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The stunning collapse of U.S. investment bank Bear Stearns
shows the global financial crisis is more serious and more widespread
than policy makers realized even a few weeks ago, the head of the
International Monetary Fund said.
"The financial crisis which started in the United States is more
serious and more global than it was a few weeks ago," IMF Chief
Dominique Strauss-Kahn said on Monday in Paris.
"The risks and dangers are very high. The economic environment is still
worsening."
U.S. woes will impact other economies and will require a "global
answer," Strauss-Kahn said.
JPMorgan Chase & Co.'s acquisition of Bear Stearns for the
shockingly low price of US$2 per share, or $236.2 million, occurred
Sunday night in a deal that was fast-tracked by the federal government
to avoid a bankruptcy. A complete collapse of Bear Stearns might have
crushed already-dwindling confidence in the global financial system,
which has frozen up after last year's collapse of the subprime mortgage
market.
Strauss-Kahn was speaking at a conference on structural reforms in
Europe organized by the Organization for Economic Cooperation and
Development, or OECD.
Forecasts for U.S. growth -- or lack of it -- will be downgraded by
both the IMF and the OECD, Strauss-Kahn and Angel Gurria, the OECD
chief, said in a joint news conference.
Worry about the damage of the growing credit crisis led the Federal
Reserve to make a rare weekend move, lowering a key lending rate before
Wall Street opened Monday.
The Fed cut the discount rate, its lending rate to financial
institutions, to 3.25 percent from 3.5 percent, effective immediately.
The Fed also created another lending facility for big investment banks
to secure short-term loans that would be available to big Wall Street
firms on Monday.
Both Strauss-Kahn and Gurria approved the move as an appropriate
response. The IMF chief said the Fed and the European Central Bank have
been managing liquidity questions well.
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