US PRESIDENT George W Bush, whose administration is poised to begin buying shares in American banks, has warned that governments around the world must work when addressing the financial crisis not to take actions that do not contradict or interfere with each other, reports Arthur Beesley, Senior Business Correspondent, in Washington
After a meeting in the White House with finance ministers from the G-7 group of leading industrial nations, Mr Bush said the US has a "special role" to play in efforts to stabilise escalating turmoil in the financial system.
"This is a serious global crisis and therefore requires a serious global response," Mr Bush said. "Our government will continue using all the tools at our disposal."
The meeting in the White House followed a statement last night from the G-7 ministers in which they pledged to use "all available tools" to prevent the failure of any systemically important financial institutions.
Their statement, however, stopped short of adopting a plan to guarantee lending between banks.
Such measures, supported by International Monetary Fund (IMF) managing director Dominique Strauss-Kahn, would mirror aspects of the British rescue plan unveiled this week by prime minister Gordon Brown.
Now seen in many quarters as an essential prerequisite for the restoration of confidence in financial markets, such measures are likely to be used as a "reference point" in meetings tomorrow at an emergency meeting of eurozone leaders in Paris .
Such talks take place against the backdrop of exceptional pressure on stock markets and a warning from the IMF that losses linked to distressed US mortgage assets are likely to more than double to $1.4 billion.
The IMF's annual meeting this weekend in Washington comes after a week in which international stock markets incurred some of their worst weekly losses for decades. The US Standard & Poors 500 Index had its worst week since 1933 and markets in Europe and Japan had the biggest weekly drop in at least 21 years.
Such volatility reflects the view that the US government's $700 billion "bailout" programme to buy up distressed mortgage assets from vulnerable banks does not go far enough to relieve exceptional pressure on the international money markets.
In Italian newspaper Corriere della Sera, IMF chief economist Olivier Blanchard was quoted as saying that further losses of up to 20 per cent could be expected.
"In a worst-case scenario, governments will need a few more weeks to take the correct measures and the markets could fall another 20 percent. Then, we'll turn around," he said.
With US treasury secretary Henry Paulson warning last night that financial markets will remain vulnerable, he said pumping public funds into banks will be a priority. "We see the need - a clear, present need - to raise capital," he said. "We need to restore confidence."
The US government is working this weekend to finalise the plan to buy direct stakes in American banks.
This latest intervention in the free market by the Bush administration is designed to sustain stability in the financial system in light of the credit freeze.
In their statement last night, finance ministers from the US, Japan , Germany , Britain, France , Canada and Italy said they will take steps to ensure that banks can raise capital from "public as well as private sources" in sufficient amounts to re-establish confidence in their business. "We're going to do it as soon as we can do it and do it properly and do it effectively and right," Mr Paulson said. "Trust me, we are not wasting time; people are working around the clock to deal with this."
Share purchases in banks will take place alongside the bailout programme. The US government will not be involved in bank management, Mr Paulson said. He declined to say how the US treasury would divide the $700 billion toward purchases of troubled assets and injections of equity capital.
"I am not prepared to say anything today with the kind of detail as to relative sizes of the two efforts," he said. "Any equity the government purchases through a broadly available equity program would be on a non-voting basis, except with respect to the market-standard terms to protect our rights as investors."