Paulson probably will scrap the 700 billion dollar bailout to incorporate this plan being discussed at the IMF, G8 meeting this weekend.

Rescuing our jobs and savings: What G7/8 leaders can do to solve the global credit crisis.
Barry Eichengreen and Richard Baldwin
October 9, 2008


Without rapid and coordinated action by G7/8 leaders, this financial crisis could turn into a jobs crisis, a pension crisis and much more. This column introduces a collection of essays by leading economists on what the G7/8 leaders should do this weekend. The dozen essays present a remarkable consensus on a few points: we need immediate, coordinated global action that includes recapitalisation of the banks.



We are in the throes of what is almost certainly the most serious economic and financial crisis of our lifetimes. The crisis is no longer a US crisis, or even a US and European crisis; it is a global crisis. It has spread from the financial sector to the real economy. It is not just investment portfolios and retirement accounts at risk, continued turmoil will soon start to destroy jobs.

There is a need for urgent action. The policy response needs to be decisive. It needs to be global.

With this sense of urgency in mind, we have assembled a group of leading economists to offer priorities for crisis response. This is not a homogenous collection of experts. The contributors are from different continents and different schools of thought.

The G7/8 finance ministers meeting: An opportunity
Global economic and financial leaders are convening this weekend in Washington DC for the annual meetings of the IMF and World Bank. G7/8 finance ministers will meet Friday on the sidelines of the Fund/Bank meetings to craft their response. The global financial community will assemble the next day at IMF headquarters. This is a golden opportunity for agreeing a coordinated plan.

The authors of the thirteen essays do not agree on every point (there was little or no coordination among them as this initiative was launched on mid-morning of 8 October). Nevertheless, there is a remarkable degree of consensus on what must be done.

Policy makers must move boldly to stabilise the financial system. The basic elements are:

A quick bank recapitalisation with global coordination
A guarantee of deposits and/or loans with global coordination
Further, coordinated macroeconomic stimulus.
All the authors agreed on the first, many on the second and a good number on the third.

Download the essays
Here is the link to the short booklet entitled “Rescuing our jobs and savings: What G7/8 leaders can do to solve the global credit crisis.” It is only 38 pages long.

The authors are: Alberto Alesina, Michael Burda, Charles Calomiris, Roger Craine, Stijn Claessens, J Bradford DeLong, Douglas Diamond, Barry Eichengreen, Daniel Gros, Luigi Guiso, Anil K Kashyap, Marco Pagano, Avinash Persaud, Richard Portes, Raghuram G Rajan, Guido Tabellini, Angel Ubide, Charles Wyplosz and Klaus Zimmermann.

Update 1. From Obama, through his campaign:

"There are many causes of this economic crisis, and it's critical that we respond using all the tools that we currently have. That's why I support Secretary Paulson's latest initiative to use the authority we gave him in the financial rescue plan to provide more capital to our financial institutions so that they have money to lend to families and businesses. He should implement this plan quickly, aggressively, and ensure that it protects taxpayers, does not reward CEOs, and is limited in duration. As financial conditions evolve, the government should be prepared to take all additional action necessary to maintain market confidence, including extending broader guarantees in the financial system. And the United States must step up its efforts to work with the G-7 and our other allies to ensure a globally coordinated solution.

"This is not a time for ideology, but a time for common sense and pragmatism. The test of any idea must not be whether it is liberal or conservative, but whether it works for the American people. That's what we should all be focused on in the days ahead to restore strength and prosperity to our economy," said Senator Barack Obama.

Obama Ad Pounds McCain’s Mortgage Plan

Joint Statement of Senator Barack Obama and Senator John McCain

"The American people are facing a moment of economic crisis. No matter how this began, we all have a responsibility to work through it and restore confidence in our economy. The jobs, savings, and prosperity of the American people are at stake.

"Now is a time to come together - Democrats and Republicans - in a spirit of cooperation for the sake of the American people. The plan that has been submitted to Congress by the Bush Administration is flawed, but the effort to protect the American economy must not fail.

This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe. Now is our chance to come together to prove that Washington is once again capable of leading this country."

Speaking for himself, Senator Obama outlined the following principles that he calls on Senator McCain to support:

I believe that several core principles should guide this legislation.

First, there must be oversight. We should not hand over a blank check to the discretion of one man. We support an independent, bipartisan board to ensure accountability and complete transparency.

Second, we need to protect taxpayers. There should be a path for taxpayers to recover their money, and to turn a profit if Wall Street prospers.

Third, no Wall Street executive should profit from taxpayer dollars. This plan cannot be a welfare program for CEOs whose greed and irresponsibility has contributed to this crisis.

Fourth, we must help families who are struggling to stay in their homes. We cannot bail out Wall Street without helping millions of families facing foreclosure on Main Street.

Fifth, we both agree that this financial rescue package should move on its own without any earmarks or other measures. We have different views about the need for other action, but this must be a clean bill.

This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe. This is not a Democratic problem or a Republican problem - this is an American problem. Now, we must find an American solution.