Image: President Bush
Charles Dharapak  /  AP
President Bush makes a statement in the Rose Garden of the White House after meeting with G7 finance ministers about the financial crisis on Saturday in Washington.
msnbc.com news services
updated 10/12/2008 8:21:22 AM ET 2008-10-12T12:21:22

The International Monetary Fund warned Saturday that debt-ridden banks were pushing the global financial system to the brink of meltdown and wealthy nations had so far failed to restore confidence.

The IMF's policy setting panel said the economic crisis is so deep and widespread that it will require a willingness to take bold action.

Meanwhile, global finance ministers kept searching for ways to tackle the unfolding financial crisis, turning their attention to its effects on rapidly developing countries and poor nations at risk of being swept up in the turmoil.

The Group of 20 nations, which includes the world's wealthiest nations and the largest developing countries such as China, Brazil and India, issued a joint statement late Saturday night stressing their resolve to work together to overcome the current financial turmoil.

Bush's unexpected visit
President Bush paid an unexpected visit to the group's meeting. Brazilian Finance Minister Guido Mantega said the president had stressed the seriousness of the situation and told the finance ministers he was doing all he could to involve other countries in efforts to resolve the crisis.

Bush appealed for patience as world leaders raced to stabilize financial markets and avert the deepest global recession in decades, but the 185-nation IMF said even more steps would be needed in the coming months.

"Intensifying solvency concerns about a number of the largest U.S.-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown," IMF chief Dominique Strauss-Kahn said.

The IMF endorsed a plan of action adopted Friday by the G-7 economic powers to protect the financial system and get credit flowing again.

Bush huddled with economic chiefs from the G-7 — Japan, Germany, Britain, France, Italy and Canada — and officials from the IMF and World Bank, and said top industrial nations grasped the gravity of the crisis and would work together to solve it.

"In an interconnected world, no nation will gain by driving down the fortunes of another. We are in this together. We will come through it together," Bush said. "There have been moments of crisis in the past when powerful nations turned their energies against each other or sought to wall themselves off from the world. This time is different."

"I'm confident that the world's major economies can overcome the challenges we face," Bush said, adding that Washington was working as fast as possible to implement a $700 billion financial bailout package approved a week ago.

Major Market Indices

Yet there was no concrete offer of new moves when Bush spoke on a Rose Garden stage just after daybreak, flanked by representatives from nearly a dozen nations and international organizations.

Resolving the crisis
The fresh message of the day was Bush's plea that nations work together to address the crisis, avoiding the go-it-alone protectionist trade strategies that worsened conditions during the Great Depression.

“We will do what it takes to resolve the crisis and the world’s economy will emerge stronger as a result,” he said.

White House spokesman Tony Fratto said Bush's commitment to collaborative action was repeated and agreed to by every official and minister who took part in a private White House meeting before the statement. Participating in that session with the president were top officials from the G-7 — the United States, Japan, Germany, France, Britain, Italy and Canada — as well as from the European Union, World Bank and IMF.

Bush did not mention any specific action that prompted his call. But Ireland recently moved to guarantee all bank deposits, triggering similar actions in Germany and other countries concerned that nervous depositors would move their bank accounts to Ireland.

The president barely referenced a significant new step from his administration — partial nationalization of some banks. After days of speculation this move was coming, Treasury Secretary Henry Paulson announced late Friday night that the government would buy part ownership in an array of American banks.

Intense market turmoil
President Hoover tried something like that in 1932 during the Great Depression. No detail was provided about how the new approach would work, only that it was similar to Britain's move to pour cash into its troubled banks in exchange for stakes in them. The U.S. government would use an unspecified portion of the $700 billion approved by Congress a week ago to purchase stocks in a wide variety of banks and other financial institutions.

The rescue program originally was sold to Congress and the public as a plan to buy mortgage-related loans from financial institutions. The goal was to remove troubled assets from those institutions' books and inspire them to restart more normal lending operations.

Congress passed the massive and hard-fought legislation, and Bush signed it. The government raised the amount of bank deposits it insured. Billions of dollars of reserves have gone into banking systems in the U.S. and other countries. Yet credit, the economy's lifeblood, has remained virtually frozen.

This paralysis in the credit markets has translated into intense turmoil in the stock markets. The Dow Jones industrial average just completed its worst week in history, plummeting more than 18 percent. Over the past year, people in the U.S. have watched $8.4 trillion drain from investment accounts and retirement savings.

So the administration decided to use the bailout bill to pump equity directly into the banks — an idea never mentioned during the congressional debate. The administration says it is authorized in an obscure corner of the 400-page legislation.

Officials are not saying how long it will take to get this program under way — just as is the case with the even more complicated effort to buy mortgage-backed securities.

Bush seemed to acknowledge that the lag is feeding anxiety on Wall Street. "These extraordinary efforts are being implemented as quickly and as effectively as possible," Bush said. "The benefits will not be realized overnight."

The White House session with Bush followed a three-hour meeting Friday night of G-7 finance ministers. The president largely echoed their terse statement, saying the nations have together pledged to "do what it takes to resolve this crisis."

Among their promises are preventing the failure of major banks, unfreezing credit markets, bolstering deposit insurance programs, getting the battered mortgage financing system to operate more normally and working with poorer but fast-growing nations that also are feeling the pinch.

To address this last pledge, Paulson scheduled a meeting Saturday evening of the Group of 20 countries — which include the G-7 plus the world's biggest developing countries such as China, Brazil and India — to explain recent actions by the U.S. and other wealthy allies.

French Finance Minister Christine Lagarde said she saw the discussions as a way to help emerging-market countries understand actions by wealthier nations so they can be included in solutions and "if they wish, adopt the same principles."

In a briefing for the IMF's policy-setting board, Paulson said that after the immediate crisis "we must turn our attention to longer-term reforms to modernize our outdated financial regulatory structure."

Addressing the crisis
It was the 22nd day among the past 27 that Bush had spoken about the financial crisis, since evidence first arose that the year-old subprime mortgage mess was evolving into a broader and more calamitous meltdown. After the almost 40-minute meeting and his six-minute statement, the president left the White House for a nearly two-hour mountain bike ride in the nearby Virginia woods.

Bush also addressed the crisis in his weekly radio address, as did Democratic vice presidential candidate Joe Biden in delivering his party's response.

Biden criticized Republican nominee John McCain's proposal to solve the problem in part by having the government buy bad home-loan mortgages at full face value and renegotiate them at a reduced price.

Democratic presidential candidate Barack Obama focused on words of calm.

"I know these are difficult times. I know folks are worried," he was to say at a rally in Philadelphia, according to prepared remarks released by his campaign. "But I also know that now is not the time for fear or panic. Now is the time for resolve and steady leadership. Because I know we can steer ourselves out of this crisis."

© 2013 msnbc.com

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