U.S. woes top world finance agendas

Stephen Beard Apr 10, 2008

U.S. woes top world finance agendas

Stephen Beard Apr 10, 2008


KAI RYSSDAL: Washington’s the place to be for international finance groupies this week. The World Bank, the International Monetary Fund and the Group of Seven countries are getting together for their annual spring meetings. Throw a couple of the big central banks into the mix and it’s shaping up to be quite a party. Unfortunately, the topic at hand is one we’re all far too familiar with. We’ve got Marketplace’s Stephen Beard on the line to hash it over. Hello Stephen.


RYSSDAL: So, they are gathering, these various international financial and economic bodies. I imagine topic A on the table has to be the credit crunch, right?

BEARD: Very much so, and they’re going to be talking, essentially, about two kinds of plan. First of all, how do we get out of the mess we’re in at the moment? And secondly, how do we avoid getting into this kind of mess in the future?

RYSSDAL: What exactly can they hope to do about it? I mean, Washington’s been having the devil’s own time trying to figure it out.

BEARD: Well, they’re going to talk about what Washington has been up to, and they’re going to be looking at the whole tactic and the tools that have been deployed, like central bank’s or the Fed cutting interest rates quite savagely, lending a lot more money to the commercial banks and accepting a wider range of securities as collateral and so on, but interestingly, the IMF, earlier this week, has floated a very radical proposal, which is certainly not going to be very popular with taxpayers.

RYSSDAL: Well, spill it Stephen. What is it?

BEARD: It’s something, actually, rather along the lines of the Resolution Trust Corporation.

RYSSDAL: Oh Yeah, from savings and loan days, right?

BEARD: The savings and loan disaster in the late 80s and early 90s. What the IMF appears to be proposing is taxpayer-funded bodies like that, which would by up the commercial banks’ bad debts, leaving the banks with the good debt, so that they would then be free to borrow and lend again. Now, clearly this is not going to be popular with taxpayers, with individual taxpayers, or, I imagine, with non-financial businesses. Many of whom it seems feel pretty bitter about the way the banks have created this mess through, you know, a mixture of greed and, not to put too fine a point on it, stupidity.

RYSSDAL: Yeah, now this is what’s called a “ministerial level meeting,” and that is to say not the heads of state and the chiefs of government. They meet in May. So, it still has to be voted on, in effect, by presidents and prime ministers. What do you think the actual G-7 leaders are going to say.

BEARD: The prevailing mood seems to be that we are past the worst in this crisis. I mean stock markets, certainly, here in Europe and in the U.S., seem to think so. The U.S. market is about 8% or 9% above its low-point in March. So, politicians who might be seeking reelection, are not going to want to frighten the voters by adopting a radical plan like this, which might not be needed anyway, but one interesting theory I’ve heard from a think-tank here in London, called the Center for the Study of Financial Innovation, is that actually, the G-7 finance chiefs put the IMF up to floating this plan. They’d like to have this plan out there in the open, without their fingerprints on it, so that if the credit crunch does turn really nasty, then this could be wheeled out of the wings without causing too much shock, and implemented.

RYSSDAL: All economics and politics really is local. Stephen Beard at the European desk in London, thank you Stephen.


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