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DUBAI, United Arab Emirates

Business leaders gathered in Dubai on Saturday warned the world to brace for even more painful economic times ahead, but said the victory of U.S. President-elect Barack Obama offers hope for fresh leadership at a crucial time for the global economy.

The financial crisis that began with bad U.S. home loans is now moving from the banking sector into wide swaths of the global economy -- costing millions of jobs, forcing working families to cut back and driving once-mighty companies into bankruptcy.

The U.S. government said Friday the country's unemployment rate shot to 6.5 percent, its highest level in 14 years. Jobless rates are rising elsewhere too: The U.N. labor agency said last month that world unemployment will hit 210 million people by the end of next year, its highest rate in the past decade.

How deeply the global downturn will cut remains uncertain, participants at a regional meeting of the World Economic Forum in Dubai said Saturday. While they called for calm, they also acknowledged there is cause for concern.

"We will be telling our children and our grandchildren about this crisis," said Mohamed El-Erian, co-chief executive of Pacific Investment Management Co., the Newport Beach, Calif.-based investment firm better known as PIMCO. "You cannot turn off the fuel of this crisis easily."

Consumers in the U.S., for example, are facing the triple whammy of tougher access to credit, rising joblessness and falling home and investment values, El-Erian said.

Cleaning up the fallout will take both time and sacrifice, participants here said.

"It's going to be really tough," El-Erian said. "You now have to save even more for retirement. This is a tough time, and it's important that expectations be formulated accordingly."

The need to recalibrate spending and expectations was a theme sounded by others as well.

Howard Davies, director of the London School of Economics and Political Science, said residents of countries like the U.S. and the UK have no alternative but to increase savings and reduce household debt.

And, he said, homeowners and individual investors need to accept that a big chunk of the nest eggs they had amassed on paper is likely gone forever.

"People are going to have to recognize the wealth hit and be prepared to move on from that," he said.

The economic slump is not just affecting Western countries.

Soud Ba'alawy, executive chairman of investment firm Dubai Group, said "each and every business is going to be challenged." He predicted annual growth in the booming Gulf could slow to as low as 2 to 3 percent, from 6 to 8 percent previously.

Business leaders were hopeful, though, that the future Obama administration will bring a renewed willingness by the world's largest single-nation economy to work with other countries to fix the global economy.

"You now have a golden opportunity for leadership at a time when leadership is needed both domestically and internationally," El-Erian said.

U.S. Jobs Even Weaker Than Feared

American non-farm payrolls declined more than expected in October.

Europe Slides On U.S. Jobs Data

European equities dropped as data showed unemployment in the world's largest economy had spiked in October.

Sovereign Funds' $2 Trillion Setback

The blistering pace of growth for state-backed funds is slowing, and they will invest less in advanced economies in the coming years.

South Korean Rates: A Snip Follows A Slash

The Korean central bank cuts rate again, but not as much as before.

Hedge Fund Exit Strategies

Investors need to know their options for getting their money back, especially when the market swoons.

IMF: Global Growth Sloooows

International Monetary Fund says world growth will slow to 2.2% next year while advanced economies will shrink.

Sen. Barack Obama, so steady in public, did not hide his vexation when he summoned his top advisers to meet with him in Chicago on Sept. 14.

The troubles sound familiar. Borrowers falling behind on their payments. Defaults rising. Huge swaths of loans souring. Investors getting burned. But forget the now-familiar tales of mortgages gone bad. The next horror for beaten-down financial firms is the $950 billion worth of outstanding credit-card debt—much of it toxic.

That's bad news for players like JPMorgan Chase (JPM) and Bank of America (BAC) that have largely sidestepped—and even benefited from—the mortgage mess but have major credit-card operations. They're hardly alone. The consumer debt bomb is already beginning to spray shrapnel throughout the financial markets, further weakening the U.S. economy. "The next meltdown will be in credit cards," says Gregory Larkin, senior analyst at research firm Innovest Strategic Value Advisors. Adds William Black, senior vice-president of Moody's Investors Service's structured finance team: "We still haven't hit the post-recessionary peaks [in credit-card losses], so things will get worse before they get better." What's more, the U.S. Treasury Dept.'s $700 billion mortgage bailout won't be a lifeline for credit-card issuers.

The big firms say they're prepared for the storm. Early last year JPMorgan started reaching out to troubled borrowers, setting up payment programs and making other adjustments to accounts. "We have seen higher credit-card losses," acknowledges JPMorgan spokeswoman Tanya M. Madison. "We are concerned about [it] but believe we are taking the right steps to help our customers and manage our risk."

But some banks and credit-card companies may be exacerbating their problems. To boost profits and get ahead of coming regulation, they're hiking interest rates. But that's making it harder for consumers to keep up. That'll only make tomorrow's pain worse. Innovest estimates that credit-card issuers will take a $41 billion hit from rotten debt this year and a $96 billion blow in 2009.

Those losses, in turn, will wend their way through the $365 billion market for securities backed by credit-card debt. As with mortgages, banks bundle groups of so-called credit-card receivables, essentially consumers' outstanding balances, and sell them to big investors such as hedge funds and pension funds. Big issuers offload roughly 70% of their credit-card debt.

But it's getting harder for banks to find buyers for that debt. Interest rates have been rising on credit-card securities, a sign that investor appetite is waning. To help entice buyers, credit-card companies are having to put up more money as collateral, a guarantee in case something goes wrong with the securities. Mortgage lenders, in sharp contrast, typically aren't asked to do this—at least not yet. With consumers so shaky, now isn't a good time to put more skin in the game. "Costs will go up for issuers," warns Dennis Moroney of the consultancy Tower Group.

Sure, the credit-card market is just a fraction of the $11.9 trillion mortgage market. But sometimes the losses can be more painful. That's because most credit-card debt is unsecured, meaning consumers don't have to make down payments when opening up their accounts. If they stop making monthly payments and the account goes bad, there are no underlying assets for credit-card companies to recoup. With mortgages, in contrast, some banks are protected both by down payments and by the ability to recover at least some of the money by selling the property.

THE BIG BOYS' BURDEN

Making matters worse, the subprime threat is also greater in credit-card land. Risky borrowers with low credit scores account for roughly 30% of outstanding credit-card debt, compared with 11% of mortgage debt. More than 45% of Washington Mutual's credit-card portfolio is subprime, according to Innovest. That could become a headache for JPMorgan Chase, which agreed on Sept. 25 to buy the troubled thrift's credit-card business and other assets for $1.9 billion. Says a JPMorgan spokeswoman: "

Financial Crisis Tests Limits of E.U. Unity

PARIS, Oct. 9 -- Three weeks ago, as the Bush administration struggled to salvage collapsing U.S. investment banks, European leaders calmly reassured their people. Banks on this side of the Atlantic are more wisely regulated, they said, and unlikely to succumb to the chaos on Wall Street.

That was then.

The continent has in the intervening 20 days awakened to discover that its financial system is so interwoven with that of the United States and the rest of the world -- and so vulnerable to shaky assets -- that the virus in New York swiftly spread through the European banking network. In so doing, it revealed that Europe's leaders face challenges just as difficult as those bedeviling Washington and exposed the limits of the European Union's much-heralded economic integration.

But European leaders, with a tradition of state intervention lacking in the United States, responded forcefully outside the E.U. umbrella once they realized the depth of the crisis, bailing out banks, pumping hundreds of billions of dollars into the financial system and declaring publicly that no big financial institution would fail on their watch. Many people here feel they moved more swiftly than their counterparts in Washington. Jean-Claude Trichet, president of the European Central Bank, for example, said Europe had nothing to be ashamed of in its response to the crisis.

As they are increasingly pushed against the wall, some European leaders have begun to say out loud what many seem to have been thinking all along: that the original fault lies with the Bush administration and a hands-off, free-market dogma that led it to stand aside when the venerable Lehman Brothers investment house started to crumble.

"From my point of view, that was a true mistake," French Finance Minister Christine Lagarde said in a radio interview. "You knock over a domino," she added, "and the rest runs the risk of falling, as well." According to reports in Paris, President Nicolas Sarkozy has told associates he feels the same way but has refrained from saying so in public as he seeks to enlist President Bush for a summit to rewrite the rules of world finance.

If Lagarde or Sarkozy recognized at the time that the Lehman Brothers demise was the beginning of catastrophe, they did not sound the alarm. Neither did anyone else among leaders of the 27-nation E.U. "Well, they are human, too," said Katinka Barysch, deputy director of the Center for European Reform in London. "Nobody foresaw this."

One of the first European rescues targeted the giant Fortis group, in a joint operation by the governments of Belgium, the Netherlands and Luxembourg over the weekend of Sept. 27-28. Hardly was that fire put out when Paris and Brussels had to negotiate a bailout of Dexia, a Franco-Belgian bank specializing in lending to local governments, and Germany was forced to salvage its floundering Hypo Real Estate Group. Even Spain, whose banks were thought to be the firmest of all, announced Tuesday that government funds would be used to help liquidity.

The Dexia collapse illustrated two key aspects of Europe's financial turmoil.

First, it got in trouble through a New York subsidiary, Financial Security Assurance, a bond insurance firm that got stung in the U.S. subprime meltdown. Sarkozy was reported to be astounded to learn that what he knew as a wood-paneled institution for local financing in Europe was also a high-risk trader on Wall Street.

Second, Sarkozy and Belgian Prime Minister Yves Leterme made it clear in the bailout talks that their governments would not allow banks under their purview to fail, putting public money on the table at the outset. Similar pledges came from Finance Minister Peer Steinbrueck in Germany and Prime Minister Silvio Berlusconi in Italy. There would, they said in effect, be no Lehman Brothers cases in Europe.

By then, the facile claims that European banks were too well regulated to have any real trouble were long gone. French Prime Minister François Fillon warned that the continent had stood on "the edge of an abyss" until its leaders stepped up to guarantee against the spread of bank failures.

PARIS, Oct 4 (Reuters) - European leaders vowed after crisis talks on Saturday to do all they could to fend off the financial mayhem that snowballed out of Wall Street and is now hitting banks in Europe.

They made statements of principle rather than proposing new concrete measures to deal with the worst financial crisis since the 1930s.

"We jointly commit to ensure the soundness and stability of our banking and financial system and will take all the necessary measures to achieve this objective," said a joint statement issued from the meeting in Paris.

French President Nicolas Sarkozy, host, said that he and the leaders of Germany, Britain and Italy had agreed governments needed to act in a coordinated manner.

But he said he had never gone as far as to propose a pan-European crisis fund for banks -- something Berlin had balked at when talk of it surfaced a few days ago.

"We have taken a solemn undertaking as heads of states and government to support the banks and financial institutions in the face of this crisis," he told a joint news conference held with other leaders. German Chancellor Angela Merkel, keen not to become bankroller-in-chief as governments seek a joint response to the worst crisis since the 1930s, said those who caused the trouble must be made to help sort it out.

She stuck to that basic message at the news conference where leaders took turns to stress the need to restore confidence and work with other countries on short- and long-term strategy.

Sarkozy invited the three other leaders to the meeting in the hope of showing unity to restore confidence in the banking sector and an economy on the brink of recession in much of the developed world.

British Prime minister Gordon Brown said no sound and solvent bank would be allowed to fail for lack of liquidity and repeated the point at the news conference.

"We will continue to do whatever is necessary," he said.

The summit follows approval on Friday by the U.S. Congress of a $700-billion bank bailout plan to tackle a crisis sparked by a housing market collapse and a surge in bad mortgage debt.

"My administration will move as quickly as possible, but the benefits of this package will not all be felt immediately," U.S. President George W. Bush said in a radio address.

The fall-out from the crisis has redrawn the banking landscape on both sides of the Atlantic, paralysed wholesale money markets and caused huge volatility on stock markets.

As the leaders spoke, Belgium and Luxembourg were racing to find a buyer for what remained of bank and insurance group Fortis after the Netherlands government nationalised the bulk of the troubled Benelux outfit's Dutch businesses in a rush operation on Friday.

Officials said emergency meetings were taking place in Belgium about the rump left after the 16.8 billion euro nationalisation by the Dutch, which took place less than a week after a first rescue attempt in which the three governments injected 11.2 billion euros ($15.4 billion).

Luxembourg's economy minister said French bank BNP Paribas (other-otc: BNPQY.PK - news - people ) was one possible bidder for parts of Fortis and a solution had to be found by the end of the weekend.

IRISH PRECEDENT

The leaders in Paris highlighted several issues that needed to be addressed at a broader level, including a meeting of euro zone and EU finance ministers on Monday and Tuesday and, as soon as possible, a meeting of leaders of the G8 group of developed economic powers.

Among them was a call for restraints on executive pay and a pledge to work in the weeks ahead on the question of bank deposit insurance.

That is likely to focus on whether governments across the European Union should raise bank deposit protection levels to restore confidence.

Ireland annoyed some this week by promising to guarantee all bank deposits, a move that prompted some depositors in Britain to move savings to branches of Irish banks. In other countries, the protection level can be as low as 20,000 euros.

Merkel said that the European Central Bank and European Commission had been asked to discuss the matter with Dublin.

The four countries at the Paris summit are the four largest in Europe and also members of the G7 and G8 clubs of major industrial powers.

The G7 includes the United States, Japan and Canada as well and the G8 includes Russia as well.

European Central Bank President Jean-Claude Trichet and Jean-Claude Juncker, chairman and spokesman for the finance ministers of the euro currency zone, also attended the Paris summit, as did European Commission chief Jose Manuel Barroso.

The $700 billion bail-out approved by the U.S. Congress is earmarked to buy up assets that turned toxic when the U.S. housing market and sub-prime mortgage market collapsed.

Stocks, which had been higher before the vote, dropped, with the S&P 500 index closing at its lowest level in almost four years as investors focused less on recession risk rather than the hope of relief.

(Writing by Brian Love; Editing by Richard Balmforth) (reporting by Iain Rogers in Berlin, Matt Falloon in London, Philip Blenkinsop in Brussels, Michele Sinner in Luxembourg, Ilona Wissenbach, Tamora Vidaillet, Crispian Balmer in Paris)