WASHINGTON – With economic damage piling ever higher, President George W. Bush and other world leaders are gathering to explore options for relief and to work on ways to prevent similar credit and financial calamities from happening again.
It's a tall order, but Bush is hopeful that some common ground for action can be found at the extraordinary summit, which begins with a dinner Friday followed by closed-door deliberations on Saturday.
Ahead of the summit, Bush warned his counterparts on Thursday not to crush the global economy under a raft of strict new financial regulations. "We must recognize that government intervention is not a cure-all," Bush said. "Our aim should not be more government. It should be smarter government."
Bush put forward his own prescription, which includes bolstering accounting rules, reviewing anti-fraud provisions for trading in stocks and other securities, and improving regulatory coordination among countries. But he stopped short of the more far-reaching oversight and regulation that Europeans leaders want.
"We want to change the rules of the game in the financial world," said French President Nicolas Sarkozy said prior to the gathering.
The Europeans want to close loopholes that allow some financial institutions to evade regulation, and ensure supervision for all major financial players, including credit ratings agencies or funds carrying high amounts of debt.
"There is a need for urgency," said British Prime Minister Gordon Brown, who is seeking a new network of global regulators who would scrutinize the world's largest financial institutions.
Europeans also are advocating an early warning system that would watch for financial bubbles like the one that enveloped the U.S. housing market. The housing bubble eventually burst and created the mess the world leaders are now trying to clean up. They also want a pledge for concrete changes in just 100 days.
Critics blame lax oversight and failures by regulators in the United States and elsewhere to detect problems as one of the prime reasons behind the financial crisis.
The crisis, which erupted in the United States around August of last year as mortgage investments soured with the housing market's collapse, quickly spread to other countries. Banks and other financial companies suffered huge losses and foreclosures skyrocketed. Troubles then snowballed to other areas crimping, auto and student loans and locking up lending for many consumers and businesses worldwide.
All the fallout has pushed the global economy to the brink of recession. Unemployment in the United States bolted to 6.5 percent in October, a 14-year high.
Still, Bush put up a stout defense of capitalism.
"It is true that this crisis included failures, by lenders and borrowers, by financial firms, by governments and independent regulators," Bush said. "But the crisis was not a failure of the free market system. And the answer is not to try to reinvent that system."
Steven Schrage, a former Bush administration trade official and now an international business expert at the Center for Strategic and International Studies, said embarking on a massive regulatory revamp at this time when economic and financial conditions are so fragile would be like "in the middle of a five-alarm fire calling together the fire chiefs and trying to restructure the fire department."
World Bank President Robert Zoellick welcomed the mix of countries to take part in the discussions.
"It would ... be an error of historic proportions if developed countries put in place policies, structures and norms that undermined or excluded the interests of developing countries," Zoellick said. "Many governments in developing countries have taken courageous steps over the last years to put their own houses in order, and this crisis is not of their making."
One idea that has gained support is giving more countries voting power at the International Monetary Fund, the world's financial firefighter. Brown, in a related effort, likely already has won assurances from the Persian Gulf region to help fund a vast increase in the IMF's $250 billion bailout pot for struggling economies and will pressure China to follow suit.
Separately, Brown is pushing for a pledge by countries participating in the summit for a coordinated effort on a fiscal stimulus to energize their economies.
The Bush administration, which has been cool to Democrats' efforts to pass another stimulus package for the U.S. economy, offered slim odds on that front.
"What's clear is that every country is in a different place in terms of where they are in responding to the crisis," said David McCormick, the Treasury Department's point man on international affairs. "And so that makes, I think, the likelihood of everybody being at the same place in terms of a fiscal measure very unlikely."
Among the forces that could impede progress is the fact that Bush is on his way out of office, which could make other leaders hesitant to cut any deals with a departing administration. President-elect Barack Obama, who takes over on Jan. 20, won't attend the summit.
However, Obama has authorized former Iowa Rep. Jim Leach and former Secretary of State Madeleine Albright to represent him. Obama's transition team says they primarily will be listeners on the periphery of the meetings.
Against that backdrop, major new policy initiatives aren't expected. But Wall Street investors were hopeful some progress could be made on mending the markets. The Dow Jones industrials on Thursday closed up nearly 553 points.