Stanley's blog

No-one could write the script of the financial meltdown drama that continues to unfold.

The story so far:

  • The US $700bn bail-out did not stabilise the stock markets.
  • The UK came up with a far more ambitious rescue plan, and at £500bn one commensurately much larger than the American equivalent, taking into account the relative sizes of the two economies.

Enter centre stage the hitherto beleaguered Gordon Brown, staring in the face of a landslide Conservative election victory in two years’ time, the former British finance minister who did not disguise his distaste at having to attend meetings of EU Finance Ministers.

But he met yesterday à deux with President Nicolas Sarkozy at l’Elysée, and was then invited to attend part of a meeting of the 15 Member State Eurogroup, which, broadly replicated Brown’s UK rescue plan by devising a concerted European action plan of the Euro area countries, so that the EU as a whole can act in a united manner, which requires the Union and Euro area governments, central banks and supervisors to agree to a coordinated approach aiming at :
– ensuring appropriate liquidity conditions for financial institutions
– facilitating the funding of banks, which is currently constrained
– providing financial institutions with additional capital resources so as to continue to ensure the proper financing of the economy
– allowing for an efficient recapitalisation of distressed banks
– ensuring sufficient flexibility in the implementation of accounting rules given current exceptional market circumstances
– enhancing cooperation procedures among European countries.

In the current exceptional circumstances, the need was stressed for the Commission to continue to act quickly and apply flexibility in state aiddecisions.

This emergency summit was the first time that the Eurogroup prime ministers/heads of government have ever met: Commission President Barroso and ECB President Trichet also attended. President Sarkozy was the motor behind this initiative which marks an extraordinary and very welcome step forward by the EU.

The markets have responded positively. While it is still to early to predict ultimate success of the plan, it is clearly better than the US intitiative. European action also impliedly calls in to question the decision of Hank Paulson not to rescue Lehman Brothers.

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Comments

  1. I certainly do not understand your enthusiasm for Mr. Brown. Throwing even more taxpayer money to a problem is very typical of him, but so far never worked out quite well. Being the guy who showed up a few hours late at the Lisbon summit due to calendar management problems he is anything but a role model for a European statesman. Maybe he talked into something a few heads of states but the European emergency summit did not reach any conclusion. I think most UK voters would like to see him sitting on and IMF reform board because he would be overseas them. I mean respect for Mr Brown as a former member of Mr Blair’s highly successful cabinet but I think he is not the person to save the world from a financial crisis.

  2. Antal: I could not disagree with you more. I’ve never liked Gordon Brown but:
    – Without bringing confidence to the markets, the alternative would have been disaster; no action in Europe or the US was successful.

  3. Sorry, my blog is playing me up.
    Antal: I could not disagree with you more. I’ve never liked Gordon Brown but:
    – Without bringing confidence to the markets, the alternative would have been disaster; no action in Europe or the US was successful.
    – His behaviour at Lisbon was indeed appalling and also at regular meetings of the EU finance ministers.
    – However, currently he’s a changed man, excellent relations with Sarkozy, regarded by his peers as the expert, and even laughs, let alone smiles.
    – I believe his package is clever, as evidenced by its influence on Germany, the US and other countries.

  4. Most of the people who were against the initial bailout bill felt that way because they thought of the bailout as a handout to the rich rather than a way to right the economy. The real goal of the economic bailout plan is to allow the government to buy defunct loans from the banks, owning up to one third of the larger banks for a period of time in the process. For those among you who thought that U.S. Secretary Henry Paulson planned to use the second half of the recent $700 billion financial rescue program to buy up all of those devalued mortgages that flutter in the wind like so much confetti, think again. Instead, that mortgage juice is going to be spent on consumer credit. Since a payday cash loan is a form of consumer credit, particularly for those without a credit score or who have credit difficulties, that industry should receive aid as well. Paulson says that he wants Americans to have easier access to such traditional forms of consumer credit as car loans, student loans and credit cards, and that these forms of consumer credit have become more costly because of “liquidity” in the consumer credit sector. “This is creating a heavy burden on the American people and reducing the number of jobs in our economy,” he says. Indeed it is, but do you see what Paulson is doing here? He’s admitting that he made a mistake with his previous version of the rescue plan! Imagine if America had had a President who was willing to do the same. Perhaps America could pick up the pieces and move forward – or maybe certain problems could have been avoided. Government officials may just have the right idea: they’re planning to use some of the bailout money to encourage private investors to come back to the market. With a strengthened economy backed by investors in the world market, a more stable job market will result, and with a more stable job market, fewer people will have to depend upon payday cash when the chips are down. Sure, the industry will be there when folks need help, but the product is not designed for long-term financial dependency.

    Click to read more on Payday Cash

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