World leaders confront global crisis

WASHINGTON (CNNMoney.com) -- World leaders convened Saturday for a second straight day hoping to tackle a financial crisis that has ricocheted across the globe and left the United States and other countries on the brink of deep recessions.

Their goal: to prevent a similar calamity from happening again.

The historic two-day summit meeting, which brought together prime ministers and presidents from Group of 20 countries, was in full swing Saturday following an extravagant working dinner at the White House.

"We had a good frank discussion last night," President Bush said. "There's some progress being made, but there's still a lot more work to be done."

The conference participants were aiming to figure out what caused the global crisis and assess government responses to it, Bush said Friday. The summit would also identify regulatory reforms and launch a "specific action plan" to implement them, he said.

"Billions of hardworking people are counting on us to strengthen our financial systems for the long term," he added.

Bush and fellow G-20 leaders are expected to issue a statement at about 3 p.m. ET on the findings of the summit.

Still, many experts anticipate that announcement to be light on specifics.

"I think it is going to be pretty vague," said Simon Johnson, a professor at the Sloan School of Management at the Massachusetts Institute of Technology and a former chief economist at the International Monetary Fund. "You could call it productive chaos."

In the days leading up to the summit, speculation abounded that leaders would accomplish little else but narrowing the focus for future talks - likely to be held in the first few months of 2009 after U.S. President-elect Barack Obama is sworn into office.

Obama is not attending this weekend's summit. He sent as emissaries former U.S. Secretary of State Madeleine Albright and Jim Leach, a former Republican congressman from Iowa.

Bush, who offered to host the meeting nearly a month ago, echoed those exact sentiments in remarks made earlier this week. The imminent change in power at the White House has led many to believe that could also hamper any progress.

Attendees of the summit include leaders from such nations as China, Brazil, Saudi Arabia and Japan.

A world of trouble

The pace of the world's financial problems - rooted in large part in the collapse of the U.S. housing market and the risky lending and borrowing that went along with it - have accelerated in recent weeks.

The Organization for Economic Cooperation and Development, an international group based in Paris, said this week that the gross domestic product for its 30 members was likely to fall by 0.3% in 2009.

Major indexes around the globe have fallen off a cliff over the last two months. The Russian stock market has lost 65.5% of its value since the start of the year. Stocks in Japan and the United States have been equally hard hit, falling 42% and 33%, respectively.

In Europe, the pain has been particularly acute. The European Union on Friday officially declared that the 15-nation group had entered into a recession, with its gross domestic product declining 0.2% for the second straight quarter.

And other countries have nearly collapsed under the weight the economic crisis.

In Iceland, where the government intervened to save the banking system from total failure, inflation is running at a painful 12.1% while economic growth has nearly flatlined.

Hoping to halt the contagion, central bankers and government officials have taken unprecedented steps in recent weeks.

Britain, France and the United States have bought ownership stakes in banks and pumped them full of capital in the hopes of unlocking frozen credit markets. Earlier this week, China unveiled a massive, $585 billion economic stimulus package to try to keep its once red-hot economy moving forward.

Remembering Bretton Woods

With the crisis showing no signs of abating, several leaders have been trying to advance an agenda for the talks, which some observers have referred to as "Bretton Woods II" - a nod to a similar global economic summit held in July 1944 to reverse some of the painful trade and foreign exchange policies enacted in the wake of the Great Depression.

There have been calls, for example, to create a global accounting standard to replace the current mark-to-market standard, which some have blamed for the billions of dollars of losses suffered by banks.

Credit rating agencies and hedge funds have also become a target. French President Nicholas Sarkozy, who has embraced a hard-line approach toward regulation, has publicly said he is in favor of greater oversight of both industries.

And there has also been speculation that additional countries could enact economic stimulus packages of their own in the wake of the talks.

One underlying fear that President Bush attempted to address in recent days, including in an op-ed piece he wrote in Saturday's edition of The Wall Street Journal, is rising protectionism.

There is concern that some countries could levy harsh tariffs on imports to prop up their ailing economies, or that some governments could try to restrict capital flows, which spelled disaster for many emerging economies as the crisis gained momentum.

But what is expected to remain front and center is the subject of regulation and how to best modernize the global financial system for the 21st century.

One approach could involve granting greater powers to the Financial Stability Forum, which represents central bankers and regulators, or the International Monetary Fund, which has played a large role in recent weeks helping to bail out struggling countries.

Another possibility could involve the creation of a college of regulatory supervisors that would exchange notes about some of the trends and risks they are seeing within their own borders.

But few are expecting answers to those questions anytime soon. "That sort of thing takes a while to figure out," said Johnson