Gordon Brown Appeals to Un for Financial Regulation Body

Gordon Brown appealed for world leaders to back the idea of an international supervisory body to bring order to the chaotic markets in a speech to the UN general assembly in New York yesterday.

He made his appeal, part of a long campaign to win support for more effective regulation of global capitalism, before heading to the political turmoil of Washington and a hastily arranged meeting with the US president, George Bush.

Bush yesterday failed to win Congressional support for his $700bn treasury bail-out package and, before meeting Brown, was today desperately phoning senior Republicans in Congress to urge them not to push an alternative package that might delay agreement on the bail-out and send the markets into a frenzy of selling.

Brown will be delighted at his access to the president just as Washington becomes the epicenter of the financial storm, as it will help build his image as the key deal maker with experience in crisis management.

But both Brown and Bush will be desperately worried by the initial reaction of the markets to the failure of US Congressmen to reach agreement on the bailout promoted by the US treasury secretary, Henry Paulson.

Brown is in principle supporting the plan to buy the so-called toxic assets without endorsing controversial details, such as whether there should also be a cap on executive compensation or tighter Congressional oversight of the package's costs.

Some Republicans are busy promoting an alternative package based on a government-sponsored insurance scheme for mortgage-backed securities, which they believe would require less use of less taxpayers' money.

In New York, Brown has won political support for his long-term solutions from the European commission president, Jos? Barroso, and the Australian prime minister, Kevin Rudd.

In a speech to the UN after seeing Brown, Rudd backed the idea of tighter international regulation based in the IMF and said he would push the scheme at the G20 forum.

The scheme is being promoted in greater detail by the Financial Stability Forum, comprising treasuries, central banks and supervisors in the big financial centers.

Rudd said the big firms should be required to build up capital during good economic periods and the licensing of large firms should be conditional on the disclosure of company figures.

"The global financial crisis is a call for the global community to act," Rudd said.

The Americans are aware the internal regulatory structure is outdated, and the US treasury put forward proposals for internal reform in March last year, but they have not yet embraced Brown's heavy faith in a new international forum.

As an incumbent, and in some ways architect of the British supervisory structure, Brown is aware he could suffer a political backlash if blame for the crisis sticks to him, rather than the lack of regulatory oversight in the US.

As Britain starts to reap the whirlwind in the crisis, Brown insists he has never been a defender of the status quo but always been an active, but thwarted reformer.

In an ominous sign at the weekend, the German chancellor Angela Merkel disagreed and singled out the US and Britain for resisting her proposals for tighter regulation of hedge funds and credit rating agencies during her presidency of the G8 group of industrialized nations two years ago.

"We got things moving, but we didn't get enough support, especially in the United States and Britain," Merkel said on Saturday. Her remarks are an embarrassment to Brown, and reflect a determination in some European capitals to attack Anglo-Saxon principles of capitalism.

Merkel expanded on her point in a speech in Austria, suggesting both Washington and London were only now coming around to her view.

"It was said for a long time 'let the markets take care of themselves' and that there is 'no need for more transparency'.

"Today we are a step further because even America and Britain are saying 'Yes, we need more transparency, we need better standards for the ratings agencies'."

The German finance minister, Peer Steinbrueck, also on Wall Street this week, said he detected a new mood ensure to more transparency on international finance markets and, secondly, to demonstrate more sensitivity to risk.

The French president, Nicholas Sarkozy, in language more reminiscent of the Labour left at its Manchester conference, claimed laissez-faire capitalism is dead, and called for executives to be fined criminally for their irresponsible actions in creating junk assets based on the newspaper.

He also wants the world's major industrial powers to convene at a special summit before the end of the year and start to construct, from scratch, a new financial and monetary framework, which would replace the US-dominated system set up at Bretton Woods in 1944.

Brown has spoken to Sarkozy on this but would prefer to work through the IMF and G7 finance ministers, both due to meet in Washington next month.

But Sarkozy is building to make the crisis a wider struggle between Euope and the US, a struggle in which Britain could be caught as an awkward bridge, as it was during the Iraq war.

Sarkozy has warned the US-inspired lack of regulation in recent years, he added, "was a folly whose price is being paid today".

"Self-regulation to solve all problems, it's finished," Sarkozy said. "Laissez-faire, it's finished. The all-powerful market that is always right, it's finished."