FINANCE officials of the Group of 7 (G-7), the world’s wealthiest industrial countries, pledged over the weekend to take “all necessary steps to unfreeze credit and money markets” to end the biggest upheaval to hit the global financial system since the Great Depression of the 1930s.

“This is a period like none of us has ever seen before,” US Treasury Secretary Henry Paulson said at a rare press conference on Friday, as he revealed that the US government had decided to go ahead with the plan to buy equity stakes in a broad range of American banks and financial institutions.

This was the first time the US government had embarked on such an aggressive rescue program since the 1930s.

Two of the big US partners in G-7—France and Germany—endorsed the plan.

French Economy Minister Christine Lagarde called the plan a “coordinated, synchronized and rightly timed approach,” while German Finance Minister Peer Steinbrueck said that quick implementation was critical because the “downward spiral is picking speed.”

Officials of the G-7 countries, which includes Canada, Britain, Italy and Japan, said: “We continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth.” The effort came as threats of recession heightened.

The measures were announced after stock prices plummeted in the United States, Europe and Asia on Friday that saw the Dow Jones industrial average gyrate within 1,000 points before closing with a mild loss after a week of turmoil.

Trillions lost

On Friday alone, investors suffered a paper loss of about $100 billion, as measured by the Dow Jones Wilshire 5000 Index, and for the past year, a total of $8.4 trillion.

The Financial Times reported that panic selling prompted the crash in the global stock markets last week, as investors dismissed moves by governments and central banks to calm things.

European shares had their worst week in history, falling 22 percent, and Wall Street was on course for its biggest drop.

Howard Wheeldon, senior strategist at BGC Partners, said: “Sadly, it is now impossible to call the bottom of this market rout. Irrational fear has gripped and it seems that markets will now trash anything that works.

“What started as an asset-based crisis is running into the realms of the worst financial crisis the world has ever seen.”

As the G-7 met, the Financial Times warned that the group “must realize, that the crisis may have started in the US. But economic crises do not respect national borders. The longer policy makers take in addressing the crisis, the more damage will be done and the more extreme the policy measures will be made. After this, the only shot left to avoid depression is bank nationalization.”

Rate cuts ignored

The Financial Times further reported that the crash in equity markets last week came as investors fled risky assets in panic.

“Coordinated rate cuts by leading central banks and many other measures hastily adopted by government went ignored,” the newspaper said.

Tobias Levkovich, chief of US equity strategists at Citi, said: “Cascading drops in equity indices are feeding into one another, generating a momentum-driven plunge that has exceeded anyone’s expectations.”

As the financial crisis deepens, more and more signs appear that the world economy was moving toward the Great Depression II.

The Financial Times noted that as US stocks were on course for their worst week in history, they suffered another rout with the precipitous drop since its peak to a level that rivaled the onset of the Depression.

The volatile swing of the stock market in the past two weeks resembled that of October 1929.

The 1929 crash was marked by a far greater, more violent fall of stock markets than in the last few days, according to an Agence France-Presse report. An influential American economist said in mid-October 1929: “Stock prices have reached what looks like a permanently high plateau.”

Black Thursday

After slipping in mid-October 1929, the report said the Dow Jones industrial average fell sharply on Wednesday, Oct. 23, and the market went into a free fall the next day, which became known as “Black Thursday.”

The number of traders seeking to sell shares was so great that the ticker-tape systems which followed the market in those days simply broke down.

The report said things seemed to improve the following day when a leading banker bravely announced that he was buying shares in steel—a statement many took to mean that things would improve. The next Monday, however, there were no more would-be saviors to try and talk up the market. The index crashed by 13 percent, and on that Tuesday it was down a further 12 percent, adding two more “black” days to the lexicon of the financial disaster.

By early November, the stock market had lost 50 percent of its value in two months, and countless Americans had seen most or all of their wealth evaporate. Over the following three years, as the Great Depression flowed on from the Great Crash, total losses took the index to almost 90 percent below its peak.

Crises to last longer

Last month, the Wall Street Journal reported that the financial crisis that began 13 months ago “has entered a new, far more serious phase.”

The newspaper said: “Lingering hopes that the damage could be contained to a handful of financial institutions that made bad bets on mortgages have evaporated. Expectations for a quick end to the crises are fading fast.”

“I think it’s going to last longer than perhaps we would have anticipated,” the report quoted Anne Mulcahy, chief executive of Xerox Corp. as saying.

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