I managed to spare some time to skim through some parts of IMF’s most recent World Economic Outlook released the other day. Few points I picked up:
The greatest policy priority at this juncture is financial sector restructuring. In the short run, the three priorities identified in previous GFSRs remain appropriate: (1) ensuring that fi nancial institutions have access to liquidity, (2) identifying and dealing with distressed assets, and (3) recapitalizing weak but viable institutions. The first area is being addressed forcefully. Policy initiatives in the other two areas, however, need to advance more convincingly.
Nonviable financial institutions need to be intervened promptly, leading to resolution through closures or mergers. Amounts of public funding needed are likely to be large, but requirements are likely to rise the longer it takes for a solution to be implemented.
The document also touched on the Public Private Investment Program proposed by Geithner. The IMF believes that while following a “bad bank” solution to the problem is one option, the PPIP, while viable, still needs to be restructured in a manner that encourages participation from both the sellers and the buyers on terms consistent with resources available under the program.
Furthermore, the organization predicts that there could still be some 10-15% further decline on the house prices “that would lower U.S. house prices by more than 35 percent from their peak, bring valuation ratios more closely in line with medium-term norms,and leave construction activity well below previous cyclical troughs.”
That’s it for now. I still need to set aside some time to add some charts to this.