aiki14
10-10-2008, 10:36 PM
WASHINGTON -- The U.S. and the six other members of the G-7 countries agreed Friday on a set of principles to deal with the world financial crisis, a move that opens the way for a series of government actions, but falls short of the joint plan sought by many market participants.
Following the release of a statement by the Group of Seven economic powers that outlined the agreement, Treasury Secretary Henry Paulson gave more details about the Treasury's plan to buy stakes in banks, saying the administration is developing a "standardized program" that would allow the U.S. government to purchase equity in "a broad array of financial institutions."
Mr. Paulson said such a program would be designed to encourage investors to put private capital into financial institutions. The government would be a passive investor in any firm, he said.
Mr. Paulson said Treasury was working to get the program underway as soon as possible. "We are not wasting time," he said.
While global stock markets, haunted by the specter of worldwide recession, continued to fall, top finance officials from the G-7 countries tried to add coherence to what has so far been an every-country-for-itself approach that, at times, has appeared to complicate the crisis.
Among the guidelines, countries agreed to use all tools to prevent systemically important financial institutions from failing; to ensure that bank-deposit insurance programs are solid; to ensure that banks can raise capital from private or government sources; to take steps to unfreeze credit and money markets, and ensure that financial institutions have access to liquidity.
The principles are vague enough that they could be interpreted in many ways, which for some countries may include such dramatic action as guaranteeing bank debt, as the U.K. has already done.
One of the principles is that no country should take a step that worsens conditions in another country. During the 1930s, countries raised trade tariffs in a desperate effort to protect their own industries, but ended up worsening the Great Depression.
During the current crisis, Ireland moved to guarantee all bank deposits to reassure savers. Germany followed suit, out of concern deposits would leave German banks for Irish ones. Denmark and Greece have also agreed to cover all bank deposits, while Spain, Sweden, Italy, the U.S. and the U.K. raised their insurance caps.
The G-7 decision to stick to generalities may raise the risk of further market chaos. Many investors and traders had been hoping for a dramatic G-7 accord, such as an agreement to guarantee bank debt.
Mr. Bush invited G-7 finance ministers to the White House for breakfast on Saturday, but it seemed unlikely the gathering would produce a breakthrough.
The G-7 includes the U.S., Japan, Canada, the U.K., Italy, France and Germany.
Write to Michael M. Phillips at michael.phillips@wsj.com
Following the release of a statement by the Group of Seven economic powers that outlined the agreement, Treasury Secretary Henry Paulson gave more details about the Treasury's plan to buy stakes in banks, saying the administration is developing a "standardized program" that would allow the U.S. government to purchase equity in "a broad array of financial institutions."
Mr. Paulson said such a program would be designed to encourage investors to put private capital into financial institutions. The government would be a passive investor in any firm, he said.
Mr. Paulson said Treasury was working to get the program underway as soon as possible. "We are not wasting time," he said.
While global stock markets, haunted by the specter of worldwide recession, continued to fall, top finance officials from the G-7 countries tried to add coherence to what has so far been an every-country-for-itself approach that, at times, has appeared to complicate the crisis.
Among the guidelines, countries agreed to use all tools to prevent systemically important financial institutions from failing; to ensure that bank-deposit insurance programs are solid; to ensure that banks can raise capital from private or government sources; to take steps to unfreeze credit and money markets, and ensure that financial institutions have access to liquidity.
The principles are vague enough that they could be interpreted in many ways, which for some countries may include such dramatic action as guaranteeing bank debt, as the U.K. has already done.
One of the principles is that no country should take a step that worsens conditions in another country. During the 1930s, countries raised trade tariffs in a desperate effort to protect their own industries, but ended up worsening the Great Depression.
During the current crisis, Ireland moved to guarantee all bank deposits to reassure savers. Germany followed suit, out of concern deposits would leave German banks for Irish ones. Denmark and Greece have also agreed to cover all bank deposits, while Spain, Sweden, Italy, the U.S. and the U.K. raised their insurance caps.
The G-7 decision to stick to generalities may raise the risk of further market chaos. Many investors and traders had been hoping for a dramatic G-7 accord, such as an agreement to guarantee bank debt.
Mr. Bush invited G-7 finance ministers to the White House for breakfast on Saturday, but it seemed unlikely the gathering would produce a breakthrough.
The G-7 includes the U.S., Japan, Canada, the U.K., Italy, France and Germany.
Write to Michael M. Phillips at michael.phillips@wsj.com