[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.