Crisis Goes Global
International community seeks solutions to expanding economic problems
British Prime Minister Gordon Brown, right, speaks with French President Nicolas Sarkozy, left, during the financial crisis summit gathering Eurogroup heads of state and government at the Elysee Palace in Paris Sunday, Oct. 12, 2008. (Photo:©Charles Platiau/AP Images)
Update: On Monday, United States Treasury Secretary Henry Paulson announced a plan that would offer $250 billion to America’s banks. This recapitalization is an effort to thaw the frozen credit market, which has been a major problem during the financial crisis.
"When lending isn't available, consumers and businesses shrink their spending, which leads to businesses cutting jobs and even closing up shop," Paulson said.
Under the plan, banks will be have access to money so that they can start loaning money to other banks, small businesses, and consumers. It is a similar plan to the ones enacted in Britain, Germany, Spain, and other parts of Europe.
In the wake of the deepening global financial crisis, leaders from Britain, the European Union, the U.S., and Asia met numerous times over the weekend to discuss ways of restoring confidence in the global economy.
On Friday, in Washington, the Group of Seven (G7) met in an emergency session to address the crisis. The G7—a group of seven of the world's richest industrial nations—deals with global economic issues. The members of the G7 are the U.S., Germany, Japan, France, Britain, Italy, and Canada.
The G7 said it will "take decisive action and use all available tools to support systematically important financial institutions and prevent their failure," according to a statement issued by the group that announced a five-point plan to deal with the growing financial crisis.
Among the points was a guarantee that members of the G7 will make sure that no banks fail, by providing them with the money they need to keep operating. The G7 would also keep national deposit insurance protects "robust," and would act "where appropriate to restart the secondary markets for mortgages and other securitized assets."
Europe felt an immediate impact from the G7 proposals.
On Sunday, Britain took dramatic steps to protect its banks by nationalizing them. The British government will spend $64 billion to keep the Royal Bank of Scotland, HBOS, and Lloyds TSB afloat. The amount of money the country puts into those banks could increase. Under the plan, Britain would own up to a 60 percent stake in the Royal Bank of Scotland and more than 40 percent of HBOS and Lloyds.
"The action we are taking today is unprecedented but essential for all of us," British Prime Minister Gordon Brown said.
While Britain acted, the 15 members of the European Union that use the euro as its currency met to decide how the EU should combat the crisis.
Following Britain's lead, the 15 nations agreed to offer government guarantees to help banks raise money as well as use public funds to protect banks from failing. Germany and Spain unveiled plans to spend hundreds of billions of dollars to protect their banks. France and Italy were expected to announce similar plans.
"This is indeed a common action that we are taking," French President Nicolas Sarkozy said. France currently holds the EU's rotating presidency. "I want to say to our fellow citizens, in all European countries, that they can—that they must—have confidence."
Following Europe's lead, U.S. Treasury Secretary Henry Paulson and the Treasury Department are considering similar measures that would use public money to protect America's banks. He will meet with leaders of the country's top banks Monday.
On the campaign trail, presidential nominees Barack Obama and John McCain continue refining their positions on the economic crisis.
The Obama campaign continued pushing for middle-class relief Monday as a vital piece of national economic recovery as it laid out a four-part "economic rescue plan."
The plan offers a $3,000 tax credit to employers for every job created in America in 2009, taxpayer rebates on taxes paid in 2007, a 90-day moratorium on home foreclosures for any institution using money from the $700 billion bailout, and an injection of federal money into the banking system.
"Senator Obama believes he cannot afford not to keep his promise to cut taxes. That's part of his economic plan," Jason Furman, economic policy director for the Obama campaign, said. "Tax returns to get the economy moving again will relieve the squeeze on middle-class families."
The McCain campaign, meanwhile, announced Monday that it's sticking with its previously announced economic plans: extend President George W. Bush's tax cuts, buy bad mortgages, and allow homeowners facing foreclosure to renegotiate their mortgages.
"We do not have any immediate plans to announce any policy proposals outside of the proposals that John McCain has announced, and the certain proposals that would result as economic news continues to come our way," Tucker Bounds, a campaign spokesman, told the New York Times.
The candidates will take their economic messages into the third and final presidential debate Wednesday at Hofstra University in New York. The scheduled focus of the debate is the economy.
Follow the final debate with Scholastic Kid Reporter Mitchell Lewis as he blogs live from Hofstra University.
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|The government has stepped in to help failing financial institutions by loaning them money and passing a $700 billion bailout bill. But the economy is still in trouble, not just in America but around the world. What should the American government do to get the economy back on track? If you were President, how would you handle the problems in the economy?|
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