World leaders launched extraordinary summit talks on the global economic crisis Friday, preparing to adopt a modest action plan that leans more on the U.S. approach of boosting oversight of shaky financial markets than the European desire to increase regulation.
Nearly two dozen leaders from big industrial nations and developing countries came to Washington, with almost as many different plans for action. Diplomatic sources said the leaders were likely to agree to a series of moves, some to be completed by March 31 and others meant for the longer term.
"Billions of hardworking people are counting on us to strengthen the financial system for the long term," Bush said in a toast to fellow leaders before their gourmet meal at the White House that opened the two-day summit.
A draft of the joint communique to be issued Saturday after a day of closed-door meetings contains several ideas for making global financial markets work better by making them more transparent and accountable to investors, said the sources, who spoke on condition of anonymity because the leaders had not yet signed off on the final document.
Among those is a commitment to more effective accounting rules, such as those governing how companies value their assets, a crucial topic when the rise of risky, murky financial products are seen as largely responsible for trigging the current crisis. Ahead of the weekend gathering, a White House group also strengthened oversight of complex financial instruments — derivatives and credit default swaps, a type of corporate debt insurance.
The communique also is expected to call for improved international cooperation in the monitoring of markets and sharpened eyes watching for dangerous investing trends, the sources said.
Included in those mechanisms are an early warning system to look for signs of burgeoning problems like those in the U.S. housing market and related overuse of mortgage-backed securities. On Friday, the heads of the International Monetary Fund, the world's financial firefighter, and the Financial Stability Forum, a group that includes central banks and major financial regulators, said Friday they would cooperate on "early warning exercises" to detect vulnerabilities.
Also, a new "college of supervisors" would gather global regulators tasked with scrutinizing the world's largest financial institutions to compare notes as they seek to spot excessive risk-taking.
The leaders are expected to task working groups with writing the details and to discuss holding a follow-up summit at the end of March or early April. By then, President-elect Barack Obama will have taken over from Bush. Obama is staying away from this summit but has designated high-level representatives who are meeting with leaders on the sidelines.
The agreement lacks big, splashy elements, such as the establishment of a single global regulator or strict new regulation of financial firms or products.
Europeans had wanted to close loopholes that allow some financial institutions to evade regulation. They also want to ensure supervision for all major financial players, including credit ratings agencies or funds carrying high amounts of debt. They want a pledge for concrete changes in just 100 days.
But Bush bet that including developing nations such as China, India and Brazil in the talks would act as a brake on any push for intrusive regulation. Red-hot emerging economies bristle at being restricted just as they are trying to catch up to the developed world.
Even the part of the agreement that lays blame avoids specifically pointing a finger primarily where many wanted it: what they see as a freewheeling U.S. system where easy credit, risky investing and lax oversight have become the norm. Indeed, the crisis started when the bubble in the U.S. housing market burst in August, leading to a ripple effect of events as mortgage-related investments soured, financial companies suffered huge losses and lending locked into a freeze that spread around the globe.
The agreement says broadly that policymakers and regulators failed to address the risks building up in financial markets.
New reminders of the urgency came even as leaders poured toward the U.S. capital city from around the globe. The government reported that sales by American retailers fell by a record amount last month. Federal Reserve Chairman Ben Bernanke hinted at another interest rate cut to encourage consumers. The Dow Jones industrials dropped 338 points.
The summit has a two-pronged agenda: Discuss what might still need to be done to turn the world's economies back from the brink of disaster and explore ways to revamp the global financial system's architecture to prevent similar meltdowns in the future.
But, fearing a Wall Street plunge next week if the summit produces little, the White House has been lowering expectations as fast as other nations have been raising them.
"This problem did not develop overnight and it will not be solved overnight," Bush said.
Before leaders arrived, Bush also warned for the second day in a row of the dangers — in his view — of overeager government intervention. He said "reforms in the financial sector are essential" but that strict new regulations would crush the global economy instead of protect it.
He got a boost from British Prime Minister Gordon Brown, who used rhetoric similar to Bush's in talking about a need to keep trade flowing and markets free. "Protectionism is the road to ruin," Brown told the Council on Foreign Relations in New York.
Brown has been among the leaders pushing for nations at the summit to pledge coordinated stimulus spending worldwide to combat the downturn that is squeezing millions of families and businesses.
Bush cautioned that the billions of dollars being spent already by the U.S. and other countries should be given a chance to work.
"Our actions are having an impact," Bush said in his Saturday radio address, taped Friday and released early by the White House. "The United States and our partners are taking the right steps to get through the crisis."
Deeply skeptical, protesters staged demonstrations and their chants could be faintly heard as leaders arrived in a misty rain at the White House for the working dinner.
In a sign of the complicated arrangements necessary to house and host the largest gathering of government heads in Washington since NATO's 50th anniversary in 1999, Perino noted it would take 300 or 400 cars to accomplish the highly choreographed feat of bringing the leaders to dinner.
Bush, alone without his wife, greeted each of his guests individually as they pulled up to the North Portico, with smiles and back pats for most, a protocol-laden process that took over 75 minutes. The leaders then ate with him in the State Dining Room, while the other members of each country's delegation walked next door to the Treasury Department for a parallel but lower-key dinner.