Oct. 11, 2008 -- After one of the worst weeks in the stock market's history, President Bush met foreign financial leaders today to hatch a plan to take on the international financial crisis. In a Rose Garden address following the meeting, Bush vowed to work together with world leaders to develop a unified response.
"All of us recognize that this is a serious global crisis and, therefore, requires a serious global response for the good of our people. We resolve to continue our strong efforts to return our economies to the path of stability and long-term growth," Bush said.
Bush was joined by financial leaders of the other G7 nations — Japan, Germany, England, France, Italy and Canada — as well as Treasury Secretary Henry Paulson and Secretary of State Condoleezza Rice.
While Bush did not discuss any strategies for resolving the economic crisis, he emphasized the need for global leaders to work together in order to avoid worsening the situation.
"As our nations confront challenges unique to our individual financial systems, we must continue to work collaboratively and ensure that our actions are coordinated," Bush said. "We must ensure the actions of one country do not contradict or undermine the actions of another. In our interconnected world, no nation will gain by driving down the fortunes of another. We're in this together. We will come through it together."
Bush also praised swift action taken by some G7 nations earlier in the week to enact a joint interest rate cut. In an historical coordinated policy action, central banks around the world, including the Federal Reserve and European Central Bank, lowered key rates in hopes of boosting liquidity and unfreezing the credit markets.
Bush tried to instill confidence that world leaders were doing everything they could to lessen the crisis, but warned it would take time.
"The benefits will not be realized overnight. But as these actions take effect, they will help restore stability to our markets and confidence to our financial institutions."
Paulson Urges Coordinated Global Action
The President's Rose garden speech today marked the 22nd time in 27 days that Bush has publicly spoken about the financial crisis. While Bush prepared for talks, Paulson laid the groundwork with G7 leaders in a marathon of closed door meetings Friday.
After meeting with IMF officials today, Paulson reiterated the need for coordinated, unified action to re-capitalize the troubled financial markets around the world.
"In recent weeks financial market turmoil intensified throughout the world and credit markets froze, causing a chain reaction," Paulson said. "These extraordinary events require a global response and financial officials from around the world are working together, taking action individually and collectively to address these challenges."
Paulson also pressed the IMF to strengthen surveillance on exchange rates, and resist protectionist policies that worsened economic conditions during the Great Depression of the 1930s.
Paulson admitted that while fast action is necessary to clamp down on the crisis now, long-term solutions would be needed to "promote growth and financial stability" in the future.
"Once we are past this difficult period, we must turn our attention to longer-term reforms to modernize our outdated financial regulatory structure and address other weaknesses," Paulson said.
Reaching Out to World Leaders
This afternoon, IMF officials endorsed the economic plan Paulson crafted with the G7, according to Reuters. The new coordinated plan to unfreeze credit markets emerged after hours of closed door meetings on Friday between Paulson and leaders of the world's wealthiest nations. The Treasury Secretary praised the plan as a first step toward resolving the financial crisis.
"Governments around the world have taken actions to address financial market developments, and international cooperation and coordination has been robust," Paulson said.
In a statement released Friday, G7 finance ministers agreed to support important financial institutions and "take all necessary steps to unfreeze credit and money markets." To that end, Paulson said the US government would do something it hasn't done since the Great Depression -- invest directly in troubled banks in exchange for stock.
"We are developing strategies to use the authority to purchase and insure mortgage assets and to purchase equity in financial institutions, as deemed necessary to promote financial market stability," Paulson said.
Socialist Economic Policies?
As of now, banks themselves have lost faith in the system -- unwilling to lend to one another because they're unsure they'll get their money back. The U.S. plan to buy equity in these institutions is supposed to ease concerns and get money moving again. This option was laid out in the $700 billion rescue package approved by Congress. And while it smells of socialism to some, experts agree it's the last best option.
Sandeep Dahiya, associate professor of finance at the Georgetown University Business School, said that while having the federal government buy equity does not sit with well with him as a free market economist, he believes that "we are at the last resort."
"We are past ideology, we are fighting fires at this point," he said. "It doesn't matter whether you are a free economist, a socialist call it what you want but we have a tremendous crisis of confidence at this point."
Dahiya said government stepping in may help jump start the fledgling credit market.
"They are delivering ever more powerful shocks and hoping to get the life going and hopefully one shock will be large enough that will unclog those credit channels," he said.
Paulson didn't give details of the G7 action plan but many are hoping that just having a plan will be enough to boost confidence and restore the world's trust in financial markets.
Paulson and Bush will meet with officials from the Group of 20 countries — which include the G7 and the world's largest developing nations such as China and India — this evening. While the White House and Treasury continue to try to put out fires this weekend, they are tempering expectations for any grand plan that will solve the world's financial woes.