World Leaders Take on Economic Crisis; Bush Defends Market Principles
Byline: Patrice Hill and Jon Ward, THE WASHINGTON TIMES
As world leaders gathered Friday evening at the White House for a historic dinner on the eve of a global economic summit, President Bush challenged them not to abandon free-market principles.
Mr. Bush, after individually welcoming 19 heads of state and government and a handful of global institution leaders to the White House in a process that took more than an hour, toasted them in the State Dining Room.
All our nations must reject calls for protectionism, collectivism and defeatism in the face of our current challenge, Mr. Bush said, addressing the leaders who sat before him at a large oval-shaped table.
We are here because we share a concern about the impact of the global financial crisis on the people of our nations, Mr. Bush said. The stakes are indeed high. Millions of hard-working people are counting on us to strengthen our financial systems for the long term.
Speaking to a group that included several leaders who have blamed the U.S. in particular and capitalism in general for the current crisis, Mr. Bush said that the surest path to ... growth is to continue policies of free and open markets
Free-market capitalism has been an engine of prosperity, progress and social mobility in economies all over the globe, he said.
As the leaders ate, their finance ministers held a parallel dinner next door at the Treasury Department. The actual summit is Saturday at the National Building Museum.
Earlier Friday, the Bush administration, which has frequently warned that the world must respond with better regulation rather than over-regulation in response to the crisis, outlined some of the reforms it supports.
In particular, the Treasury Department said that complex derivative products such as credit default swaps - which have played a major role in the market instability - should be bought and sold through a clearinghouse that will enable institutions to better track their level of risk.
And there was growing support for proposals such as an early warning system to detect financial problems, a college of regulators to supervise big banks whose operations cross many borders, and the idea of coordinated fiscal stimulus within each country, such as China's recent announcement that it will spend $586 billion on infrastructure.
The International Monetary Fund on Friday announced it is moving to establish the warning system to pinpoint possible financial problems such as housing and credit bubbles before they precipitate a crisis. The IMF, which has set up emergency financial assistance programs in nations stricken by the credit crisis, including Iceland and Hungary, is working with the Financial Stability Forum, a group that includes central banks and major financial regulators from around the world, on the new surveillance program.
In addition, a White House working group said it is setting up a system of clearinghouses to more closely manage the risky and complex derivative securities that were little understood and played a central role in the financial crisis. Derivative securities implicated in the crisis include the mortgage bonds that were derived from pools of subprime and exotic loans, as well as the credit default swaps that global banks offered as insurance on such securities.
The virtually unregulated over-the-counter market in credit default swaps has played a significant role in the credit crisis, including the now $167 billion taxpayer rescue of [American International Group], said Securities and Exchange Commission Chairman Christopher Cox, in announcing the new clearing procedures for such transactions that will enable regulators and the public to better track and understand them.
Bringing transparency to this market is vitally important, he said, pledging to use the SEC's authority to protect investors from future abuses.
But the move did not quell criticism of U.S. policies among world leaders. European leaders have been the most strident in insisting that the world needs much stronger controls over banks and their risk-taking activities.
The Europeans want to close loopholes that allow some financial institutions to evade regulation, and ensure supervision for all major financial players, including credit-rating agencies or hedge funds carrying high amounts of debt.
We want to change the rules of the game in the financial world, said French President Nicolas Sarkozy, who originally called for an overhaul of global financial regulation in a Bretton Woods II summit.
Canadian Prime Minister Stephen Harper said compulsory global governance ... is unrealistic, will never be accepted, but the summit should agree to measures that are stronger than those proposed by the United States
Unregulated financial markets do not work. Canada has known that for a long time, he told reporters in Winnipeg before departing for the summit. I thought, frankly, we all knew that from events of many decades ago, but obviously the United States went on a different path.
Mr. Bush repeated his defense of free-market capitalism in an early release of his Saturday radio address.
Reforms in the financial sector are essential, said Mr. Bush, but he warned his counterparts not to crush the global economy under strict new regulations.
It is true that this crisis included failures by lenders and borrowers, by financial firms, by governments and independent regulators, he said on Thursday. But the crisis was not a failure of the free-market system. And the answer is not to try to reinvent that system.
Absent from the discussions was President-elect Barack Obama, who favors stronger regulation and sent former Secretary of State Madeleine Albright to meet with global leaders on his behalf.
British Prime Minister Gordon Brown emerged once again as a kind of broker between the United States and Europe, offering proposals that take a step toward stricter supervision of big banks by establishing a college of regulators for each bank, but stop short of heavy-handed regulation.
Besides brokering some preliminary compromises on the question of bank regulation, Mr. Brown also spent weeks drumming up support from Persian Gulf oil states and Japan for providing the IMF with additional funding to address emergencies in developing nations. And he was instrumental in getting global leaders from China to Germany to commit major sums toward stimulating their economies ahead of the summit to combat what has become a worldwide recession.
Japan said Friday that it's ready to lend the IMF up to $100 billion to support nations reeling from the global financial crisis. Further large donations are expected from Persian Gulf states. Some countries, like China, are said to be conditioning any additional support for the IMF on gaining greater voting power on the IMF's governing board, which is currently dominated by the United States and European nations. But chances of that happening at the summit appeared remote.
There is a need for urgency to address both the rapidly deteriorating economic situation and the need for better regulation of banks, Mr. Brown said.
Britain and Europe were behind efforts to set up an early warning system that would watch for financial bubbles like the one that enveloped the housing markets in the United States, Spain and Ireland. The housing bubbles eventually burst and created the mess world leaders are trying to clean up.
The crisis erupted in the United States in August of last year, but has spread to nearly every part of the globe and nearly every financial market from mortgages and stocks to commodities and student loans.
The summit is a meeting of the Group of 20 nations plus two other European countries - Spain and the Netherlands - who came at Mr. Sarkozy's request. The G-20 includes traditional powers such as France, Britain and Germany, as well as developing economic powers such as Russia, China, Brazil and India.
In a telling sign of the importance of these emerging economies, Chinese President Hu Jintao was seated at dinner Friday night to Mr. Bush's left, and Brazilian President Luiz Inacio Lula da Silva sat on his right.
Malcolm Oliver (left), Chris Arias and Rommel Arcia of Select Event Rentals erect the structure for a tent across the street from the National Building Museum. [Photograph by Allison Shelley/The Washington Times]
HEADS OF STATE: Protesters wearing masks of world leaders hold a mock economic summit Friday across from the White House in Lafayette Park. [Photo by Agence France-Presse/Getty Images]
The National Building Museum in Northwest is readied for the weekend Summit on Financial Markets, a gathering of leaders from around the globe. [Photograph by Associated Press]; President Bush welcomes French President Nicolas Sarkozy for a White House dinner Friday with national leaders attending the G-20 summit. The working summit is Saturday at the National Building Museum. [Photo by Agence France-Presse/Getty Images]…
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Publication information: Article title: World Leaders Take on Economic Crisis; Bush Defends Market Principles. Contributors: Not available. Newspaper title: The Washington Times (Washington, DC). Publication date: November 15, 2008. Page number: A01. © 2009 The Washington Times LLC. COPYRIGHT 2008 Gale Group.
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