Australia Recruited For Rescue
The Sunday Age
Sunday October 12, 2008
AUSTRALIA has been asked to be part of a global plan to unfreeze credit markets and stop sell-offs on panicked sharemarkets, as part of an assault co-ordinated by US Treasury Secretary Henry Paulson.
The radical US plan includes the Government directly investing in struggling banks to prevent them from failing and comes after a rollicking ride on US markets on Friday.The Dow Jones fell as much as 8.09%, then rose 3.6% above the previous day's close before sellers regained control. The benchmark index finished 1.5% lower.As the market yo-yoed, a meeting of the world's top finance ministers in Washington attempted to present a co-ordinated approach to the crisis, releasing a set of principles aimed at restoring badly damaged confidence.US President George Bush spoke with Prime Minister Kevin Rudd on Friday, US time, about moves to stem the hemorrhaging on Wall Street, and restore confidence in world credit markets.TreasurerWayne Swan, inWashington for the International Monetary Fund meetings, said the two leaders had discussed the need for prompt global action."They also discussed ways that Australia and the US would cooperate as closely as they could because at the end of the day this is a global problem which needs a global solution," he said.Mr Swan will take part in the G20 meetings in Washington today.But the shape of the five-point stabilisation plan was hammered out yesterday at a meeting of the finance ministers from G7 nations US, Japan, Britain, Germany, France, Italy and Canada. Their communique vowed to "take all necessary steps to unfreeze credit and money markets" and to "use all available tools" to prop up and prevent the failure of institutions critical to the financial system.Mr Paulson said the major economies would work in consultation by using the five strategies to free up credit around the world.The strategies include direct investment in banks to ensure their stability, providing deposit insurance for investors, buying up toxic assets, offering insurance and ensuring that credit is available to mortgage holders.All the nations promised to be mindful of how they used the tools to prevent runs on neighbouring countries' banks, as happened when Ireland guaranteed all deposits, causing a shift of funds from the United Kingdom last week.The move is an acknowledgement that the market deterioration is far more serious than first expected.Mr Paulson denied the plan amounted to nationalising the US banks, saying the US planned to take non-voting shares and, in most cases, minority stakes.The new strategy - Direct investment in banks - Provide deposit insurance for investors - Buying toxic debt - Offering credit insurance - Ensuring the availability of credit.
© 2008 The Sunday Age
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