Finance and Economic

The International Monetary Fund's No. 2 official urged policy makers in the U.S. and elsewhere to consider sweeping, “more proactive'' solutions to a financial market crisis that has reached “historic proportions.''

“The essentially reactive and inevitably case-specific nature of many of these measures raises the questions whether broader and more proactive approaches have become warranted,'' said IMF First Deputy Managing Director John Lipsky in a speech in Washington.

Lipsky, the former chief economist at JPMorgan Chase & Co., said the credit crunch and financial turmoil in markets has “expanded suddenly to historic proportions'' and there is now “an almost universal consensus that the global economy is set to weaken.'' Still, a worldwide recession may be avoided.

“This storm can be weathered without a damaging global recession, but attaining such an outcome will require clear and coherent policy responses,'' Lipsky said.

In the U.S., lawmakers are weighing responses to a crisis that prompted Treasury Secretary Henry Paulson to seize Fannie Mae and Freddie Mac and caused the bankruptcy of Lehman Brothers Holdings Inc. in the past two weeks. Earlier this week, the Federal Reserve announced an $85 billion takeover of American International Group Inc.

`More May be Needed'

“Notwithstanding the recent use of innovative and unconventional measures, more may be needed,'' Lipsky said http://payday-faxless.com. “The implication is that a more systematic approach may be needed to deal with such basic issues as the disposition of distressed assets, the degree of protection offered to depositors, and the scale and scope of liquidity support that is offered to institutions and markets.''

Lipsky said “it would not be surprising if some additional'' banks disappear. The challenge for policy makers is to “strike the right balance'' between bailouts and letting markets resolve the instability, he said.

The IMF is forecasting global growth will average 4 percent in 2008 and “somewhat under 4 percent'' in 2009, he said. Lipsky warned that the financial services sector was “facing the prospect of a much-reduced revenue stream.'' Pessimism in the financial sector, he added, should be partly offset by promising indications of recovery in the U.S. housing market starting next year.

“It is plausible to anticipate that the U.S. housing market will find a bottom in 2009,'' Lipsky said. “Already the inventory overhang is diminishing, while affordability measures are returning to levels that appear much more consistent with past experience.''

He said the U.S. dollar is “still somewhat on the strong side'' relative to economic fundamentals.

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