World Leaders Take on Economic Crisis; Bush Defends Market Principles

The Washington Times (Washington, DC), November 15, 2008 | Go to article overview

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. …

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