Global Economic Summit

Washington Post Staff Writer Anthony Faiola was online on Friday, Nov. 14 at Noon ET to discuss what to expect from the meeting of world leaders in Washington this weekend on the global financial crisis. Officials expect to agree on a broad action plan, including setting up working groups on such issues as overhauling financial regulations.

Read today's story Global Deals in Works On Eve of G-20 Summit.

A transcript follows.

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Anthony Faiola: Thanks for joining us today on the eve of the global economic summit. Please come ahead with your questions and I'll do my best to answer them.

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Mt. Lebanon Pa.: With the world careening into a global recession, if not worse, who exactly.. is a reputable expert showing up at the World Economic Forum?

One that should be believed, that is?

If you're just going to quote the list of reactors on stage, don't bother. I'm talking about folks who look forward, not drive with their eyes glued to the rear view mirror.

Let's hear it for Davos! Where all the genii who correctly predicted this mess annually return like swallows to Capistrano. Or is it: domesticated doves?

Thanks much. HLB

Anthony Faiola: You raise an interesting point. But one reason this forum is bringing together voices from the emerging giants like China and Brazil along with the usual suspects is to try to get some fresh perspectives on the table for how to fix the mess we're in now. But maybe it Warren Buffet should be on that stage too, huh?

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Arlington, Va.: What do you think will be realistically accomplished at this one-day meeting?

Anthony Faiola: The goal is somewhat different for each nation; but in the short term, nations are looking for commitments to public spending in major countries around the world to fend off a recession - something that the Bush administration seems less eager to do. But there are also bigger themes; these countries want to see the groundwork laid for expanding international guidelines for everything from executive pay to how much cash a bank needs to keep on hand. But many of the countries differ on the scope and speed of how that should happen.

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Houston, Tex.: Hi, Anthony, This seems like yet another photo-op moment for our photo-op president, any thoughts?

Anthony Faiola: Hi right back at you Houston. You're right in the respect that there is a push by some nations, including the United States, to make sure the summit doesn't turn into some kind of redrafting of the global financial system. Others like the French are pushing for real change, real fast. It will be interesting to see if they can find common ground. But in the end, diplomatic communique is not likely to be that scintillating. They rarely are. But they could develop a road map leading to some significant changes in the weeks after the summit.

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Bowie, Md.: Is there going to be any discussion about the size and impact of bond and CDO defaults held by sovereign entities? China doesn't have to release quarterly financial statements showing how much they've lost in the bond market, like Citibank does. Is the loss of sovereign-held wealth an important issue here?

Anthony Faiola: Hello Bowie. The specifics you mention may be discussed in bilateral and other sideline meetings, but the main talks are likely to be far more general. They will try to get at issues you mention here - like the loss of sovereign-held wealth - indirectly and broadly.

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Jim, East Lansing, Mich.: Is anyone (either in the US or internationally) tracking who is having their debts being paid by AIG? We have heard reports that much of the debts were by people betting against (taking insurance out against) companies they did not hold bonds with. Do we know who or how many these people are? Is this the major source of debt that AIG has paid down?

Anthony Faiola: Let me try to answer that in the context of the summit. The network of exotic investments sold by AIG is in fact a subtext of what they're discussing here. AIG sold more than $300 billion in guarantees on those investments to the European banks, which then used those guarantees to pass off their risky investments as being less risky. It allowed those banks to hoodwink European regulators into letting them keep less cash on hand to cover the risk they were taking on. Now, the countries at the table are looking for more transparency. But again, not everyone agrees on how much transparency, and how quickly it should happen.

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Dallas, Tex.: To what extent is the U.S. responsible for the current global economic crisis/recession?

Anthony Faiola: Well, the sub-prime crisis that triggered this mess did start in the United States, so the Americans are seen as the originators of the problem, at least by most of the rest of the world. The exotic investments developed by Wall Street and built on the false values of those mortgages were then sold overseas. And those foreign firms that bought them are being hit hard because those investments are worth far, far less than most people ever imagined. That gets to the heart of what this summit is all about. How do you prevent this from happening again?

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Rockville, Md.: If I understand the rudiments of the federal bailout (i.e. the $700B), the premise is that the government can borrow the money cheaply, essentially guarantee prices of assets until their market price goes up again, and then re-capture the loan when the asset prices rise again.

The lynchpin of this is the government's ability to borrow cheaply.

Since the U.S. is in or near a recession, we're importing less, and hence our partners don't have as many dollars to buy our bonds with. Is the US trying to negotiate a way to keep the international players buying our bonds so government borrowing costs don't go up while we try to fund bailouts?

Anthony Faiola: Great question, Rockville. My understanding is that U.S. officials have been engaging the foreign buyers of U.S. bonds, particularly the Chinese, Japanese, and other nations with big reserves, to reassure them and ensure they keep buying. If we get a strong sign that they are turning away, that will be a major reason for concern.

The flip side of the coin is that many argue Americans have been living above their means on borrowed money, and that all the foreign cash coming into the States helped fueled the low interest rates and easy lending. If that foreign money starts to ebb, Americans will be forced to come back down to reality. Depending on your view, that could be good or bad.

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Evanston, Ill.: Given that Larry Summers presided over the explicit exemption of most derivatives from any regulation, shouldn't he be disqualified from future appointment? It's like the recent hiring of Bear Stearns chief "risk manager" by the Fed. Do we really want a fox guarding the hen house? I know we need people with the relevant expertise but these folks have proven records of incompetence.

Anthony Faiola: Thanks for your comment, posted here for all to see.

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Jan in Maryland: About the US's responsibility - we have always prided ourselves on our ability to innovate - well, we outdid ourselves this time. We may not have been the only players in this game, but we made up most of the rules (or lack of them).

Anthony Faiola: Thanks for your comment, Jan. The sentiment you've outlined here is something we've heard from the mouths of several leaders ahead of the conference, especially (and maybe not surprisingly) French President Nicholas Sarkozy. It's the rules that you're talking about here that the nations will be bucking heads over. There seems to be a consensus that things like global accounting standards and broader oversight of banks will help out in this department. Others want more radical change, but that's unlikely to happen this weekend, if ever.

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Central Massachussetts: Once economies start to recover, demand for oil will rise and presumably the cost as well. I would think that this might then slow the recovery. Will the summit deal with anything that might keep this in check?

Anthony Faiola: Commodity prices aren't likely to figure high on the agenda, but oil producing countries like Saudi Arabia are sitting at the table this weekend. That could potentially invite some discussion along these lines.

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Anthony Faiola: Thanks again for joining the chat today. We'll have lots more coverage of the summit throughout the weekend, so please keep reading and stay tuned!

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