Washington-- The G-7 agrees today that the current situation calls for urgent and exceptional action. We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth. We agree to:
1. Take decisive action and use all available tools to support systemically important financial institutions and prevent their failure.
2. Take all necessary steps to unfreeze credit and money markets and ensure that banks and other financial institutions have broad access to liquidity and funding.
3. Ensure that our banks and other major financial intermediaries, as needed, can raise capital from public as well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses.
4. Ensure that our respective national deposit insurance and guarantee programs are robust and consistent so that our retail depositors will continue to have confidence in the safety of their deposits.
5. Take action, where appropriate, to restart the secondary markets for mortgages and other securitized assets. Accurate valuation and transparent disclosure of assets and consistent implementation of high quality accounting standards are necessary.
The actions should be taken in ways that protect taxpayers and avoid potentially damaging effects on other countries. We will use macroeconomic policy tools as necessary and appropriate. We strongly support the IMF's critical role in assisting countries affected by this turmoil. We will accelerate full implementation of the Financial Stability Forum recommendations and we are committed to the pressing need for reform of the financial system. We will strengthen further our cooperation and work with others to accomplish this plan.
The FT comments:
No G7 official was sure the plan would work, so deep is the global financial crisis. If it does not, the next steps would be one of two nuclear options: either to guarantee all liabilities of banks, effectively nationalizing the financial system, or for governments to seek to bypass financial institutions by lending direct to companies and households.
Officials hope they will not have to contemplate these options.
RL: All motherhood and apple pie, and congratulations to Messrs Darling and Brown (who is no longer poorGordon, have you noticed how cheerful he is looking, now that he is in Flash Gordon five-minutes-to-save-the-planet Mode?) for getting their plan through.
The bit I've been banging on about is in point 5: 5. Take action, where appropriate, to restart the secondary markets for mortgages and other securitized assets. Accurate valuation and transparent disclosure of assets and consistent implementation of high quality accounting standards are necessary.
Accurate valuation and disclosure can take place in the Toxic Asset Dump. Unemployed banksters and derivative spivs can do community service for the rest of their lives trying to disentangle the mess. Think of the TAD like an amnesty: banks holding them can dump the worst ones in the TAD, no questions asked, no money given out. If it turns out that there is value in some of the damn things, that value can go to the taxpayer who has had to shell out in the TARP and other rescue plans.
Me, I'm working on a paper on how to redesign a currency based on real value.
I should be at the Schumacher Lectures in Bristol, but I was too late to get a ticket. Maybe I can creep in at the back.