Desperate bid to stabilize global financial system
Sunday, 12 October 2008
From Fazle Rashid
NEW YORK, Oct 11: Driven by panic and alarm the finance ministers and the central bank governors from world's seven richest countries after trying a variety of options finally settled to mounting urgent and exceptional' coordinated actions in a desperate bid to stabilise the global financial system reeling under crisis.
The strategy includes fresh infusion of hundreds of billions of dollar, and recapitalisation of banks and other financial institutions to resume stalled funding for banks and guarantee deposits. The situation was described as very grave with the imminent possibility of collapse of the global financial system. G7 nations hope their policy would strongly be endorsed by G20 nations and all the important members of the International Monetary Fund (IMF). Dominique Strauss-Kahn, managing director of the IMF, bemoaned the fact that most of the nations ignored the warning sounded by the Fund about world financial system slipping into a crisis of unmanageable proportion.
He strongly advised the governments in the tormented countries to recapitalise the cash-starved banks. Henry Paulsion, US secretary of treasury, confirmed news about government nationalising the troubled American banks.
The IMF chief divulged that an emergency contingency plan was being worked out aimed at assisting the countries in deep trouble. IMF can quickly arrange a fund of about $200 billion (in easily retrievable assests). But no country feels comfortable about knocking the IMF door for help since it is widely viewed as an admission of policy failure. Adding to the woes of turmoil in the financial market is the news that the cost of financing trade shipment has recorded a steep rise. One trade official said the cost of trade finance, usually quite close to interbank interest rates, had in some cases risen to 300 basic points above, an analyst said.
To wrangle and confront the crisis Pascal Lamy, director general of the WTO, is convening a meeting of the big trade finance banks. The banks to be invited are Citigroup, JP Morgan and the HSBC and other regional banks that provide or underwrite trade credit. There is panic everywhere. The US Senate banking committee is set to meet urgently to bring out the root causes of the crisis and on October 21 the House financial committee will closely scrutinise the need to overhaul the US financial regulations.
There is urgency everywhere to prevent the systematic collapse of the important financial institutions. The G7 RX for bringing back the health and vitality of the collapsing economy includes recapitalisation of the banks, ensuring strong deposit insurance to protect savers and restarting frozen credit and mortgage markets.
The stock markets are currently in the grip of panic and madness. "If you have shares absolutely don't sell them," said Silvio Berlusconi, prime minister of Italy. "If there is something the IMF can do I want them to do it flexibly." Japan will provide funds, Sholchi Nakagawa, finance minister of Japan, said.
The reaction in Iran about the present crisis was typical. As America is happy to see problems in Iran we are happy to see the US economy disturbed and problems extended to Europe, said an Iranian official. The economic downturn was seen as divine retribution and the Bush administration's costly foreign policy in the region notably the invasion of Iraq.
The Wall Street crash has led to the questionable theory that the global turmoil stems from the huge cost of financing the Iraq war (roughly $40 billion a month) rather than a collective regulatory failure to deal with excessive risk-taking in banking sector, an analyst commented.
NEW YORK, Oct 11: Driven by panic and alarm the finance ministers and the central bank governors from world's seven richest countries after trying a variety of options finally settled to mounting urgent and exceptional' coordinated actions in a desperate bid to stabilise the global financial system reeling under crisis.
The strategy includes fresh infusion of hundreds of billions of dollar, and recapitalisation of banks and other financial institutions to resume stalled funding for banks and guarantee deposits. The situation was described as very grave with the imminent possibility of collapse of the global financial system. G7 nations hope their policy would strongly be endorsed by G20 nations and all the important members of the International Monetary Fund (IMF). Dominique Strauss-Kahn, managing director of the IMF, bemoaned the fact that most of the nations ignored the warning sounded by the Fund about world financial system slipping into a crisis of unmanageable proportion.
He strongly advised the governments in the tormented countries to recapitalise the cash-starved banks. Henry Paulsion, US secretary of treasury, confirmed news about government nationalising the troubled American banks.
The IMF chief divulged that an emergency contingency plan was being worked out aimed at assisting the countries in deep trouble. IMF can quickly arrange a fund of about $200 billion (in easily retrievable assests). But no country feels comfortable about knocking the IMF door for help since it is widely viewed as an admission of policy failure. Adding to the woes of turmoil in the financial market is the news that the cost of financing trade shipment has recorded a steep rise. One trade official said the cost of trade finance, usually quite close to interbank interest rates, had in some cases risen to 300 basic points above, an analyst said.
To wrangle and confront the crisis Pascal Lamy, director general of the WTO, is convening a meeting of the big trade finance banks. The banks to be invited are Citigroup, JP Morgan and the HSBC and other regional banks that provide or underwrite trade credit. There is panic everywhere. The US Senate banking committee is set to meet urgently to bring out the root causes of the crisis and on October 21 the House financial committee will closely scrutinise the need to overhaul the US financial regulations.
There is urgency everywhere to prevent the systematic collapse of the important financial institutions. The G7 RX for bringing back the health and vitality of the collapsing economy includes recapitalisation of the banks, ensuring strong deposit insurance to protect savers and restarting frozen credit and mortgage markets.
The stock markets are currently in the grip of panic and madness. "If you have shares absolutely don't sell them," said Silvio Berlusconi, prime minister of Italy. "If there is something the IMF can do I want them to do it flexibly." Japan will provide funds, Sholchi Nakagawa, finance minister of Japan, said.
The reaction in Iran about the present crisis was typical. As America is happy to see problems in Iran we are happy to see the US economy disturbed and problems extended to Europe, said an Iranian official. The economic downturn was seen as divine retribution and the Bush administration's costly foreign policy in the region notably the invasion of Iraq.
The Wall Street crash has led to the questionable theory that the global turmoil stems from the huge cost of financing the Iraq war (roughly $40 billion a month) rather than a collective regulatory failure to deal with excessive risk-taking in banking sector, an analyst commented.