WASHINGTON/NEW YORK -- Representatives of the world's leading economies confronted a financial shambles Friday as they gathered in Washington with panic selling in stock markets, credit frozen solid and the world teetering on the brink of recession.
Finance ministers and central bankers from the Group of Seven meet in Washington, searching for answers. Joint interest-rate cuts, liquidity injections, a $700 billion U.S. bailout and various government plans to guarantee bank deposits or take equity stakes in banks have all failed to restore investor confidence.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke will serve as hosts for a meeting of finance ministers and central bank presidents from the Group of Seven major industrial countries Friday. The G-7 includes the United States, Canada, Britain, France, Germany, Italy and Japan.
President Bush will meet with the group Saturday, a meeting that was added this week as turmoil in the financial markets intensified.
The Wall Street Journal reported that government officials are considering temporarily guaranteeing all U.S. bank deposits and billions of dollars of bank debt, in addition to possibly buying stakes in individual banks.
The U.S., through the FDIC, insures bank deposits, including personal savings accounts and certificates of deposit. A sweeping financial rescue law enacted last week temporarily raises the limit on FDIC-covered accounts to $250,000 from $100,000. The increase is in effect until the end of 2009.
That guarantee covered $5.2 trillion of deposits, but another $1.8 trillion is not presently covered, according to the Wall Street Journal.
But a Treasury Department official, who spoke on condition of anonymity because of the sensitive nature of market conditions, said covering all deposits is not now being considered. "We raised the limit one week ago and have no plans to remove the limit," the official said.
The New York Times also said officials are reviewing a British proposal that also includes repayment guarantees for certain types of loans.
Administration officials told the Associated Press that several financial rescue plans are being reviewed, but no announcements are likely before finance ministers from the seven biggest industrial nations meet.
Acquiring a stake in the banks would be yet another startling intervention by the government in the free market, but economists said Bush was left with little choice because of the credit markets, where tight lending has choked off the everyday cash that is the lifeblood of the economy.
"In normal times, this would be out of the question, but in the present dire situation, I think the government should be employing all the powers that it can," said Sung Won Shone, an economics professor at California State University, Channel Islands.
Apart from Wednesday's joint rate cut by the world's leading central banks, countries have been acting one by one .