US Treasury Secretary Henry Paulson said on Wednesday that policy-makers around the world must keep cooperating to try to calm down financial markets but warned the turmoil would not end anytime soon.
Speaking to reporters ahead of a gathering on Friday of finance chiefs from rich nations, Paulson described markets as "severely strained" and said the scarcity of credit was pinching consumers and businesses and sapping confidence. “Governments have and must continue to take individual and collective actions to provide much needed liquidity, strengthen financial institutions through the provision of capital ... and protect the savings of our citizens,” Paulson said, But he added, “We must also taken care to ensure that our actions are closely coordinated and communicated so that the action of one country does not come at the expense of others or the stability of the system as a whole.”
Paulson and Treasury Under Secretary David McCormick briefed reporters ahead of Friday’s Group of Seven gathering of finance ministers and central bankers, which McCormick said would be “heavily focused” on financial market disruption. As they spoke, US stock prices shed the modest gains they had earlier and once again ended down.
Paulson recited the series of measures that members of the G7 -- the United States, Britain, Canada, France, Germany, Italy and Japan -- and others have taken to try to halt plunging stock prices and restore some confidence but acknowledged he had no idea when recovery would occur. “I’m not going to make predictions on the time it’s going to take the economy to recover,” Paulson said, nor would he speculate whether global interest-rate cuts announced on Wednesday will succeed in freeing up lending. “It’s too early to look for encouraging signs ion the credit markets,” he said. “We continue to have a good number of the markets performing as normal but there’s still many of the markets that aren’t performing as normal and it’s going to take a while to work through this problem.”
The United States garners much of the blame for the global crisis, which originated in subprime mortgage markets for risky borrowers and has since tainted nearly all classes of lending and caused banks to hoard capital. Paulson said a special meeting of the Group of 20, which includes key emerging-market countries that also are hard-hit by the financial crisis, will take place after the G7 meeting.
McCormick later indicated the G20 gathering will take place on the weekend and include finance ministers and others who already will be in Washington for semiannual meetings of the International Monetary Fund and World Bank. Paulson said it may take weeks before Treasury is ready to start buying unwanted and illiquid assets from financial firms under a $700-billion bailout program, which Congress approved last week after heated debate and is now US law.
Paulson said an ongoing US housing correction and lack of confidence in mortgage-related assets has made investors reluctant to commit capital to financial firms. “Investor confidence is critical to restore liquidity and enhance the stability of our financial system,” he said. He said the United States has the resources it needs to address the financial market issues and expressed hope the crisis will ease eventually. Paulson said Treasury was working hard to get its asset purchase plan operating, but he warned that even after it does, some financial firms will fail.
After Friday’s formal G7 meeting, which concludes with a joint communique in the evening, Russian officials join the G7 ministers at a special “outreach” dinner where specialists on bank failures and rescues will speak to the ministers. (Reuters)