World finance chiefs seek solutions in firestorm

Global finance chiefs gathered in Washington for crisis talks on Friday in search of a solution to a growing financial firestorm as panic spread in global markets.

A meeting of the finance ministers and central bankers of the Group of Seven (G7) was being held amid a stunning loss of confidence in the global financial system that has sent markets into a freefall.

The major industrial powers have already pumped massive amounts of liquidity into the global banking system in an effort to unclog credit markets, and led a coordinated cut in interest rates.

But panic has still gripped the markets, which have hit multiyear lows in the United States and most other countries amid loss of confidence.

Stock exchanges from Tokyo to London suffered more staggering losses on Friday, adding to the turmoil for finance ministers from the G7 to discuss. On Wall Street, stocks plunged at the opening, then recouped the losses before turning sharply lower again.

The meeting brings together ministers and central bankers of the US, Germany, Japan, France, Britain, Italy and Canada.

US President George Bush also agreed to host the G7 finance ministers on Saturday.

‘Uncertainty and fear’
Speaking just ahead of the G7 gathering on Friday, Bush blamed “uncertainty and fear” for much of the global financial meltdown and insisted US authorities have the tools they need to confront the crisis.

Worries are understandable but “anxiety can feed anxiety and that can make it hard to see all that is being done” to address the problem, he said, promising: “We can solve this crisis, and we will.”

British Chancellor of the Exchequer Alistair Darling told National Public Radio: “I think the key is to ensure that governments all over the world act together, firstly to stabilise the banking system … [and to] do whatever it takes to maintain stability.”

Germany called on Friday for a set of global rules to help tackle the global financial crisis, saying it was time to put an end to ad hoc solutions. “We need global rules for the markets,” German Finance Minister Peer Steinbruck said.

In Tokyo, Japanese Premier Taro Aso, chairperson of the Group of Eight (G8) nations, said he would call an emergency G8 summit if the finance chiefs meeting in Washington did not reach a deal on the global credit crisis.

“If things cannot be concluded, as the chair we will call one,” Aso told reporters.

Japan is the chair this year of the G8, which also includes Britain, Canada, France, Germany, Italy, Japan, Russia and the United States. The G8 leaders held their regular annual summit in northern Japan in July.

In Milan, Italian market authorities said they had extended a ban on the so-called “short” selling of shares to all stocks quoted in Italy until the end of October, amid a global stock price collapse.

Calming the storm
Marc Chandler, analyst at Brown Brothers Harriman, said despite the grim outlook, the G7 still has some options to help calm the storm.

“We are hesitant to spread rumours, but there is increasing speculation that the G7 meeting could take another major step and that is to guarantee all interbank lending,” he said.

“This talk is having a demonstrable impact on the interest rate markets. It is difficult to evaluate the likelihood, but it is important to note that officials generally recognise that current measures are not yet sufficient to turn the corner of the crisis.”

John Ryding, an economist at RDQ Economics, said the move by Britain to inject capital into troubled banks offered a “glimmer of hope”, especially after Washington said it would consider similar actions.

Ryding said the wave of selling “is a continuation of a complete vacuum of confidence, and that’s something the G7 has to address”.

He said the finance chiefs must agree on a plan “to inject capital into the banks and to guarantee interbank lending. This is absolutely necessary.”

British Prime Minister Gordon Brown urged world governments on Friday to follow Britain in its “groundbreaking” moves to put money into struggling banks and guarantee interbank loans, as Britain did this week in a multibillion-pound rescue package.

The US approved a $700-billion rescue package for financial firms last week that will see the Treasury buy up toxic debt from banks in a bid to encourage them to continue lending.

Barry Ritholtz at Ritholtz Research & Analytics said US authorities “have been focusing on the wrong issues”, adding: “They have been treating falling asset prices — houses, stocks, bonds — as well as the lack of confidence between banks, as the actual issue.” — AFP

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