R-e-g-u-l-a-t-i-o-n and o-v-e-r-s-i-g-h-t

Fortunately, there were plenty of grown-ups in the big room at Washington's National Building Museum yesterday. For days,  President Bush had taken every opportunity to wail that free markets (v. regulated markets) are his greatest wish, only to tell the media at the close of the G20 conference with his usual tenuous grasp on words and meaning:  "I'm a free market person until you're told that if you don't take decisive measures then it's conceivable that our country could go into a depression greater than the Great Depression." 

Bush is not only a lame duck but a world leader bleeding from self-inflicted wounds.

"The Europeans got 'virtually everything' they sought at the summit, French President Nicholas Sarkozy crowed afterward at a news conference. He said it had been difficult to persuade Bush to hold the summit, but the results were worth it. 'America is still the No. 1 power in the world,' he noted. 'Is it the only one? No, it isn't.'

"The leaders, representing the Group of 20 economic powers, Spain, the Netherlands, the United Nations and other international organizations, met over dinner at the White House on Friday. They then continued their discussions yesterday arrayed in a square in the central hall of the 19th-century National Building Museum, beneath soaring 159-foot high ceilings.

"'We are determined to enhance our cooperation and work together to restore global growth and achieve needed reforms in the world's financial systems,' the leaders declared in their communique."

So.  What have they agreed to?

"The leaders agreed to set up a new regulatory body, 'a college of supervisors,' to examine the books of major financial institutions that operate across national borders, so regulators could begin to have a more complete picture of banks' operations. They demanded greater scrutiny of hedge funds and the completion of a clearinghouse system to help standardize and limit risk on some of the opaque and exotic financial derivatives that helped bring down Wall Street's investment banks.

"Leaders also agreed to submit their countries' financial systems to regular, vigorous reviews by the International Monetary Fund -- assessments that some countries, including the United States, had long resisted. And they urged new constraints on the pay schemes at financial firms that 'reward excessive short-term returns or risk-taking.'"

It's a start.  Later, the IMF itself will be subject to reform. They will meet again in the spring with President Obama, whose support of the auto industry dismays foreign leaders, as it should. 

"Many sections in the communique may please Obama, but at least one pledge to which Bush agreed -- a 12-month hiatus on protectionist measures -- could be viewed as limiting his options."

That pledge has got to go.  Meanwhile, the blame for the scale of the financial crisis has been laid -- publicly and squarely -- on the US by the leaders, if not their communique.

"The communique minced no words in outlining the causes of the crisis, blaming 'weak underwriting standards, unsound risk-management practices, increasingly complex and opaque financial products and consequent excessive leverage.' While many nations have blamed the United States for failing to monitor excesses in the securities markets, the communique diplomatically did not.

"A British official, speaking on condition of anonymity because he was not authorized to speak publicly, said U.S officials privately acknowledged their role in the crisis. 'The U.S. threw up their hands and said that our subprime mortgage industry left a lot to be desired,' the official said. 'But there was determination not to have any finger-pointing."