U.K. Shows New Initiatives, Europe Increases Coordination of Bailout

Following an emergency summit Sunday in Paris, the 15 countries of the Euro zone agreed to guarantee new bank debt until the end of next year. The move will let governments prop up struggling banks by buying preferred shares. Although the coordination effort, for better or worse, will still allow individual governments to decide exactly how they’ll implement the measures, it does represent a new level of continent-wide cooperation in the face of the worst financial and credit crisis in decades. Within its own borders, the U.K. has committed $64 billion to shore up the Royal Bank of Scotland, HBOS and Lloyds. And in an announcement just before presstime, British Prime Minister Gordon Brown has proposed a “new Bretton Woods” system that would create a 21st-century financial structure for the global economy and hopefully prevent a recurrence of the present crisis. The original Bretton Woods conference, held in Bretton Woods, N.H., in July 1944, late in World War II, resulted in the creation of the International Monetary Fund, the World Bank, the General Agreement on Tariffs and Trade and the International Bank for Reconstruction and Development. Features of the original system that are unlikely to be considered the second time around are fixed exchange rates and tying the value of the dollar to gold. Noting that, a year before the war finally ended, Franklin Roosevelt and Winston Churchill were already sketching out the framework of a post-war financial system. Brown said, “With the same courage and foresight of these founders, we must now reform the international financial system around the agreed principles of transparency, integrity, responsibility, good housekeeping and cooperation across borders.” The U.K. government’s overall actions to stem the financial crisis won praise from prominent U.S. economist and New York Times columnist Paul Krugman, who earlier today was awarded the 2008 Nobel Prize for Economics. “[T]he Brown government has shown itself willing to think clearly about the financial crisis, and act quickly on its conclusions. And this combination of clarity and decisiveness hasn’t been matched by any other Western government.” Meanwhile, German Chancellor Angela Merkel announced a plan to commit €400 billion for bank guarantees. European leaders will be convening in Brussels Wednesday and Thursday for further discussions on the financial crisis. A push will reportedly be made to engage the 12 European nations that have not yet adopted the euro and coordinate rescue strategies with them. And in a sign that even the oil-rich believe they have to respond to the global credit crisis, as of today the Qatar Investment Authority, the Persian Gulf state’s sovereign wealth fund, has begun a $5.3 billion plan to purchase shares of banks there, according to Reuters. Although bank shares rose sharply across the Gulf region on the news, the move might indicate more retrenchment by sovereign wealth funds into home investments, rather than those in the West. Kuwait has plainly said that its sovereign wealth entity will buy, and buoy, local shares.Meanwhile, on this side of the Atlantic, in a press conference this morning, Interim Asst. Secretary for Financial Stability Neel Kashkari, the Treasury Department’s point man on the bailout, summarized Treasury’s efforts over the past 10 days under the Troubled Assets Relief Program. Among them are a team identifying which mortgage-backed securities to purchase, an initiative to purchase whole loans from regional banks and a standardized program to purchase equity “in a broad array of financial institutions.” Although Kashkari emphasized the speed with which the entire effort is moving forward, the portion of his speech devoted to “next steps” was very brief and without specifics. Treasury Department and Federal Reserve officials and executives from leading financial companies will meet at the Treasury Department later today to hash out further details of the $700 billion bailout plan.