    [Public Papers of the Presidents of the United States: George W. Bush (2008, Book II)]
    [November 13, 2008]
    [Pages 1364-1369]
    [From the U.S. Government Publishing Office www.gpo.gov]

     Remarks to the Manhattan Institute in New York City
     November 13, 2008

         Thank you very much. Please be seated. Thank you. Larry, thank you for the introduction. Thank you for
    giving Laura and me a chance to come to this
    historic hall to talk about a big issue facing the world. And today I
    appreciate you giving me a chance to come and for me to outline the
    steps that America and our partners are taking and are going to take to
    overcome this financial crisis.
        And I thank the Manhattan Institute for all you have done. I
    appreciate the fact that I am here in a fabulous city to give this
    speech. People say, ``Are you confident about our future?'' And the
    answer is, absolutely. And it's easy to be confident when you're in a
    city like New York City. After all, there is an unbelievable spirit in
    this city. This is the city whose skyline has offered immigrants their
    first glimpse of freedom. This is the city where people rallied when
    that freedom came under attack. This is the city whose capital markets
    have attracted investments from around the world and financed the dreams
    of entrepreneurs all across America. This is the city that has been and
    will always be the financial capital of the world.
        And I am grateful to be in the presence of two men who served ably
    and nobly

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    New York City, Mayor Koch and Mayor
    Giuliani. Thank you all for coming. Glad
    you're here. I thank the Manhattan Institute board of trustees and its
    chairman Paul Singer for doing good work,
    being a good policy center. And before I begin, I must say, I would hope
    that Ray Kelly would tell New York's finest
    how much I appreciate the incredible hospitality that we are always
    shown here in New York City. You're the head of a fabulous police force,
    and we thank you very much, sir.
        We live in a world in which our economies are interconnected.
    Prosperity and progress have reached farther than any time in our
    history. Unfortunately, as we have seen in recent months, financial
    turmoil anywhere in the world affects economies everywhere in the world.
    And so this weekend I'm going to host a summit on financial markets and
    the world economy with leaders from developed and developing nations
    that account for nearly 90 percent of the world economy. Leaders of the
    World Bank, the International Monetary Fund, the United Nations, and the
    Financial Stability Forum are going to be there as well. We'll have
    dinner at the White House tomorrow night, and we'll meet most of the day
    on Saturday.
        The leaders attending this weekend's meeting agree on a clear
    purpose: to address the current crisis and to lay the foundation for
    reforms that will help prevent a similar crisis in the future. We also
    agree that this undertaking is too large to be accomplished in a single
    session. The issues are too complex, the problem is too significant to
    try to solve or to come up with reasonable recommendations in just one
    meeting. So this summit will be the first of a series of meetings.
         It will focus on five key objectives: understanding the causes of
    the global crisis, reviewing the effectiveness of our responses thus
    far, developing principles for reforming our financial and regulatory
    systems, launching a specific action plan to implement those principles,
    and reaffirming our conviction that free market principles offer the
    surest path to lasting prosperity.
         First, we're working toward a common understanding of the causes
    behind the global crisis. Different countries will naturally bring
    different perspectives, but there are some points on which we can all
    agree.
         Over the past decade, the world experienced a period of strong
    economic growth. Nations accumulated huge amounts of savings and looked
    for safe places to invest them. Because of our attractive political,
    legal, and entrepreneurial climates, the United States and other
    developed nations received a large share of that money.
         The massive inflow of foreign capital, combined with low interest
    rates, produced a period of easy credit. And that easy credit especially
    affected the housing market. Flush with cash, many lenders issued
    mortgages, and many borrowers could not afford them. Financial
    institutions then purchased these loans, packaged them together, and
    converted them into complex securities designed to yield large returns.
    These securities were then purchased by investors and financial
    institutions in the United States and Europe and elsewhere, often with
    little analysis of their true underlying value.
         The financial crisis was ignited when the booming housing markets
    began to decline. As home values dropped, many borrowers defaulted on
    their mortgages, and institutions holding securities backed by those
    mortgages suffered serious losses. Because of outdated regulatory
    structures and poor risk management practices, many financial
    institutions in America and Europe were too highly leveraged. When
    capital ran short, many faced severe financial jeopardy. This led to
    high-profile failures of financial institutions in America and Europe,
    led to contractions and widespread anxiety, all of which contributed to
    sharp declines in the equity markets.
         These developments have placed a heavy burden on hard-working
    people around the world. Stock market drops have eroded the value of
    retirement accounts and pension

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    funds. The tightening of credit has made it harder for families to
    borrow money for cars or home improvements or education of the children.
    Businesses have found it harder to get loans to expand their operations
    and create jobs. Many nations have suffered job losses and have serious
    concerns about the worsening economy. Developing nations have been hit
    hard as nervous investors have withdrawn their capital.
         We are faced with the prospect of a global meltdown. And so we've
    responded with bold measures. I'm a market-oriented guy, but not when
    I'm faced with the prospect of a global meltdown. And at Saturday's
    summit, we're going to review the effectiveness of our actions.
         Here in the United States, we have taken unprecedented steps to
    boost liquidity, recapitalize financial institutions, guarantee most new
    debt issued by insured banks, and prevent the disorderly collapse of
    large, interconnected enterprises. These were historic actions taken
    necessary to make--necessary so that the economy would not melt down and
    affect millions of our fellow citizens.
         In Europe, governments are also purchasing equity in banks and
    providing government guarantees for loans. In Asia, nations like China
    and Japan and South Korea have lowered interest rates and have launched
    significant economic stimulus plans. In the Middle East, nations like
    Kuwait and the UAE have guaranteed deposits and opened up new government
    lending to banks.
         In addition, nations around the world have taken unprecedented
    joint measures. Last month, a number of central banks carried out a
    coordinated interest rate cut. The Federal Reserve is extending needed
    liquidity to central banks around the world. The IMF and World Bank are
    working to ensure that developing nations can weather this crisis.
         This crisis did not develop overnight, and it's not going to be
    solved overnight. But our actions are having an impact. Credit markets
    are beginning to thaw. Businesses are gaining access to essential short-
    term financing. A measure of stability is returning to financial systems
    here at home and around the world. It's going to require more time for
    these improvements to fully take hold, and there's going to be difficult
    days ahead. But the United States and our partner are taking the right
    steps to get through this crisis.
         In addition to addressing the current crisis, we will also need to
    make broader reforms to strengthen the global economy over the long
    term. This weekend, leaders will establish principles for adapting our
    financial systems to the realities of the 21st-century marketplace. We
    will discuss specific actions we can take to implement these principles.
    We will direct our finance ministers to work with other experts and
    report back to us with detailed recommendations on further reasonable
    actions.
         One vital principle of reform is that our nations must make our
    financial markets more transparent. For example, we should consider
    improving accounting rules for securities, so that investors around the
    world can understand the true value of the assets they purchase.
         Secondly, we must ensure that markets, firms, and financial
    products are properly regulated. For example, credit default swaps--
    financial products that insure against potential losses--should be
    processed through centralized clearinghouses instead of through
    unregulated, over-the-counter markets. By bringing greater stability to
    this large and important financial sector, we reduce the risk to our
    overall financial systems.
         Third, we must enhance the integrity of our financial markets. For
    example, authorities in every nation should take a fresh look at the
    rules governing market manipulation and fraud and ensure that investors
    are properly protected.
         Fourth, we must strengthen cooperation among the world's financial
    authorities. For

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    example, leading nations should better coordinate national laws and
    regulations. We should also reform international financial institutions
    such as the IMF and the World Bank, which are based largely on the
    economic order of 1944. To better reflect the realities of today's
    global economy, both the IMF and World Bank should modernize their
    governance structures. They should consider extending greater voter--
    voting power to dynamic developing nations, especially as they increase
    their contributions to these institutions. They should consider ways to
    streamline their executive boards and make them more representative.
         In addition, these important--to these management changes, we
    should move forward with other reforms to make the IMF and World Bank
    more transparent, accountable, and effective. For example, the IMF
    should agree to work more closely with member countries to ensure that
    their exchange rate policies are market oriented and fair. And the World
    Bank should ensure its development programs reflect the priorities of
    the people they are designed to serve and focus on measurable results.
         All these steps require decisive actions from governments around
    the world. At the same time, we must recognize that government
    intervention is not a cure-all. For example, some blame the crisis on
    insufficient regulation of the American mortgage market. But many
    European countries had much more extensive regulations and still
    experienced problems almost identical to our own.
         History has shown that the greater threat to economic prosperity is
    not too little government involvement in the market, it is too much
    government involvement in the market. We saw this in the case of Fannie
    Mae and Freddie Mac. Because these firms were chartered by the United
    States Congress, many believed they were backed by the full faith and
    credit of the United States Government. Investors put huge amounts of
    money into Fannie and Freddie, which they used to build up irresponsibly
    large portfolios of mortgage-backed securities. And when the housing
    market declined, these securities, of course, plummeted in value. It
    took a taxpayer-funded rescue to keep Fannie and Freddie from collapsing
    in a way that would have devastated the global financial system. And
    there is a clear lesson: Our aim should not be more government, it
    should be smarter government.
         All this leads to the most important principle that should guide
    our work. While reforms in the financial sector are essential, 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.
         This is a decisive moment for the global economy. In the wake of
    the financial crisis, voices from the left and right are equating the
    free enterprise system with greed and exploitation and failure. It's
    true this crisis includes failures by lenders and borrowers and by
    financial firms and by governments and independent regulators. 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 all across
    the globe.
         Like any other system designed by men, capitalism is not perfect.
    It can be subject to excesses and abuse. But it is by far the most
    efficient and just way of structuring an economy. At its most basic
    level, capitalism offers people the freedom to choose where they work
    and what they do, the opportunity to buy or sell products they want, and
    the dignity that comes with profiting from their talent and hard work.
    The free market system provides the incentives that lead to prosperity:
    the incentive to work, to innovate, to save, to invest wisely, and to
    create jobs for others. And as millions of people pursue these
    incentives together, whole societies benefit.

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         Free market capitalism is far more than economic theory. It is the
    engine of social mobility, the highway to the American Dream. It's what
    makes it possible for a husband and wife to start their own business or
    a new immigrant to open a restaurant or a single mom to go back to
    college and to build a better career. It is what allowed entrepreneurs
    in Silicon Valley to change the way the world sells products and
    searches for information. It's what transformed America from a rugged
    frontier to the greatest economic power in history, a nation that gave
    the world the steamboat and the airplane, the computer and the CAT scan,
    the Internet and the iPod.
         Ultimately, the best evidence for free market capitalism is its
    performance compared to other economic systems. Free markets allowed
    Japan, an island 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 into one of the most technologically advanced
    societies in the world. Free markets turned small areas like Singapore
    and Hong Kong and Taiwan into global economic players. 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 its--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 to go. And it would be a terrible mistake to
    allow a few months of crisis to undermine 60 years of success.
         Just as important as maintaining free markets within countries is
    maintaining the free movement of goods and services between countries.
    When nations open up their markets to trade and investment, their
    businesses and farmers and workers find new buyers for their products.
    Consumers benefit from more choices and better prices. Entrepreneurs can
    get their ideas off the ground with funding from anywhere in the world.
    Thanks in large part to open markets, the volume of global trade today
    is nearly 30 times greater than it was six decades ago, and some of the
    most dramatic gains have come in the developing world.
         As President, I have seen the transformative power of trade up
    close. I've been to a Caterpillar factory in East Peoria, Illinois,
    where thousands of good-paying American jobs are supported by exports.
    I've walked the grounds of a trade fair in Ghana, where I met women who
    support their families by exporting handmade dresses and jewelry. I've
    spoken with a farmer in Guatemala who decided to grow high-value crops
    he could sell overseas and helped create more than 1,000 jobs.
         Stories like these show why it is so important to keep markets open
    to trade and investment. This openness is especially urgent during times
    of economic strain. Shortly after the stock market crash in 1929,
    Congress passed the Smoot-Hawley Tariff, a protectionist measure
    designed to wall off America's economy from global competition. The
    result was not economic security, it was economic ruin. And leaders
    around the world must keep this example in mind and reject the
    temptation of protectionism.
         There are clear-cut ways for nations to demonstrate the commitment
    to open markets. The United States Congress has an immediate opportunity
    by approving free trade agreements with Colombia, Peru [Panama],* and
    South Korea. America and other wealthy nations must also ensure this
    crisis does not become an excuse to reverse

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    our engagement with the developing world. And developing nations should
    continue policies that foster enterprise and investment. As well, all
    nations should pledge to conclude a framework this year that leads to a
    successful Doha agreement.
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        *White House correction.
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         We're facing this challenge together, and we're going to get
    through it together. The United States is determined to show the way
    back to economic growth and prosperity. I know some may question whether
    America's leadership in the global economy will continue. The world can
    be confident that it will, because our markets are flexible, and we can
    rebound from setbacks. We saw that resilience in the 1940s, when America
    pulled itself out of Depression, marshaled a powerful army, and helped
    save the world from tyranny. We saw that resilience in the 1980s, when
    Americans overcame gas lines, turned stagflation into strong economic
    growth, and won the cold war. We saw that resilience after September the
    11th, 2001, when our Nation recovered from a brutal attack, revitalized
    our shaken economy, and rallied the forces of freedom in the great
    ideological struggle of the 21st century.
         The world will see the resilience of America once again. We will
    work with our partners to correct the problems in the global financial
    system. We will rebuild our economic strength, and we will continue to
    lead the world toward prosperity and peace.
         Thanks for coming, and God bless.

      Note:  The President spoke at 1:58 p.m. at the Federal Hall National
    Memorial. In his remarks, he referred to Lawrence J. Mone, president,
    Manhattan Institute; former Mayors Edward I. Koch and Rudolph W.
    Giuliani of New York City; and Raymond W. Kelly, commissioner, New York
    City Police Department. The Office of the Press Secretary also released
    a Spanish language transcript of these remarks.