Economic Crisis Hot Docs: U.S., Europe, Japan in Recession, Summit Could Be a Milestone

Ban Ki-moon: G-20 Summit Could Be a "Milestone": Developing countries are especially vulnerable to the worldwide economic crisis, warns U.N. Secretary General Ban Ki-moon, and the G-20 nations should resolve to "join forces to take immediate action to prevent the financial crisis from becoming a human tragedy." In an open letter to the nations participating in this weekend's financial summit, Ban reminds them that globalization has made national economies "interlinked" environmentally as well as economically. He notes that the G-20 discussion will be a good first step but reminds participants that "over 170 countries will not be present at the table." He calls for the United Nations to be the "anchor" of "a reinvigorated and inclusive multilateralism: one that is fair, flexible, and responsive" to the needs of all. He challenges participants to rise to the occasion: "If the world rises to the challenge, overcomes the immediate crisis, and builds a stronger multilateralism for the twenty-first century, this first meeting of leaders of the G-20 will be a milestone that will be remembered."

U.S., Europe, Japan in Recession: The American, European, and Japanese economies appear "to have entered recession" and face a "protracted downturn," according to the Organization for Economic Cooperation and Development. While stressing that "the uncertainties are large," the international group predicts a drop in GDP and a decline in inflation to continue in the near term. Meanwhile, it expects that the current "extreme financial stress" will be "short-lived" and a "gradual normalization" may begin after 2009. Further steps may be needed to stimulate the economy, though, such as tax cuts or regulations to avoid "excessive risk-taking."

Bush Speaks on Economy: Saying that "the United States is determined to show the way back to economic growth and prosperity," President Bush had strong words in support of free-market capitalism in advance of this weekend's G-20 meeting. In remarks at the Manhattan Institute, Bush said that he is "absolutely" confident about the country's future and called capitalism "the engine of social mobility." He said that the weekend meeting, which he said will be the first of a series, will examine the causes of and responses to the worldwide crisis. "Financial turmoil anywhere in the world affects economies everywhere in the world," Bush said, but the summit demonstrates that "we're facing this challenge together and we're going to get through it together."

Senate Banking Committee's Bailout Update: Saying that the financial companies that benefited from the Emergency Economic Stabilization Act have a responsibility to "act with appropriate restraint and purpose," the Senate Banking Committee checked up on how the $700 billion bailout package is being put to use. In view of continued home foreclosures, lavish corporate spending, and corporate acquisitions, committee Chair Christopher Dodd said that "it is reasonable for us to ask: Now that they have the money, what are they going to do with it?" He called upon the banks receiving relief funds to show "restraint and modesty" as they fulfill their "public obligation" to continue lending, prevent home foreclosures, and eschew inappropriately high executive compensation. Citing "a business environment where accountability has clearly been lacking," committee member Sen. Tim Johnson agreed and called for "punitive actions by firms and regulators if funds are misused." The committee heard testimony from economists and advocates as well as representatives from institutions like the Bank of America, JPMorgan Chase, and Goldman Sachs.

House Oversight Committee Looks at Hedge Funds: The House Oversight and Government Reform Committee continued its series of hearings probing the roots of the financial crisis, this week looking at one of the rare success stories in the current market: hedge funds. Committee Chair Henry Waxman noted that these funds are "growing rapidly and becoming increasingly important players in the financial markets." Hedge funds are "virtually unregulated" and are not required to report their holdings, but their worth is estimated to be about $2 trillion. Economists testified about whether hedge funds might have been a factor in the current meltdown, and if they could be vulnerable to future downturns. Waxman said that "we need to understand both what happened and what could happen to solve the immense economic problems we are facing."