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G7 Urges Calm In Financial Markets

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By MARTIN CRUTSINGER, The Associated Press

Published: October 21, 2007

WASHINGTON - Faced with soaring oil prices, a falling dollar and the worst credit crisis in nearly a decade, the masters of global finance have a simple message for jittery markets: Be calm, we are keeping an eye on things.

It probably didn't help that the new assurances came exactly 20 years from the date of the worst market meltdown in U.S. history.

The meeting of finance leaders from the Group of Seven industrial countries coincided with the anniversary of 'Black Monday,' Oct. 19, 1987, when the Dow Jones industrial average plunged by 22.6 percent, its biggest one-day percentage loss ever.

While Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and their G-7 counterparts did not dwell on those long-ago events during their discussions Friday, the anniversary served as an eerie reminder that the global economy does not always perform as its handlers wish it would.

It didn't help that while policymakers were holding their discussions in the Treasury's ornate Cash Room, the Dow Jones industrial average was plunging by 366.94 points, or 2.64 percent.

It was the third-biggest point drop this year and reflected, in part, oil prices that momentarily climbed to a new record, above $90 per barrel.

The problems this year came to a boil when credit markets essentially froze Aug. 9 as fear overwhelmed many investors.

Troubles that began in the market for subprime mortgages have spread to many other kinds of debt. The credit crunch has been similar in intensity to the crisis that hit the global economy in August 1998 after Russia devalued the ruble.

Paulson, speaking to reporters after Friday's meeting, said G-7 officials are watching market developments closely.

However, in their joint statement of goals, officials essentially rehashed previous bland assurances on cooperation in such areas as limiting volatility in currency markets. Absent were examples of where big differences in approach had been resolved.
European finance ministers had hoped that the Bush administration would agree to more forceful actions to limit the sharp fall in the value of the dollar, which has hit record lows against the euro. That has helped American manufacturers by making their goods cheaper in European markets but is pinching European companies.

Paulson said that he told the other G-7 officials that a strong dollar is in the best interests of the United States, an oft-repeated view that the Europeans complain is not being backed up with any action to halt the dollar's slide.

'I heard my colleague Hank Paulson say a strong dollar is good for the American economy. I hope the market will hear him. That's not the case today,' complained French Finance Minister Christine Lagarde.

There also was no meeting of minds on the issue of whether all the credit market turmoil pointed to a need for tighter regulations, especially of hedge funds, the giant pools of cash that are largely unregulated.

The United States wants to keep them that way, declaring that government interference will slow market innovations, while France and Germany have been pressing for increased oversight.

Paulson said G-7 officials believe the global economy is on the mend.

'The consensus was that markets are better than in August,' he told reporters. 'It has been slowly improving, but it is going to take awhile.'

But in its new forecast, the IMF trimmed its estimate of U.S. growth next year by almost a full percentage point and warned that prospects for the global economy are 'firmly on the downside, centered around the concern that financial market strains could deepen and trigger a more pronounced global slowdown.'

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