Global leaders race the clock IMF warns system is on the brink of a meltdown if more is not done By Rex Nutting & Greg Robb, MarketWatch Last update: 2:02 p.m. EDT Oct. 11, 2008Comments: 393WASHINGTON (MarketWatch) -- The global financial system is on the brink of a meltdown and additional steps must be taken immediately by the richest nations to calm jittery bankers and investors, the International Monetary Fund warned Saturday. "Intensifying solvency concerns about a number of the largest U.S.-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown," said Dominique Strauss-Kahn, IMF managing director. Urgent talks continued in Washington on Saturday to develop a coordinated approach to the banking crisis that has slammed stock markets around the globe and threatens a severe global recession. Many observers say the officials are working against the clock, with global markets set to open on Monday, with or without a credible plan from the world's governments. The plan put forth by the Group of Seven on Friday was seen as only a first step. President Bush urged global finance leaders on Saturday to work together quickly on a "serious global response" to "the serious global crisis" in credit markets. Top policymakers from the Group of 20 largest economies were meeting later Saturday to work on a coordinated response to calm markets that have been shaken by massive losses and bankruptcies. "We're in this together. We will come through this together," Bush said Saturday after meeting with finance leaders of the G7 industrialized nations at the White House. Leaders of the 15 euro-zone countries will meet in Paris on Sunday to discuss a rescue plan based on the British model, which includes massive recapitalization and an explicit guarantee of all interbank credits, as urged by the IMF, U.K. Prime Minister Gordon Brown and many outside experts. On Friday, U.S. Treasury Secretary Henry Paulson said his staff was working as quickly as they could to implement a plan to recapitalize important U.S. financial institutions. Paulson was able to provide few details, however. The G7 response was a five-part plan similarly lacking in details, although it did provide a common framework, calling for recapitalizing banks with public and private funds, insuring depositors and unfreezing credit markets. Pointedly, however, the G7 plan did not include one of the two major suggestions made by U.K. Prime Minister Gordon Brown: government guarantees of all bank liabilities. After their closed-door meeting Friday, the G7 set out a broad "plan of action" to stabilize global financial markets, in a one-page plan that was sweeping in scope but short on specifics. The G7 said that "urgent and exceptional action" is needed to stabilize financial markets. The G7 vowed to use all available tools to support systemically important financial institutions and prevent them from failing. It is unclear whether the plan will go far enough to satisfy financial markets, which are suffering from a profound loss of confidence. At first blush, some analysts were not too impressed. Vincent Reinhart, a former top staffer at the Federal Reserve Board, said markets had no interest in pledges but wanted to know exactly what the G7 would do before trading resumes Monday. "I think the finance ministers just failed a test, or at best got a C minus," wrote Paul Krugman, a Princeton University economics professor and New York Times columnist. But Sherry Cooper, chief economist at BMO Capital Markets, said she thought the principles expressed by the G7 would reassure markets. Ahead of the meeting, Ken Rogoff, a Harvard University professor and former chief economist at the IMF, told MarketWatch that there needed to be an "overwhelming" G7 statement. "I think the worst thing to do would be to come out with a very tepid response," he said. "It would be the end of the G7." On Saturday, Rogoff told Reuters that "markets are going to be very disappointed" by the G7 statement. The Group of Seven includes the United States, Japan, Germany, France, Italy, the United Kingdom and Canada. The European Union is also a participant. The G20 includes those eight and adds China, Brazil, Russia, India, Mexico, South Korea, Saudi Arabia, Argentina, Australia, Indonesia, South Africa and Turkey. Together, the G20 account for about 90% of global gross domestic product. The weekend meetings came as global stock markets endured another volatile day on Friday, capping one of the worst weeks ever. Investors around the world scrambled to move their funds into the safest and most liquid investments, such as cash and government bonds, fearing that the seizing up of credit markets could lead to a major recession and the failure of large corporations. Rex Nutting is Washington bureau chief of MarketWatch. Greg Robb is a senior reporter for MarketWatch in Washington.