G-7 Jawbones About Taking 'All Necessary Steps' to Stem Crisis

Bloomberg is reporting G-7 Commit to `All Necessary Steps' to Stem Crisis.

Group of Seven finance chiefs, meeting after global stocks plunged the most since 1970, pledged to prevent the failure of key banks while stopping short of fresh initiatives to thaw credit markets.

"The current situation calls for urgent and exceptional action," the finance ministers and central bankers said in a 266-word statement after talks in Washington. They committed to "take all necessary steps to unfreeze credit and money markets" without detailing how that would be accomplished.

My Comment: They have already taken urgent and exceptional action. Here is a partial list of exceptional actions.

• Treasury To Take Ownership Stake In Banks
• Latin American Banks Attempt to Save Currencies
• Fed To Pay Interest On Deposits; Considers Unsecured Funding
• Trichet Offers Unlimited Cash
• India Makes Steepest Cut in Bank Reserve Ratio Since 2001
• Global Coordinated Rate Cuts Announced

In addition to those items, Germany, the UK, Canada, Iceland, and Russia have all taken exceptional actions.

With a global recession looming, the officials promised to ensure major banks have access to cash and are able to tap public funds for capital. By refraining from specific new measures such as embracing a U.K. plan to guarantee loans between banks, they run the risk of disappointing investors and exacerbating the turmoil.

"It sounds like jawboning," said Keith Hembre, chief economist at First America Funds in Minneapolis, which oversees about $100 billion in assets. "These are broad statements without any details."

My Comment: It sounds like jawboning because it is jawboning.

The vow to back "systematically important financial institutions" suggests authorities will not allow a repeat of last month's collapse of Lehman Brothers Holdings Inc., which precipitated the latest round of crisis. That may provide some relief for Morgan Stanley, whose stocks and bonds dropped for a fifth day on concern about the investment bank's health.

My Comment: How far does $350 billion go? That is all Paulson supposedly has access to, at least initially.

The G-7 nations were under pressure to roll out new policies and adopt a united front to quell the panic in markets after their previous steps failed to do so. Instead, they outlined principles for all nations to follow.

"We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth," officials said.

My Comment: I commit to praising motherhood, apple pie, and world peace.

Paulson said it would be "naive" to think that different nations in different circumstances could come up with the same policy paths.

My Comment: In other words, every country is going to "roll their own dice" which in fact they have already done.

"We have taken a lot of actions," European Central Bank President Jean-Claude Trichet said. "My experience of markets is that it always takes a little time to capture the elements," of the decisions taken, he said.

My Comment: Why bother with a conference now, if it takes time to see what's working. Besides, it sounds like you have already taken "all the necessary steps" if you can't agree to do anything else.

The G-7 officials shied away from endorsing a U.K. proposal to guarantee lending between banks either by turning central banks into clearing houses for the loans or having governments back them. They vowed to take steps that would give depositors confidence that their savings were safe and to restart secondary markets for mortgages and other securitized assets. The guidelines said any steps taken should protect taxpayers and avoid hurting other economies.

My Comment: There you have it, in plain English. They have agreed to do nothing other than create a list of guidelines. Those guidelines will be immediately set on fire as Paulson (and everyone else) does whatever the hell they want anyway.

While the joint statement made no mention of currencies, Trichet said the group viewed excess volatility in exchange rates as detrimental and urged China to allow faster gains in the yuan.

My Comment: If Trichet does not want volatility, then why is he asking China to allow faster gains in the yuan?

Bush said today that the U.S. "will continue to act to resolve this crisis and restore stability to our markets."

Hoover Moment

This is what I am wondering: Was Bush's statement today the equivalent of a "Hoover Moment"?

“The fundamental business of the country, that is production and distribution of commodities, is on a sound and prosperous basis.” Herbert Hoover, statement to the press, Oct. 25, 1929.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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