Friday, November 14, 2008

Bush Defends American Capitalism; Stock Market Roars to Life

President Bush offered a comprehensive defense of capitalism and the American financial system in a speech in New York today, in the run-up to a weekend meeting of the Group of 20 nations that is likely to feature tough criticisms of the U.S.

Citing "outdated regulatory structures" in the U.S. and elsewhere, Mr. Bush said that "reforms in the financial sector are essential," and offered a series of specific responses, including:

  • Making financial markets more transparent, including improved accounting rules for securities so investors can better understand what they're buying.
  • Proper regulation of sophisticated financial products. That includes processing of credit default swaps -- which insure investors against potential losses -- through centralized clearinghouses rather than through unregulated over-the-counter markets.
  • Enhanced national regulation of financial markets around the world.
  • Better coordination of national laws and regulations, as well as reform of the International Monetary Fund and World Bank, which are viewed by many critics as unfairly dominated by industrialized countries of Europe and North America.

But Mr. Bush also warned against the danger of overregulation, noting that some European countries oversaw their mortgage markets more extensively than the U.S., yet experienced "problems almost identical to our own."

He added that the "long-term solution to today's problems is sustained economic growth. And the surest path to that growth is free markets and free people."

Mr. Bush spoke at Federal Hall on Wall Street, before members of the Manhattan Institute, a conservative think tank. The text of his remarks was released by the White House earlier Thursday.

"It is true that this crisis included failures -- by lenders and borrowers, by financial firms, by governments and independent regulators," Mr. Bush said, according to the prepared text. "But the crisis was not a failure of the free market system. And the answer is not to try to reinvent that system. It is to fix the problems we face, make the reforms we need, and move forward with the free market principles that have delivered prosperity and hope to people around the world."

Mr. Bush called the weekend G-20 meeting in Washington in response to persistent and widespread calls among European leaders for tougher regulation of the global financial system, and particularly what some European leaders view as the overly-volatile U.S. system. French President Nicolas Sarkozy, for example, has referred to the U.S. devotion to free-market principles as "mad" and has called for an international financial regulator.

But Mr. Bush's remarks on Thursday -- as well as recent comments of other officials -- reflect that expectations for action at the weekend summit are diminishing, given the current administration's opposition to a global financial regulator, as well as the leadership vacuum that's emerging as the incoming administration of President-elect Barack Obama prepares to take office. Neither Mr. Obama nor any of his senior advisers are expected to attend the summit.

Leaders now expect a series of such meetings stretching into next year, and possibly beyond, as they wrestle with difficult decisions about increased international oversight.

In the meantime, this weekend's meeting is shaping up as a largely political event, one that's giving some beleaguered figures such as U.K. Prime Minister Gordon Brown a chance to show themselves as leaders on the world stage. For many, particularly leaders in Europe, it's also a chance to lay the blame for the crisis at the feet of the U.S. -- a charge that Mr. Bush is likely to continue to try to deflect. White House officials have noted for example that European banks showed themselves to be even more vulnerable in the crisis than U.S. banks, although they were supposedly much more tightly regulated.

For his part, the outgoing U.S. president seems to be concerned not only with the U.S. public, but also with people in developing countries who might be put off by the financial chaos that's currently on display.

"Ultimately, the best evidence for free market capitalism is its performance compared to other economic systems," Mr. Bush said Thursday. "Free markets allowed Japan -- an island nation with few natural resources -- to recover from war and grow into the world's second-largest economy. Free markets allowed South Korea to make itself one of the most technologically advanced societies in the world. Free markets turned small areas like Singapore, Hong Kong, and Taiwan into global economic players. And today, the success of the world's largest economies comes from their embrace of free markets.

"Meanwhile, nations that have pursued other models have experienced devastating results. Soviet communism starved millions, bankrupted an empire, and collapsed as decisively as the Berlin Wall. Cuba, once known for its vast fields of cane, is now forced to ration sugar. And while Iran sits atop giant oil reserves, its people cannot put enough gasoline in their cars.

"The record is unmistakable: If you seek economic growth, if you seek opportunity, if you seek social justice and human dignity, the free market system is the way. The triumph of free market capitalism has been proven across time, geography, culture, and faith. And it would a terrible mistake to allow a few months of crisis to undermine 60 years of success."

Stock Market Roars to Life

U.S. stocks surged on Thursday and broke a three-day losing streak after the S&P 500 and Nasdaq touched new five-year lows earlier in the session, prompting investors to put aside worries about the flagging economy and scoop up wilted shares at fire-sale prices.

Capping off a volatile session, energy stocks led the market higher alongside a recovery in oil prices as OPEC looked ready to cut production again. Chevron and Exxon Mobil gave the Dow its biggest lift, while oil rose over 5% above $59 a barrel in post-settlement trading.

At one point during Thursday's session, the S&P 500 fell below its Oct. 10 closing low to its lowest since March 2003, a key technical breach that traders said suggested the market could find short-term support. The Dow industrials briefly fell below 8,000, while both the S&P 500 and Nasdaq fell through their 2008 lows set in October.

The Dow Jones jumped 552.59 points (6.67%). The S&P 500 surged 58.99 points (6.92%). The Nasdaq climbed 97.49 points (6.50%).

The three major U.S. indexes swung in a wide band from high to low, with the S&P 500 traveling 94.32 points from its session low at 818.69 to intraday peak at 913.01, while the Dow industrials covered 911.17 points and the Nasdaq moved 168.16 points.

Chevron jumped 12.5%, while Exxon rose 9.4%. An S&P index of energy companies soared 11.1%.

Intel reversed an earlier decline and rose 6.7% on the Nasdaq, spurring other big-cap technology shares to shift gears and push higher.

Among gainers, Microsoft rose 4.7% to $21.25, while Apple gained 7% to $96.44.

Citigroup pared earlier losses, but remained the biggest drag on the Dow, losing 2% to $9.45, after a report that directors are unhappy with the bank's performance and may replace its chairman. Citi's board of directors reiterated its full support for Chairman Win Bischoff.

General Motors fell 4.2% to $2.95 after Goldman Sachs suspended its rating and said the ailing automaker needs at least $22 billion in federal aid.

Wal-Mart gained 4.4% to finish at $54.93, after moving between negative and positive territory throughout the session. Wal-Mart, the world's biggest retailer and a Dow component, reported a slightly better-than-expected rise in quarterly profit, but lowered its full-year outlook.

Trading was active on the NYSE, with about 1.99 billion shares changing hands, slightly above last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 3.01 billion shares traded, above last year's daily average of 2.17 billion.

Advancing stocks outnumbered declining ones on both the NYSE and the Nasdaq by a ratio of more than 2 to 1.

Sources: The Wall Street Journal, Reuters

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