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WSJ.com: Economics Blog

Economic insight and analysis from The Wall Street Journal.

Paulson: ‘Aggressive’ Global Effort Planned; U.S. to Take Bank StakesToday

U.S. Treasury Secretary Paulson said he and his Group of Seven counterparts had agreed to an “aggressive” plan to deal with a financial turmoil that has quickly ballooned into a “global event.” While the U.S. has come up with its own bank rescue plan, Paulson said other countries are considering options appropriate to their own situations. The $700 billion U.S. rescue plan will be used not only to buy and insure mortgage assets, but to buy equity in financial institutions, he said. “We are working to develop a standardized program that is open to a broad array of financial institutions,” Paulson said. Here is the text of his statment:

Statement by Secretary Henry M. Paulson, Jr.
Following Meeting of the G-7 Finance Ministers and Central Bank Governors
Washington, DC– At today’s meeting of the G-7 Finance Ministers and Central Bank Governors, we finalized an aggressive action plan to address the turmoil in global financial markets and the stresses on our financial institutions. This action plan provides a coherent framework that will direct our individual and collective policy steps to provide liquidity to markets, strengthen financial institutions, protect savers, and enforce investor protections.

The G-7 is compelled to robust international partnership and cooperation. Never has it been more essential to find collective solutions to ensure stable and efficient financial markets and restore the health of the world economy.

World Bank Meets, So Where Are the Protestors?Today

On the eve of the annual meeting of the World Bank and International Monetary Fund, there was barely a protestor in sight. Early in the morning, a pink van unloaded several people dressed in pink a few blocks from the headquarters buildings, but they were preparing to protest the financial bailout, not the World Bank of IMF. So was another guy, standing near a candy stall, carrying a tray, which one supposes was a metaphor for all the money that he’d like the government to place in it.

The World Bank was hit by a hacking incident, which one person called “professional” in nature and not the work of bored kids. A bank spokesman said, “at no point” did the attacker get into “sensitive information in the World Bank’s Treasury, procurement, anti-corruption or human resources departments.”

But it’s a long weekend. – Bob Davis

G-7: Crisis Requires ‘Urgent and Exceptional Action’Today

The U.S. and its closest allies agreed on common guidelines to address the world financial crisis, a move that opens the way for a series of government actions, but falls short of the joint plan that many investors had sought. Here is the text of the G-7 statement released shortly after at 6 p.m. ET

G-7 Finance Ministers and Central Bank Governors

Plan of Action

Washington— The G-7 agrees today that the current situation calls for urgent and exceptional action. We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth. We agree to:

1. Take decisive action and use all available tools to support systemically important financial institutions and prevent their failure.

2. Take all necessary steps to unfreeze credit and money markets and ensure that banks and other financial institutions have broad access to liquidity and funding.

3. Ensure that our banks and other major financial intermediaries, as needed, can raise capital from public as well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses.

4. Ensure that our respective national deposit insurance and guarantee programs are robust and consistent so that our retail depositors will continue to have confidence in the safety of their deposits.

5. Take action, where appropriate, to r

More Small Firms Risk Going Out of BusinessToday

The financial crisis is clearly weighing on the U.S.’s biggest companies, but small businesses are feeling a greater pinch as well.

Small businesses suffer amid the financial crisis. (Getty Images)

Some 18% of small-business owners tell an American Express OPEN survey that they are at risk of going out of business because of economic conditions, up from 9% in August.

Almost two-thirds of respondents said the tightening of credit has affected their business, compared to 50% in August. As a result, 12% have had to lay off staff, 79% say sales are decreasing and 51% say they have had to tap personal assets to pay business expenses.

Meanwhile, small-business owners weren’t particularly encouraged by the government’s efforts to boost the economy. Only 7% said the rescue package by Congress would be effective or very effective. Some 48% said it will only be somewhat effective and 45% said it wouldn’t be effective at all. Three-quarters of respondents also said that increasing the amount of bank deposits insured by the FDIC to $250,000 from $100,000 won’t help them.

The survey, conducted Oct. 6-7 using on a nationally representative sample of 602 small business owners/managers of companies with fewer

Loss of Wealth to Weigh on Consumer SpendingToday

One of the fears behind the stock market plunge is that the economic slump will come as a long and deep recession. How bad the downturn will be depends in large part on how much consumers cut back on their spending. Given the current state of household finances, the outlook is grim.

Sales may not be enough to lure in distressed consumers. (Getty Images)

Although the Federal Reserve isn’t scheduled to report third-quarter flow of funds data until Dec. 11, further losses in the stock and bond markets as well as the continuing drop in home values virtually guarantee that household wealth — the difference between assets and liabilities — shrank further in the third quarter.

If that turns to be the case, wealth will have fallen for four consecutive quarters, something that has never happened since the Fed began tracking the quarterly data in 1951.

By so many measures — stock portfolios, home equity, and bond holdings — households are far poorer than they were just a year ago. In fact, the numbers might well show that U.S. consumers are less wealthy than they were in 2006.

And since wealth is a determinant of consumer spending, the losses, coming at a time of job cuts and weak income gains, suggest some cutbacks by h