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Government intervention is required for credit squeeze

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by Kay Mitchell

According to the chief of the International Monetary Fund (IMF), Government intervention is required at a worldwide level to address the credit crisis.

I really think that the need for public intervention is becoming more evident said Dominique Strauss-Kahn.

He said that Government intervention in the securities market, the housing market or the banking sector, would act as a third line of defence to support monetary and fiscal policy.

Mr Strauss-Kahn said the credit crisis was far more than an American problem and added the crisis is global. The so-called decoupling theory is totally misleading. Developing countries such as China and India would be affected.

Mr Strauss-Kahn’s statement come just days before a gathering of world finance ministers and central bank governors gather in Washington for the IMF’s spring meeting.

Authorities have injected liquidity into markets but, besides bailing out banks such as Northern Rock, have not yet intervened in financial systems.

Justin Urquhart Stewart of Seven Investment Management said the move proposed by the IMF would need more co-ordinated and effective work between Governments.

We’ve gone from the idea of the banks just providing access to extra cash, to intervening on odd occasions, then to the final line when were actually saying we’re going to have to stand behind this and formally intervene overall in the market to support it, said Mr Stewart.

Rather than just waiting for individual banks to go wrong, the weaker banks will need further help and it’s going to be more than just access to liquidity, he concluded.

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News posted: April 7, 2008

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