WASHINGTON – With economic damage expanding, the United States and global financial officials took steps Friday aimed at preventing a repeat of the financial meltdown that has imperiled the global economy.
A White House group strengthened oversight of complex financial instruments partly blamed for the financial crisis. The President's Working Group on Financial Markets wants to bring more openness to the murky world of derivatives and credit default swaps — a type of corporate debt insurance — that played a role in the turmoil.
Separately, 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 from around the world, said they would cooperate on conducting "early warning exercises" to detect vulnerabilities in the global financial system.
"The financial crisis has underscored the importance of international coordination both in responding to the crisis and in developing and implementing policies for a sounder financial system," IMF chief Dominique Strauss Kahn and Mario Draghi, chairman of the Financial Stability Forum, said in a joint letter.
The announcements come as President George W. Bush and other world leaders were gathering to consider ways to bolster the world's financial regulatory structure to prevent the problems now being battled from happening again.
Bush hopes some agreement on common actions can be found at the extraordinary summit, which begins with a dinner Friday followed by closed-door deliberations on Saturday.
"Reforms in the financial sector are essential," Bush said Friday, in an early release of his Saturday radio address. But he warned his counterparts not to crush the global economy under strict new regulations.
Bush has 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 has 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 before 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 to scrutinize the world's largest financial institutions.
Europeans were behind efforts for 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 world leaders are trying to clean up.
Critics blame lax oversight and failures by U.S. and other regulators to detect problems as prime reasons for 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 on Thursday. "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 now at the Center for Strategic and International Studies, said embarking on a massive regulatory revamp 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."
Besides the United States, France, Britain and other big industrial powers, the summit also will include leaders from developing economic powers such as Russia, China, Brazil and India.
World Bank President Robert Zoellick welcomed the mix of countries.
"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 IMF. 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.
Japan said Friday that it's ready to lend the IMF up to $100 billion to support nations reeling from the global financial crisis.
The pledge, announced in Tokyo by Prime Minister Taro Aso, was among proposals outlined in a statement released ahead of the Washington summit, during which Japan hopes to raise its clout as a global leader.
Separately, Brown is pushing for summit participants to pledge a coordinated fiscal stimulus to energize their economies.
The Bush administration, which has been cool to Democrats' efforts to pass another U.S. stimulus package, offered slim odds on that front.
"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. "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.
Wall Street investors hoped some progress could be made. The Dow Jones industrials on Thursday closed up nearly 553 points.