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Re: IMF warns of world financial system 'meltdown'
Dominique Strauss-Kahn, the IMF's managing director, made the comments after talks with US President George W Bush and other leading finance minister in Washington as they tried to find a solution to the global financial turmoil, which has seen stock markets around the world plunge on fears of recession.
He said: "Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown."
The IMF also warned global equities could plunge by a further 20 per cent in the coming days unless governments deliver concrete action to address the crisis.
At the meeting of finance ministers from the Group of Seven leading world economies, including the UK and US, world leaders pledged to part-nationalise swathes of the global banking system as part of a drastic international plan to halt the panic gripping financial markets and prevent the crisis from descending into a global depression.
Finance ministers from the Group of Seven leading world economies, including the UK and US, said they stood ready to pump public money into banks in order to prevent them from collapse.
The agreement came as Chancellor Alistair Darling admitted that the UK was facing "turbulence the like of which we have never seen" after markets ended their worst week in history, with shares having fallen by more than a fifth on all leading stock exchanges.
The G7 presented a five-point "Plan of Action" to arrest the turmoil, including, most significantly a promise to "ensure that our banks'¦can raise capital from public and well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses."
It leaves the G7 - which also includes Japan, France, Italy and Canada - open to start buying bank shares with taxpayers' cash.
US Treasury Sectretary Hank Paulson said he was preparing to use the American $700bn bail-out scheme to fund buying troubled banks' shares. It mirrors Gordon Brown's £50 billion bail-out of Britain's struggling institutions unveiled earlier this week.
With investors gripped by panic, the FTSE 100 has fallen by 21 per cent this week, and yesterday alone suffered a drop of 8.9 per cent - the third biggest in history.
Despite assurances from President George W Bush, shares in Wall Street fell for an eighth successive day on Friday, while the pound and the euro slumped against other currencies.
The agreement produced last night by finance ministers in Washington is thought to represent a last-ditch attempt for governments to prevent the financial crisis from worsening yet further next week. Some experts fear that unless it succeeds in boosting confidence the financial system may collapse entirely, threatening a worse economic slump than was experienced in the 1930s.
The G7 statement, which was among the most eagerly awaited in recent history, said: "[We agree] today that the current situation calls for urgent and exceptional action."
Mr Paulson described the G7 statement as "an aggressive action plan to address the turmoil in global financial markets and the stresses on our financial institutions."
Among the five pledges was a promise to protect savers' deposits when banks collapse.
It came after Mr Darling and Bank of England Governor Mervyn King pledged to do everything in their power to prevent economic catastrophe. On a frenzied day in financial centres across the world, Mr Darling urged his fellow ministers to "step up to the mark and do something"
Fears will remain about whether the plan is enough to arrest the decline in shares, since the UK plan did not prevent further falls in equities. However, the plan is as far-ranging and dramatic as many, including Mr Darling, had hoped.
Around $4,600 billion has been wiped off the value of shares worldwide this week - more than one and a half times the total amount of cash generated by the UK economy last year.
Experts said yesterday that confidence was unlikely to return to markets until they were convinced that all major economies would take similar forthright steps to rescue the global banking systems.
On a frenzied day in financial exchanges throughout the world:
- The FTSE 100 dropped beneath the talismanic 4,000 mark for the first time since 2003, dropping 381.74 points to 3932.06. Money markets remained frozen.
- The pound dropped to its weakest level in five years, slumping below $1.70 against the dollar. By last night it was down almost a cent and a half to $1.69485.
- Oil prices dropped beneath the $80 a barrel mark for the first time in a year.
- President George W Bush pledged to end the vicious cycle of "uncertainty and fear" but offered no new remedies for the problem. Presidential candidate Barack Obama urged G7 ministers to do something to end the turmoil.
- The Icelandic Prime Minister admitted domestic customers will get priority over British savers as the country's banks are wound up. It also emerged that the International Monetary Fund has sent emissaries to Iceland, and may arrange a bail- out package within days - the first IMF rescue of a major economy since Britain in the 1970s.
As he went into the G7 meeting, held alongside the annual IMF meetings in the US capital this weekend, Mr Darling said the world stood on a dangerous tipping point.
"We like everybody else have been affected by turbulence the like of which we have never seen," he said. "We need to strengthen the financial system," he said. "If international co-operation is to mean anything it means governments need to move on from talking about a general approach and actually doing something to resolve the problems that we face."
With the financial turmoil worsening by the day, fears are growing for the health of the wider economy. Most economists now believe the UK is already in recession, and the International Monetary Fund this week slashed its forecasts for British economic growth by more than any other advanced economy. With businesses unable to get finance, there are now fears the UK could suffer a depression that lasts not for months but for years, with rising unemployment and falling profits.
Mr King said: "Central banks will work together as we demonstrated this week, to ensure sufficient short term liquidity is provided to stabilise banking systems. But it is also vital that governments work together to ensure their banking systems are recapitalised to enable them to lend to finance spending in the real economy."
Re: IMF warns of world financial system 'meltdown'
Well the markets are picking up. Hopefully we've seen the worst/lowest of the stock market collapse, which is feasible. Pretty bad loss though, nearly a 30% drop. I still think layoffs will continue, as companies prepare for next years budget, cut payroll. Also Holiday sales will likely be bad. Hopefully we all can pick up the pieces from this mess, learn from what went wrong, and the neccissary changes are made to move forward & improve.
Re: IMF warns of world financial system 'meltdown'
The doom and gloom is a lot of media/internet influence. It's not that bad and everything will be fine. It was after the depression and it has been after every single blip on the radar since then. The only difference is now we have the internet to throw everybody into a panic about it. Yes, there are problems that still need to be addressed. They will be and the economy will pick back up. Other problems will happen in the future and they will be fixed.
See? Who says I can't be positive?
Re: IMF warns of world financial system 'meltdown'
It's not that bad and everything will be fine. It was after the depression and it has been after every single blip on the radar since then.
It took like 20 years for the stock market to bounce back to pre-1929 prices. 
Re: IMF warns of world financial system 'meltdown'
buzzsaw wrote:It's not that bad and everything will be fine. It was after the depression and it has been after every single blip on the radar since then.
It took like 20 years for the stock market to bounce back to pre-1929 prices.
I didn't say it would happen overnight, but it won't take 20 years either.
After years of being one of the few "doom and gloom" guy about the CD era (and rightly so), I'm being positive about something. Everybody thought Black Monday and 9/11 was going to be the end too. It isn't going to happen.
