Pining for Roosevelt, Churchill to calm credit mess

WASHINGTON (Reuters) - The credit crunch has become a crisis of confidence and investors have little faith in the current group of world leaders to solve the problems when few of them have political capital left to spend.

The world's central banks pulled off the broadest coordinated interest rate cut on record this week, and still stocks fell. Governments backstopped banks and guaranteed deposits, and still stocks fell. U.S. President George W. Bush appealed for calm, saying Washington was working to resolve the crisis, and still stocks fell.

"There's a lack of confidence in not only the global economy but in the leaders as well," said Matt McCall, president of Penn Financial Group in Ridgewood, New Jersey.

Finance leaders from the Group of Seven rich nations are meeting on Friday under intense pressure to come up with some cohesive plan to recapitalize banks and restore order to credit markets frozen by fear of who holds how much bad debt.

Bush is scheduled to join G7 finance ministers and central bankers at a news conference on Saturday. Leaders of euro zone countries plan to meet in Paris on Sunday.

Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said part of the reason why no one has managed to reassure markets is that there is little stability among the top G7 leadership.

Bush's presidency ends in January. Canada is holding an election next week and Prime Minister Stephen Harper has said he may lose. Japan is on its third prime minister in a year. Britain's Gordon Brown has seen his popularity slip as the economy slips perilously close to recession.

"It scares me that there's a vacuum of strong political leaders right now," Chandler said. "It's not like we have a Franklin Roosevelt and a (Winston) Churchill. This vacuum is going to make it harder to solve these problems."

CENTRAL BANKS FILL VOID

Bush channeled Roosevelt on Friday when he warned that "anxiety can feed anxiety, and that can make it hard to see all that is being done to solve the problem." It wasn't quite Roosevelt's "only thing we have to fear is fear itself," but the message was similar.

John Cochrane, a finance professor at the University of Chicago's Graduate School of Business, said he was worried about governments rushing into bad decisions just to show that they were doing something.

"I get the sense of total panic among some of our leaders," he said, adding that soothing words from elected officials smacked of condescension. "It's not about mom and dad coming to pat you good night and say 'Don't worry, everything's going to be all right.'"

So far, it has been the central bankers who have tried to fill the void. The U.S. Federal Reserve and European Central Bank are finally moving in the same direction after a year in which they often seemed at odds over how best to address the credit crisis and stubbornly high inflation.

"I don't think we can expect to see any towering leadership emerge in this situation. It's going to have to be a collaborative effort between the U.S. Treasury, Federal Reserve, European Central Bank and perhaps someone from Japan to steady the markets," said Allen Sinai, chief global economist for Decision Economics in New York.

"There are coordinated actions being taken and that much is encouraging ... lots of steps have been taken but it's just that it hasn't worked yet."

(Additional reporting by Daniel Trotta in New York and Glenn Somerville in Washington)