World Bank tells G20 finance ministers fix banks before boosting growth

[steven johnson]

Source: The Guardian

The president of the World Bank, Robert Zoellick, warned bickering leaders of the G20 countries that they risked "doing too little, too late" to repair the global economy as finance ministers arrived in Britain for weekend talks.
Amid signs of deep splits between the United States and Europe on how to respond to the most widespread crisis of market economies since the second world war, Zoellick said that cleaning up ­banking systems was more important than ­pumping up growth through tax cuts or spending increases.
"Stimulus packages alone are not enough," the World Bank president said. "The International Monetary Fund research of some 122 financial and economic crises shows that turnaround can't happen unless you clean up the bad assets and recapitalise the banks."
Zoellick has forecast the world economy will shrink by 1-2% this year, and added that difficulties could extend "well into 2010". He said today: "If you don't take on the banking issue, the stimulus is just like a sugar high. It pushes some energy into the system but then you get the letdown unless you reopen the credit markets."


Read more: www.guardian.co.uk/business/2009/mar/13/priority-to-sort-banks-g20-told

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What did causeed the worldwide financial crisis was the writing of credit derivatives, insurance policies for investors. But the funds who bough these credit default swaps did not need to own the securities to buy the insurance. They had to be sold abeoad, though, since this arrangement wasn't legal in the US. About $2 trillion in credit derivatives in 1989 jumped to $8 trillion in 1994 and by last year totaled $596 trillion. Credit derivatives are breaking and will continue to break the world's financial system and cause an unending crisis of liquidity and gummed-up credit.

What Cooked the World's Economy


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