why I convened this morning's meeting here at the White House and it is why our government will continue using all the tools at our disposal to resolve this crisis."

He added, "We've all agreed that the actions we take should protect our taxpayers and we've agreed that we ought to work with other nations ... As our nations carry out this plan we must be sure the actions of one country do not contradict or undermine the actions of another."

The White House meeting lasted about a half-hour, less than scheduled.

It was the 21st time in 26 days that the president has spoken publicly about the credit crisis gripping the financial markets, a crisis that has now infected the stock markets. Congress heard testimony last week that the retirement accounts of Americans have lost $2 trillion in the past 15 months, and the New York Stock Exchange Dow Jones industrials average plummeted more than 18 percent last week alone, the largest ever in a week.

A wave of selling sent markets lower in several Asian and European nations on Friday, while other exchanges were closed to prevent the same fate.

The stock selloffs stem from fears that banking systems have essentially frozen up around the world -- a credit crisis that began three weeks ago in the United States and has led to an escalating series of interventions by the administration and Federal Reserve in the United States. Officials have also spoken openly of concerns that the United States may be headed for a potentially deep recession.

It was only eight days ago that Congress approved a $700 billion bailout for the financial industry, and the Fed has pumped billions of dollars into the economic system hoping to provide greater access to credit for potential borrowers.

On Friday, Paulson announced the Treasury would begin buying part ownership in American banks, the first time the government has taken such action since the Depression of the 1930s.

The G-7 officials discussed the global economic crisis for three hours on Friday and issued one of the shortest communiques in the history of the group. It pledged to take "all necessary steps to unfreeze credit and money markets" to end the crisis.

Overseas officials also have injected billions of dollars of reserves into their banking systems with little effect so far. As the markets plunged this past week, however, the U.S. and other countries accelerated their efforts.

The administration is working overtime to get the $700 billion rescue program that Congress passed just a week ago into operation. The program's main goal is to buy billions of dollars of bad mortgage-related loans from banks and other financial institutions in an attempt to restart more normal lending operations.

But on Friday, Paulson said the administration would open up a new avenue of attack with a program to purchase stock from a wide variety of banks and other financial institutions, hoping that by injecting fresh capital it will get credit -- the lifeblood of the economy -- flowing again.

Earlier this week, Britain had moved to pour cash into its troubled banks in exchange for stakes in them -- a partial nationalization. Paulson said the U.S. program would be designed to complement banks' own efforts to raise fresh capital from private sources.

The G-7 statement endorsed a program to prevent the failure of major banks in each of the countries, unfreeze credit and money markets, bolster capital and deposit insurance programs and get the battered mortgage financing system operating more normally.

It was the meltdown of the subprime mortgage market with cascading defaults that triggered the start of the credit crisis in the United States in August 2007.

While the G-7 group did not endorse all the plans put forward, such as a proposal from Britain that countries guarantee the loans that banks make to each other, the finance ministers said they believed they had agreed on a comprehensive plan that would show results.

French Finance Minister Christine Lagarde called it a "coordinated, synchronized and rightly timed approach" while German Finance Minister Peer Steinbrueck said that quick implementation was critical because "the downward spiral is picking up speed."

An even larger Group of 20 countries -- which include the wealthiest and the world's biggest developing nations such as China, Brazil and India -- will meet with Paulson on Saturday evening.

The question of how countries can deal with the spreading financial crisis was dominating discussions at the weekend meetings of the 185-nation International Monetary Fund and its sister lending institution, the World Bank.

Mark Zandi, chief economist at Moody's Economy.com, said he believed that markets will stabilize in coming days as long as the new programs produce positive results in getting credit flowing again.

"At this point, policymakers have said a lot and done a lot. Now markets will want to see whether it will work," Zandi said.


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