Bush defends capitalism

2008-11-14 07:34

New York - President George W Bush fervently defended US-style free enterprise on Thursday as the cure for the world's financial chaos, not the cause. He warned foreign leaders ahead of a weekend summit not to crush global growth with restrictive new rules.

"We must recognise that government intervention is not a cure-all," Bush said from Wall Street, setting his own tone for the two-day meeting that begins on Friday in Washington seeking solutions to the economic crisis that has spread around the world.

"Our aim should not be more government," he told the business executives. "It should be smarter government."

The president acknowledged that governments share the blame for the severe economic troubles that have hit banks, homes and whole countries.

He spelled out his prescription, which includes tougher accounting rules and more modern international financial institutions. But he stopped short of the tighter oversight and regulation that European leaders want. All his ideas came with a warning: Don't disturb capitalism.

"In the wake of the financial crisis, voices from the left and right are equating the free enterprise system with greed, exploitation and failure," Bush said.

"It is true that this crisis included failures, by leaders 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."

Enormous clout

That warning about the dangers of too much government intervention came not long after he championed the biggest bailout in US history: a $700bn taxpayer-funded plan to rescue the financial industry. His government has also signed off on costly rescues for housing, insurance and other financial institutions.

The US wields enormous clout in any global response to the economic crisis, and Bush is host for the weekend gathering, bringing together heads of state from the world's biggest economies as well as emerging nations. It is intended to be the first in a series.

But Bush's personal influence is waning.

In about two months, Democrat Barack Obama will take over as president. Though the president-elect does not plan to attend this summit, he has authorised former Iowa Rep Jim Leach and former Secretary of State Madeleine Albright to represent him. Obama's transition team says they will primarily be listeners on the periphery of the meetings.

The world leaders come to Washington with their own ideas for change. French President Nicolas Sarkozy, British Prime Minister Gordon Brown and others are advocating a broader overhaul of financial regulations than Bush wants. The Europeans also want a pledge for concrete changes in just 100 days.

The stated goal for this weekend is to examine the causes of the crisis and begin mapping out principles for a response.

'There is a need for urgency'

But Britain's Brown, on his way to the summit, declared, "There is a need for urgency."

It was fitting that Bush's argument against regulatory overreach was delivered not in Washington but on Wall Street. His speech venue was venerable Federal Hall, home to the first Congress and within shouting distance of the New York Stock Exchange.

There was freshly sobering news on the US economy: The number of newly laid-off people seeking unemployment benefits jumped to a level not seen since just after the September 11, 2001, terrorist attacks. Still the Dow Jones industrial average surged 553 points at the end of the trading day.

Some of Bush's admonitions raised questions about his own past actions, including last month's big bailout law.

Also, he is one of those voices from the right who railed about greed, saying in an unguarded moment in July that Wall Street "got drunk and now it's got a hangover".

On Thursday, he defended his administration against charges from some leaders that insufficient oversight and regulation in the US contributed to - even caused - the mess by failing to raise alarms. Obama is among those who say no one was minding the people's business as the housing market plunged, credit markets ground to a halt and the broader financial system went into distress.

White House aides play down Bush's differences with other nations, saying the leaders have much in common, as evidenced by the gathering itself.

Bush's list of possible areas for agreement include:

Bolstering accounting rules for stocks, bonds and other investments so investors have a clearer sense of the true value of what they buy.

Requiring "credit default swaps" - a type of corporate debt insurance - to be processed through a central clearinghouse. That would help provide crucial information on the parties involved in these complex, unregulated products.

Taking a fresh look at rules aimed at preventing fraud and manipulation in trading of stocks and other securities.

Better co-ordinating financial regulations among countries.

Giving more countries voting power at the International Monetary Fund and the World Bank.

Besides the United States, the countries represented at the White House dinner on Friday and meetings on Saturday will be Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey. Those countries and the European Union make up the so-called G20.

Australian Prime Minister Kevin Rudd said before he left for Washington that he would raise with fellow leaders his view that a system in which executives of financial firms are rewarded for maximising risk "cannot be sustained". He said, "That's just dumb, it's wrong and it's bad."

Trade union leaders from participating countries planned to join AFL-CIO leaders on Friday in meetings with several foreign heads of state, including Brazilian President Luiz Inacio Lula da Silva, and with IMF Managing Director Dominique Strauss-Kahn and World Bank President Robert Zoellick.

The labour leaders are calling for re-regulation of global financial markets, an internationally co-ordinated fiscal stimulus and balanced economic growth to address income inequality.

- AP