WASHINGTON — President Bush and the world’s financial leaders staged repeated displays of unity Saturday to combat an unfolding credit crisis, hoping to calm investors whose panic has spread despite bold and accelerating government action.
Although there were no concrete offers of new moves made Saturday, Bush pledged anew that his administration was doing everything possible to halt the biggest market disruptions since the Great Depression, and the finance ministers spoke in unusually somber terms about the need for action.
Bush, who had started the day shortly after dawn with a Rose Garden appearance with finance ministers from the world’s richest countries, made an unexpected late-day visit to the headquarters of the 185-nation International Monetary Fund. With Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, he participated in a discussion with the Group of 20, which includes rich countries and major developing nations such as China, Brazil and India.
Brazilian Finance Minister Guido Mantega said the president had stressed the seriousness of the situation and told the finance ministers that he was doing all he could to involve other countries in efforts to resolve the crisis.
In response, the G20 countries issued a joint statement in which the finance officials pledged to work together “to overcome the financial turmoil and to deepen cooperation to improve the regulation, supervision and the overall functioning of the world’s financial markets.”
“No tools will be spared”
The financial turmoil dominated discussions at the annual meetings of the IMF and World Bank over the weekend. The IMF strongly endorsed a five-point plan put together by the G7 nations the day before that pledged to use all means possible to prevent major financial institutions from failing and to keep pumping money into the banking system to unfreeze lending and get credit — the lifeblood of the economy — flowing again.
“The depth and systemic nature of the crisis call for exceptional vigilance, coordination and readiness to take bold action,” the IMF said in its joint statement.
“There is a resolve that this crisis will be resolved, that no tools will be spared to address this issue,” Egypt’s finance minister, Youssef Boutros Ghali, chairman of the IMF’s policy panel, said at a news conference Saturday.
In his Rose Garden appearance, Bush made a plea for nations to work together to address the crisis, avoiding the go-it-alone protectionist trade strategies that worsened conditions during the Great Depression.
“In an interconnected world, no nation will gain by driving down the fortunes of another. We are in this together. We will come through it together,” Bush said. “There have been moments of crisis in the past when powerful nations turned their energies against each other or sought to wall themselves off from the world. This time is different.”
White House spokesman Tony Fratto said Bush’s commitment to collaborative action was repeated and agreed to by every official and minister who took part in a private White House meeting before the statement. Participating in that session with the president were top officials from the Group of Seven powers — the U.S., Japan, Germany, France, Britain, Italy and Canada — as well as from the European Union, World Bank and International Monetary Fund.
Bush did not mention any specific action that prompted his call.
But Ireland recently moved to guarantee all bank deposits, triggering similar actions in Germany and other countries concerned that depositors would move their bank accounts to Ireland.
In his White House remarks, the president barely noted a significant new step from his administration — partial nationalization of some banks. After days of speculation this move was coming, Paulson announced Friday that the government would buy part ownership in an array of American banks.
No details yet on U.S. move
President Hoover tried something like that in 1932 during the Great Depression. No detail was provided about how the Bush administration’s approach would work, only that it was similar to Britain’s move to pour cash into its troubled banks in exchange for a stake in them. The U.S. government would use an unspecified portion of the $700 billion approved by Congress a week ago to purchase stocks in a wide variety of banks and other financial institutions.
The rescue program originally was sold to Congress and the public as a plan to buy mortgage-related loans from financial institutions. The goal was to remove troubled assets from those institutions’ books and inspire them to restart more normal lending operations.
Congress passed the massive and hard-fought legislation, and Bush signed it. The government raised the amount of bank deposits it insured. Billions of dollars of reserves have gone into banking systems in the U.S. and other countries. Yet credit has remained frozen.
This paralysis in the credit markets has translated into intense turmoil in the stock markets. The Dow Jones industrial average just completed its worst week in history, plummeting more than 18 percent. Over the past year, people in the U.S. have watched $8.4 trillion drain from investment accounts and retirement savings.
So the administration decided to use the bailout bill to pump equity directly into the banks — an idea never mentioned during the congressional debate. The administration says it is authorized by an obscure provision of the 400-page legislation.
Officials are not saying how long it will take to get this program underway — just as is the case with the even more complicated effort to buy mortgage-backed securities.
Officials in Europe prepared for a meeting today of the leaders of the 15 nations using the euro currency. German Chancellor Angela Merkel and French President Nicolas Sarkozy said Saturday they opposed the creation of a common financial rescue fund for Europe.
G7’s plan of action
Text of the G7 finance ministers and central bank governors’ plan of action, as provided by the Treasury Department on Friday:
The G7 agrees today that the current situation calls for urgent and exceptional action. We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth. We agree to:
1) Take decisive action and use all available tools to support systemically important financial institutions and prevent their failure.
2) Take all necessary steps to unfreeze credit and money markets and ensure that banks and other financial institutions have broad access to liquidity and funding.
3) Ensure that our banks and other major financial intermediaries, as needed, can raise capital from public as well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses.
4) Ensure that our respective national deposit insurance and guarantee programs are robust and consistent so that our retail depositors will continue to have confidence in the safety of their deposits.
5) Take action, where appropriate, to restart the secondary markets for mortgages and other securitized assets. Accurate valuation and transparent disclosure of assets and consistent implementation of high quality accounting standards are necessary.
The actions should be taken in ways that protect taxpayers and avoid potentially damaging effects on other countries. We will use macroeconomic policy tools as necessary and appropriate. We strongly support the IMF’s critical role in assisting countries affected by this turmoil. We will accelerate full implementation of the Financial Stability Forum recommendations and we are committed to the pressing need for reform of the financial system. We will strengthen further our cooperation and work with others to accomplish this plan.
