World leaders move toward tougher financial rules
AP – U.S. President George W. Bush greets President Hu Jintao of China as he arrives at the North Portico … 
WASHINGTON – World leaders prepared Friday to adopt an early warning system for financial calamities, a commitment to tougher accounting rules and other modest steps to try to prevent future crises like the one now threatening the livelihoods of billions of people around the globe.
Nearly two dozen leaders assembled in Washington on Friday in the largest gathering of its kind here in nearly a decade. They dined in extravagance at the White House in a prelude to a day of closed-door negotiations Saturday over how best to wrestle both large and developing economies back from the brink of economic disaster.
The leaders were on track to approve measures to make the world financial system more accountable to investors and more transparent to regulators, diplomatic sources said. To do so, the leaders were expected to endorse more effective accounting rules governing how companies value their assets, a weakness seen as partly responsible for the current financial crisis.
The sources, speaking on condition of anonymity because leaders had yet to give formal approval to the draft communique, said the emerging agreement also calls for steps to sharpen the world's eyes watching for the kind of dangerous investing that led to the present chaos.
A new early warning system would 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 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 together to compare notes as they seek to spot excessive risk-taking.
Altogether, the U.S. preference for boosting oversight of shaky financial markets seemed to be holding sway over Europe's desire for tougher internationally enforced regulation.
"Billions of hardworking people are counting on us," Bush said on a night when urgent motorcades swept presidents and prime ministers through a dark Washington mist to the White House.
A second summit is envisioned in early spring, after Barack Obama becomes president. The first meeting, called by President George W. Bush, falls in a period of transition that inevitably leaves unclear what actions the U.S. is ready to take in the months ahead.
The president-elect stayed away from the meeting, but designated former Secretary of State Madeleine Albright and former Rep. Jim Leach to represent him in meetings with leaders on the sidelines. They saw the leaders of Argentina, Mexico and South Korea on Friday and had talks scheduled with lower-level representatives from several other nations both Friday and Saturday.
Leaders from Britain, France, Germany, Russia, China and India were among those in Washington.
The summit, meant to be the first in a series, has a two-pronged agenda: Discuss what might still need to be done to turn the world's economies back from the edge of disaster and explore ways to revamp the global financial system's architecture to prevent similar meltdowns in the future.
New reminders of the urgency facing the leaders came even as they 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.
Fearing another Wall Street plunge 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 in a dinner toast.
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.
Before leaders arrived, Bush 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, however, 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, working for about two hours over a gourmet meal of quail, lamb and fondue accompanied by fancy wines.
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Associated Press writers Martin Crutsinger, Michael Fischer, Jeannine Aversa, Eileen Sullivan and David Stringer contributed to this report.
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