The meetings concluded yesterday with finance ministers and central bankers from the Group of Seven (G-7) leading nations embracing regulatory measures that they hope will help prevent the next crisis, yet leaving each country to deal with its own immediate turmoil in its own way.
In essence, weekend meetings of the World Bank and the International Monetary Fund provided no more short-term fixes than did the G-7 statement that opened the economic gathering.
Said Norbert Walter, managing director and chief economist at Deutsche Bank Group about the gathering, "I don't read into the communiqué any joint action. What I do read into it is acceptance that national governments and central banks continue to act according to what they consider to be domestic needs."
The meetings elicited expressions of support for international coordination. Japanese Finance Minister Fukushiro Nukaga called for "further cooperation among authorities and international organizations" to stem and prevent crises. The IMF's 24-member steering committee concluded that "while each country's situation is different, coherent action must be taken, taking due account of cross-border interactions."
Still, the officials issued no joint emergency plan, and individual governments will apparently continue to go their own ways. "Each of our economies has unique strengths and challenges that require national responses," said U.S. Treasury spokeswoman Michele Davis. "At the same time, our financial systems are more closely entwined than ever, and international cooperation to maintain a strong financial sector is vital to keeping credit available to support economic growth."
The road to turmoil began in the U.S. subprime mortgage market, where home loans offered in recent years to borrowers whose credit was often far less than stellar. As the nation's home prices fell, hundreds of thousands of borrowers fell behind in their payments, and banks, Wall Street firms and others that owned securities backed by home loans found themselves taking tens of billions of dollars in losses. The more money they lost, the less willing they were to lend, pushing the broader U.S. economy in a domino-like effect toward a downturn.