The Irish Independent reports that financial markets are expected to open nervously this morning as they digest the detail of the weekend's G20 summit.

Investors will be bracing themselves for another week of jittery trading and will be watching carefully to see how Asia reacts to the main proposals put forward at the summit.

However, many analysts believe that a lack of any specific pledges to stimulate growth may disappoint some investors.

"This isn't a strong action statement on addressing the matters at hand," said Carl Weinberg, chief economist at High Frequency Economics Ltd in New York.

Markets may be vulnerable after the weekend meeting because there was no clear pledge for coordinated tax and interest-rate cuts, he said.

Leaders from the biggest developed and emerging nations agreed to further steps to shore up a global economy sliding into recession, and laid out regulatory proposals to prevent a recurrence of the financial crisis.

The Group of 20 urged a "broader policy response", citing the potential for additional interest-rate cuts and fiscal stimulus, in a statement after meeting in Washington.

The group set a March deadline for recommendations on strengthening accounting standards, derivatives markets and oversight of hedge funds and debt-rating companies.

But rather than take the same steps together, nations should act "as deemed appropriate to domestic conditions", the leaders said in a statement after the event.

The group pledged not to erect new trade barriers, guaranteed more resources for the International Monetary Fund, if needed, and promised to meet again before May.

"There was a common understanding that all of us should promote a pro-growth economic policy,"US President George W Bush said.

UK Prime Minister Gordon Brown said:"There is a clear determination on the part of world leaders in every continent to take necessary action to move economies out of this difficult period."

The statement from the summit papered over differences by recognising that regulation is "first and foremost" a national responsibility, while at the same time demanding "intensified international cooperation" to oversee financial firms whose operations and problems cross national borders.

Risk-taking

The leaders called for the creation of "supervisory colleges" for bank regulators around the world to better to coordinate oversight and share information about activities and risk-taking of international banks.

Capital standards should be raised, they said, particularly for banks' structured credit and securitisation activities.

The leaders directed their finance ministers to work on recommendations for enhancing disclosure by investors and institutions, including hedge funds, of their financial conditions.

Debt-rating companies, which blessed many of the products that have since gone into default, should be registered, and oversight of their actions strengthened to ensure they provide unbiased information and avoid conflicts of interest, the leaders said.

They also said executive compensation should be managed to "avoid excessive risk-taking", while stopping short of calling for any caps.

Warning against protectionism as a way to fight recession, the G20 vowed not to raise any trade barriers for the next year.

They added that they will seek ways to conclude the Doha round of trade talks that collapsed in July.

The Irish Independent also reports that one of the country's leading economists has said the Irish economy will experience outright deflation in 2009 for the first time since 1946.

Delivering his quarterly economic outlook yesterday, Ulster Bank's chief economist Pat McArdle said a projected 0.5pc fall in the CPI reflected a significant drop in mortgage inflation as the ECB rate cuts feed through in addition to further falls in energy and food prices.

"All else equal, this dramatic fall-off in prices, which is a positive for disposable incomes, should bolster consumer spending -- but all else is not equal,"he warned. The real question is will consumers spend or save their extra disposable income?

"Our understanding is that they will save it because they are so nervous at present, and this won't generate any extra activity in the economy," he said.

Recession

Anticipating a two-year recession, his forecast that GNP will fall by 4pc in 2009 is not the most pessimistic around -- Goodbody Stockbrokers are seeing a 4.5pc contraction next year.

The timing and the extent of the recovery, he said, would be subject to considerable uncertainty, but he sees GNP rising modestly in 2010, by 0.3pc.

Mr McArdle criticised the Government for failing to communicate the seriousness of the fiscal situation, blurring it by the complexity of the Budget day decisions, and by yielding to public pressure for changes.

"The revised tax estimates for 2008 are still too optimistic in the context of the dramatic slowdown that has occurred."

He added that a combination of the further deterioration in 2008 and the weaker economy in 2009 was likely to see next year's budget deficit rising to €14.5bn, or 8pc of GDP, as compared with the official 6.5pc forecast. Only a modest improvement, to 7.3pc was envisaged for 2010, he said.

"The choices are stark. Either the deficit is allowed rise or further very substantial cutbacks/tax rises will be required. Either way, there is simply no room for fiscal easing packages of the type being recommended by some economists,"he said.

He predicted that unemployment would average 8.5pc in 2009, the highest rate since 1997, adding that there would be 85,000 job losses next year.

"We believe that the Budget figures entail public sector job losses of the order of 11,000, as the Government attempts to curb spending on pay,"he said.

The Irish Times reports that the European Commission will press for the most flexible possible implementation of euro-zone budget rules after world leaders agreed in Washington to a set of measures aimed at boosting economic growth.

Speaking after the Group of 20 (G20) summit at the weekend, Commission president José Manuel Barroso said that although the Stability and Growth Pact had to be respected, increasing economic growth was a vital European interest.

"Our understanding is that it allows for sufficient flexibility in exceptional circumstances, and we are living in exceptional circumstances," he said.

The move could give the Government more breathing space over its spending, after the commission took action against Ireland earlier this month over its rising budget deficit.

Under the pact, EU states are required to keep their budget deficit to gross domestic product ratio below a 3 per cent limit. Ireland's deficit is expected to hit 5.5 per cent this year and 6.5 per cent in 2009, something which could lead to heavy fines under EU rules.

The G20 leaders, who included representatives from China, India, Brazil, Saudi Arabia and South Africa as well as the US and the EU, agreed an action plan to address the financial and economic crisis.

They agreed to improve oversight of financial markets, to co-ordinate regulation through a new "college of supervisors" and to reform the International Monetary Fund and the World Bank so that emerging economies would be better represented.

"Against this background of deteriorating economic conditions worldwide, we agreed that a broader policy response is needed, based on closer macro-economic co-operation, to restore growth, avoid negative spillovers and support emerging market economies and developing countries,"the leaders said in their closing statement.

European leaders expressed satisfaction that the summit had agreed to improve the regulation of credit rating agencies and hedge funds and to consider measures to curb excessive pay for risk-taking executives in financial institutions.

"It is historic to have here in the United States an American administration - where Republicans and Democrats have refused to move on issues such as these - to have agreed to a shift,"said French president Nicolas Sarkozy.

Mr Barroso agreed that the summit reflected an international consensus which was moving behind principles that have long been favoured within the EU, including the importance of regulating markets and the value of international economic co-operation.

US president George W Bush insisted, however, that the leaders had also reaffirmed their faith in free market principles, noting that the surest path to . . . growth was "free market capitalism".The next summit will be on April 30th.

The Irish Times also reports that the Government is expected to introduce a further series of measures in the next two weeks to deal with the economic crisis, including a 3 per cent levy on incomes over €250,000.

A special committee to review public expenditure, particularly civil service staffing levels, is also planned.

The Finance Bill, which goes before the Cabinet tomorrow and is presented to the Dáil on Thursday, includes a number of adjustments to proposals made in the Budget on October 14th.

Subject to Cabinet approval, these will include a levy of 3 per cent on gross income over €250,000 a year. The Government had already decided, after consultations with the trade unions, to exempt those earning less than the minimum wage of €17,542 from the income levy introduced in the Budget.

The 3 per cent imposition on the higher-income group is expected to generate €60 million in revenue, which the Government says is equivalent to the amount that would have been collected if the levy on the lower-income group had been maintained.

On that basis, the Government insists it has not made a U-turn and sources said this type of adjustment was normal between the Budget and the Finance Bill.

At present there is a levy of 1 per cent on income up to €100,000, increasing to 2 per cent above that. The levy across the different pay levels is expected to bring in over €800 million.

Other proposals in the Finance Bill include an increase in Capital Acquisitions Tax, covering inheritance and gifts, which is expected to go up to 22 per cent.

The Government is also fine-tuning its proposal for a €10 tax on airline passengers. Whereas Dublin airport was initially expected to pay less than airports outside the capital, it is now understood the Finance Bill will ensure there is equity.

The Government-appointed taskforce on public sector reform is to issue its report on November 26th. At the same time, a review group will be established to scrutinise public service expenditure.

Taskforce recommendations will include: a review of staffing right across the public service in order to ascertain which posts are surplus to requirements; measures to facilitate greater redeployment of staff; and fresh efforts to generate savings by sharing services such as salary payments and human resources between sectors.

The taskforce report will set the scene for the expenditure review group to carry out its work. This is expected to lead to voluntary redundancies.

The Cabinet is also expected to consider proposals in the next week or two from Minister for Transport Noel Dempsey for an increase of up to 10 per cent in public transport fares. The Government has ruled out a 20 per cent increase.

Meanwhile, Labour's finance spokeswoman Joan Burton pointed out that the Government gave 20 times more in tax relief in 2006 to property-based schemes, at €464.4 million, than to schemes for the promotion of small and medium-sized enterprises, at €22.6 million. "We need to shift the balance of advantage within the tax code . . . towards high-risk, high-tech investment," she said.

The Irish Examiner reports that the eurozone’s economy is unlikely to show a significant recovery in coming quarters after falling into recession between April and September, European Central Bank executive board member Lorenzo Bini Smaghi said over the weekend.

“We have another two or three difficult quarters ahead of us,” Mr Bini Smaghi said.

Data on Friday showed eurozone GDP shrank by 0.2% in the third quarter.

The Financial Times reports that as lawmakers in Washington ponder a possible bail-out for Detroit’s automakers, the growing problems besetting Europe’s car industry are moving up the political agenda.

After receiving an initially frosty reception from Brussels, industry executives are gaining confidence that a credit programme worth up to €40bn ($50bn, £34bn),  supported by the European Investment Bank, could soon be forthcoming.

Details of the EIB package – a response to America’s $25bn loan for the US industry – could emerge as early as next week, when the European Commission is expected to make a series of proposals to bolster struggling industries in the face of the economic slowdown.

Carmakers are also urging short-term measures, such as offering incentives for drivers who trade in older vehicles, to stimulate collapsing volumes in the industry. Car sales fell by 15.5 per cent in western Europe last month.

The German government will hold talks this week over possible state guarantees for German carmaker Opel, amid a fierce political debate over state aid for the entire car industry.

Angela Merkel, the German chancellor, will today meet top executives from Adam Opel and its owner General Motors to discuss loan guarantees to protect Opel’s business from GM’s worsening finances.

Germany’s cabinet last week moved to suspend taxes on new cars bought over the next six months for up to two years in the case of low-emission models.

The tax breaks are part of Germany’s €12bn, two-year package of growth-boosting measures to prop up the slowing economy. Carmaking was the only industry to be singled out for aid.

Germany’s move to help the car sector comes despite warnings from its own experts. Academics who advise the cabinet on economic policy criticised the measure as “industrial policy, not economic policy”.

In Britain, Europe’s second-largest car market, automakers are urging Gordon Brown’s government to suspend rises announced earlier this year in vehicle excise duty. In France, President Nicholas Sarkozy has said he would mobilise €400m of public money for research and development of low-emission cars.

However, it was unclear whether the money represented new spending or funds previously approved.

Unlike Detroit’s three loss-making carmakers, which face a cash crisis that threatens their solvency, Europe’s industry is not in immediate threat of collapse.

But carmakers are beginning to lay off workers and make plants idle in response to their worst business conditions since the early 1990s.

As in the US, carmakers have used arguments about their economic weight to lobby for support. In Germany, one in seven of the workforce is directly or indirectly employed by the sector, and PSA Peugeot Citroën and Renault are two of France’s biggest exporters.

The US carmakers, which have large European operations, have led some of the most urgent calls for help.

GM’s German Opel brand and Ford recently wrote to Ms Merkel outlining the risks facing the industry.

Carl-Peter Forster, head of GM Europe, called for a cut in taxes paid on new cars, low-interest credits for buyers of cleaner vehicles and incentives for trading in older cars.

“Scrapping incentives” have in the past stimulated car sales in countries that introduced them, including Spain and Italy.

By encouraging drivers to buy more fuel-efficient, lower-emission cars, “scrapping incentives” could provide political cover to some European diplomats, who would prefer to sell any aid to carmakers as environmental programmes as opposed to corporate welfare.

The €40bn credit line, like the US package, will be tied to investments in building lower-emission cars. But aiding the industry is by no means universal in the European Union, especially among smaller countries with no car companies or plants on their territory.

Some member states harbour concerns that the package might encourage other protectionist measures under the guise of managing the crisis. As such, they are keen for any assistance to automakers to come as part of a broader programme for industry.

Carmakers complained their interests were short-changed in negotiations on a free-trade agreement with South Korea, which they claimed benefited the services industry, not them.

The FT also reports Britain is set to enter a recession as severe as that of 1991, with the economy shrinking by 2.5 per cent from its peak before reaching a trough late next year, according to a sharply revised forecast from the CBI employers’ body.

Unemployment is expected to hit 9 per cent by 2010, leaving nearly 3m people out of work. Next year the economy is expected to contract by 1.7 per cent, against a growth forecast of 0.3 per cent made in September.

The CBI took the unusual step of issuing a revised forecast just two months after its outlook in September predicted a short, shallow recession for the second half of this year.

Ian McCafferty, chief economic adviser to the CBI, said the financial crisis that emerged just days after it made its most recent call on the economy had dramatically changed the picture for business.

“The first thing that has changed is business confidence,” Mr McCafferty said. The credit crisis that followed the collapse of Lehman Brothers in September had led to “significant fears” among businesses that they would be unable to raise cash on affordable terms, if at all.

“Since October’s financial turmoil, companies have started to report that, for the first time, they are finding it increasingly difficult to access capital. If this were to be more than a temporary phenomenon, it would result in otherwise healthy companies going to the wall for lack of short-term finance. This would have serious implications for both employment and investment.”

Mr McCafferty said the revised CBI forecast assumed that the extraordinary measures the government had taken to shore up the nation’s banking system did restore order in the credit markets. If these proved ineffective, then the economic outlook “would have to be revised to the downside”.

“The jury is still out about whether the government’s interventions so far in the financial sector will be successful,” said John Cridland, CBI deputy director-general. “It is unclear how the banks will be able to deliver for business over the next few months.” He cited anecdotal evidence that companies were having to pay higher up-front fees for finance and seeking a wider group of borrowers in order to meet financing needs.

The CBI’s warning comes as a growing number of companies report that credit insurance is being withdrawn from their suppliers. A host of retailers are reporting similar difficulties that could force some of the UK’s largest employers to either find the cash to pay for goods up-front or scale back production and sales.

Mr Cridland said the CBI expected the Bank of England to cut rates further, perhaps by half a percentage point in December. Eventually, he said, they might fall as low as 1.5 per cent.

But he defended the Bank’s decision to hold off cutting rates as signs pointed to sharply rising inflation through the summer. “We were as concerned about inflation as anybody,” he said.

Mr McCafferty signalled that the CBI broadly supported the idea of government stimulus for the economy, with several caveats. Fiscal loosening, he said, should be “targeted, short term and temporary”.

Moreover, he said, it should be accompanied by “new fiscal rules that give international investors confidence going forward”.

The New York Times reports that when Ron Gettelfinger, president of the United Automobile Workers union, appears this week at Congressional hearings to help make the case for the Detroit automakers getting emergency federal aid, he wants lawmakers to know what he believes is at stake.

“It wouldn’t be just one company failing here,”Mr. Gettelfinger said in an interview. “It would be all three going down.”

He might as well add the U.A.W.

The union’s membership at General Motors, Ford Motor Company and Chrysler has been nearly halved to 139,000 workers in the past three years, and it continues to shrink with every new plant closing.

When he and the leaders of Detroit’s Big Three speak at their scheduled hearing, Mr. Gettelfinger is likely to deliver the bleakest warning. A bankruptcy by any of the three companies in Detroit, Mr. Gettelfinger fears, would wipe out the rest of them.

“It’s not just G.M. going bankrupt,” he said. “It’s all the rest of the industry that goes with it. Two of the three companies would go under, and there’s a high probability all three would go.”

Perhaps it is no surprise that Mr. Gettelfinger would be a passionate advocate for saving union jobs and funneling $25 billion in federal loans to the beleaguered automakers.

But Mr. Gettelfinger was briefed on G.M.’s dismal financial condition before its earnings were announced on Nov. 7, according to two people familiar with the meeting, part of a presentation to win his support for a potential merger of G.M. and Chrysler.

He saw first-hand that G.M., as well as Chrysler, cannot last long at the rate they are losing sales and revenue in a market that is down 14.6 percent from 2007.

Robert L. Nardelli, the chairman of Chrysler, and Rick Wagoner, chairman of G.M., have said they need federal help. (They broke off talks of a merger because of the rapidly deteriorating state of the industry.)

“At this juncture, we are in a crisis,” Mr. Gettelfinger said. “It’s not a matter of how we got here. When you have sales this low, this industry cannot survive.”

A carmaker’s bankruptcy would abrogate workers’ contracts, and probably lead to sharply reduced wages and benefits for any jobs that remain.

“The future of the U.A.W. will be determined over the next two weeks,” said Gary N. Chaison, a professor of labor relations at Clark University. “If G.M. goes bankrupt or doesn’t get a bailout, it’s just going to be a shadow of what it was 50 years ago.”

Mr. Gettelfinger, who is 64, wields new political clout in the debate this week in Congress over how to help Detroit survive the worst vehicle market in 15 years.

The U.A.W. was instrumental in the pivotal victories in Michigan and Ohio by Barack Obama in the presidential election, and two union loyalists in Michigan, Gov. Jennifer M. Granholm and former Representative David E. Bonior, are members of Mr. Obama’s economic advisory team.

For all its political heft, however, Detroit’s labor costs and union contracts will more than likely come under attack in House and Senate hearings.

Mr. Gettelfinger expects the union to be labeled part of Detroit’s problems, and to defend its $27-an-hour wages and top-of-the-line health care benefits and pensions.

But he won’t back down on his prediction of what failure of the Detroit auto industry will mean to the rest of America.

“For every 2,500 cars that the Big Three sells in this country, they employ 78 American workers,”he said. “There is a reason here for us to keep this industry in this country.”

The profound financial problems at G.M. and Ford were laid bare in their huge third-quarter losses and disclosure that their cash cushions were shrinking by more than $2 billion a month at each company. Chrysler, a private company, does not disclose its financial performances.

Mr. Gettelfinger rejects talk that the U.A.W. will need to make major concessions for Detroit to win aid. The union, he said, has already agreed to job reductions of more than 100,000 workers since 2006, taking over its retiree health care through company-funded trusts, and opening the door to lower wages for new workers at G.M., Ford and Chrysler.

Still, the U.A.W. could be pressured to bend on union rules that provide workers with 95 percent of their wages while on layoff and other job-security provisions.

“The union would have a difficult time justifying benefits for retirees and guaranteed pay during layoffs when those aren’t enjoyed by many workers in the present recession,” said Mr. Chaison.

Auto workers acknowledge fear that the industry might walk away empty-handed from Congress. G.M., for one, has said that it will run out of sufficient cash to run its business by the end of the year without government assistance.

“That would be catastrophic for a lot of families,” said Scott Owens, a second-generation G.M. worker at the company’s car plant in Orion Township, Mich. “This is pretty scary.”

Mr. Gettelfinger had been largely silent on the Big Three’s troubles until blitzing the national cable shows and other news media this past weekend. But he has been meeting nonstop with Michigan Democrats and other legislators sympathetic to the union’s interests, according to associates.

He deflects questions about what conditions should be placed on any federal loans, or whether management at G.M., Ford and Chrysler should be replaced.

“I recognize that Congress should put stipulations on this and they should,”he said.“But there’s a big difference between a low-interest loan and a bailout.”

Mr. Gettelfinger, who started in the auto industry in 1964 on a Ford assembly line in Louisville, Ky., will need a thick skin at the hearings, said financier Wilbur Ross, who has interests in auto-parts firms dependent on Detroit.

“I think for a lot of the Republican senators, this gives them a chance to give the union payback for the election,”he said.

President of the union since 2002, Mr. Gettelfinger is determined to put the debate above politics and focus on the broader economic crisis.

“We have great respect for our government, we believe in our government, and we need our government,”he said. “We’ve got the case. The question is, can we make it?”

The NYT also reports that back in 1950 in Columbus, Ga., a young nurse working double shifts to support her three children and disabled husband managed to buy a modest bungalow on a street called Dogwood Avenue.

Phil Gramm, the former United States senator, often told that story of how his mother acquired his childhood home. Considered something of a risk, she took out a mortgage with relatively high interest rates that he likened to today’s subprime loans.

A fierce opponent of government intervention in the marketplace, Mr. Gramm, a Republican from Texas, recalled the episode during a 2001 Senate debate over a measure to curb predatory lending. What some view as exploitive, he argued, others see as a gift.

“Some people look at subprime lending and see evil. I look at subprime lending and I see the American dream in action,” he said. “My mother lived it as a result of a finance company making a mortgage loan that a bank would not make.”

On Capitol Hill, Mr. Gramm became the most effective proponent of deregulation in a generation, by dint of his expertise (a Ph.D in economics), free-market ideology, perch on the Senate banking committee and force of personality (a writer in Texas once called him “a snapping turtle”). And in one remarkable stretch from 1999 to 2001, he pushed laws and promoted policies that he says unshackled businesses from needless restraints but his critics charge significantly contributed to the financial crisis that has rattled the nation.

He led the effort to block measures curtailing deceptive or predatory lending, which was just beginning to result in a jump in home foreclosures that would undermine the financial markets. He advanced legislation that fractured oversight of Wall Street while knocking down Depression-era barriers that restricted the rise and reach of financial conglomerates.

And he pushed through a provision that ensured virtually no regulation of the complex financial instruments known as derivatives, including credit swaps, contracts that would encourage risky investment practices at Wall Street’s most venerable institutions and spread the risks, like a virus, around the world.

Many of his deregulation efforts were backed by the Clinton administration. Other members of Congress — who collectively received hundreds of millions of dollars in campaign contributions from financial industry donors over the last decade — also played roles.

Many lawmakers, for example, insisted that Fannie Mae and Freddie Mac, the nation’s largest mortgage finance companies, take on riskier mortgages in an effort to aid poor families. Several Republicans resisted efforts to address lending abuses. And Congressional committees failed to address early symptoms of the coming illness.

But, until he left Capitol Hill in 2002 to work as an investment banker and lobbyist for UBS, a Swiss bank that has been hard hit by the market downturn, it was Mr. Gramm who most effectively took up the fight against more government intervention in the markets.

“Phil Gramm was the great spokesman and leader of the view that market forces should drive the economy without regulation,” said James D. Cox, a corporate law scholar at Duke University. “The movement he helped to lead contributed mightily to our problems.”

In two recent interviews, Mr. Gramm described the current turmoil as “an incredible trauma,” but said he was proud of his record.

He blamed others for the crisis: Democrats who dropped barriers to borrowing in order to promote homeownership; what he once termed “predatory borrowers” who took out mortgages they could not afford; banks that took on too much risk; and large financial institutions that did not set aside enough capital to cover their bad bets.

But looser regulation played virtually no role, he argued, saying that is simply an emerging myth.

“There is this idea afloat that if you had more regulation you would have fewer mistakes,” he said. “I don’t see any evidence in our history or anybody else’s to substantiate it.” He added, “The markets have worked better than you might have thought.”

Rejecting Common Wisdom

Mr. Gramm sees himself as a myth buster, and has long argued that economic events are misunderstood.

Before entering politics in the 1970s, he taught at Texas A & M University. He studied the Great Depression, producing research rejecting the conventional wisdom that suicides surged after the market crashed. He examined financial panics of the 19th century, concluding that policy makers and economists had repeatedly misread events to justify burdensome regulation.

“There is always a revisionist history that tries to claim that the system has failed and what we need to do is have government run things,” he said.

From the start of his career in Washington, Mr. Gramm aggressively promoted his conservative ideology and free-market beliefs. (He was so insistent about having his way that one House speaker joked that if Mr. Gramm had been around when Moses brought the Ten Commandments down from Mount Sinai, the Texan would have substituted his own.)

He could be impolitic. Over the years, he has urged that food stamps be cut because “all our poor people are fat,” said it was hard for him “to feel sorry” for Social Security recipients and, as the economy soured last summer, called America “a nation of whiners.”

His economic views — and seat on the Senate banking committee — quickly won him support from the nation’s major financial institutions. From 1989 to 2002, federal records show, he was the top recipient of campaign contributions from commercial banks and in the top five for donations from Wall Street. He and his staff often appeared at industry-sponsored speaking events around the country.

From 1999 to 2001, Congress first considered steps to curb predatory loans — those that typically had high fees, significant prepayment penalties and ballooning monthly payments and were often issued to low-income borrowers. Foreclosures on such loans were on the rise, setting off a wave of personal bankruptcies.

But Mr. Gramm did everything he could to block the measures. In 2000, he refused to have his banking committee consider the proposals, an intervention hailed by the National Association of Mortgage Brokers as a “huge, huge step for us.”

A year later, he objected again when Democrats tried to stop lenders from being able to pursue claims in bankruptcy court against borrowers who had defaulted on predatory loans.

While acknowledging some abuses, Mr. Gramm argued that the measure would drive thousands of reputable lenders out of the housing market. And he told fellow senators the story of his mother and her mortgage.

“What incredible exploitation,” he said sarcastically. “As a result of that loan, at a 50 percent premium, so far as I am aware, she was the first person in her family, from Adam and Eve, ever to own her own home.”

Once again, he succeeded in putting off consideration of lending restrictions. His opposition infuriated consumer advocates. “He wouldn’t listen to reason,” said Margot Saunders of the National Consumer Law Center. “He would not allow himself to be persuaded that the free market would not be working.”

Speaking at a bankers’ conference that month, Mr. Gramm said the problem of predatory loans was not of the banks’ making. Instead, he faulted “predatory borrowers.” The American Banker, a trade publication, later reported that he was greeted “like a conquering hero.”

At the Altar of Wall Street

Mr. Gramm would sometimes speak with reverence about the nation’s financial markets, the trading and deal making that churn out wealth.

“When I am on Wall Street and I realize that that’s the very nerve center of American capitalism and I realize what capitalism has done for the working people of America, to me that’s a holy place,”he said at an April 2000 Senate hearing after a visit to New York.

That viewpoint — and concerns that Wall Street’s dominance was threatened by global competition and outdated regulations — shaped his agenda.

In late 1999, Mr. Gramm played a central role in what would be the most significant financial services legislation since the Depression. The Gramm-Leach-Bliley Act, as the measure was called, removed barriers between commercial and investment banks that had been instituted to reduce the risk of economic catastrophes. Long sought by the industry, the law would let commercial banks, securities firms and insurers become financial supermarkets offering an array of services.

The measure, which Mr. Gramm helped write and move through the Senate, also split up oversight of conglomerates among government agencies. The Securities and Exchange Commission, for example, would oversee the brokerage arm of a company. Bank regulators would supervise its banking operation. State insurance commissioners would examine the insurance business. But no single agency would have authority over the entire company.

“There was no attention given to how these regulators would interact with one another,”said Professor Cox of Duke. “Nobody was looking at the holes of the regulatory structure.”

The arrangement was a compromise required to get the law adopted. When the law was signed in November 1999, he proudly declared it “a deregulatory bill,” and added, “We have learned government is not the answer.”

In the final days of the Clinton administration a year later, Mr. Gramm celebrated another triumph. Determined to close the door on any future regulation of the emerging market of derivatives and swaps, he helped pushed through legislation that accomplished that goal.

Created to help companies and investors limit risk, swaps are contracts that typically work like a form of insurance. A bank concerned about rises in interest rates, for instance, can buy a derivatives instrument that would protect it from rate swings. Credit-default swaps, one type of derivative, could protect the holder of a mortgage security against a possible default.

Earlier laws had left the regulation issue sufficiently ambiguous, worrying Wall Street, the Clinton administration and lawmakers of both parties, who argued that too many restrictions would hurt financial activity and spur traders to take their business overseas. And while the Commodity Futures Trading Commission — under the leadership of Mr. Gramm’s wife, Wendy — had approved rules in 1989 and 1993 exempting some swaps and derivatives from regulation, there was still concern that step was not enough.

After Mrs. Gramm left the commission in 1993, several lawmakers proposed regulating derivatives. By spreading risks, they and other critics believed, such contracts made the system prone to cascading failures. Their proposals, though, went nowhere.

But late in the Clinton administration, Brooksley E. Born, who took over the agency Mrs. Gramm once led, raised the issue anew. Her suggestion for government regulations alarmed the markets and drew fierce opposition.

In November 1999, senior Clinton administration officials, including Treasury Secretary Lawrence H. Summers, joined by the Federal Reserve chairman, Alan Greenspan, and Arthur Levitt Jr., the head of the Securities and Exchange Commission, issued a report that instead recommended legislation exempting many kinds of derivatives from federal oversight.

Mr. Gramm helped lead the charge in Congress. Demanding even more freedom from regulators than the financial industry had sought, he persuaded colleagues and negotiated with senior administration officials, pushing so hard that he nearly scuttled the deal. “When I get in the red zone, I like to score,” Mr. Gramm told reporters at the time.

Finally, he had extracted enough. In December 2000, the Commodity Futures Modernization Act was passed as part of a larger bill by unanimous consent after Mr. Gramm dominated the Senate debate.

“This legislation is important to every American investor,” he said at the time. “It will keep our markets modern, efficient and innovative, and it guarantees that the United States will maintain its global dominance of financial markets.”

But some critics worried that the lack of oversight would allow abuses that could threaten the economy.

Frank Partnoy, a law professor at the University of San Diego and an expert on derivatives, said, “No one, including regulators, could get an accurate picture of this market. The consequences of that is that it left us in the dark for the last eight years.” And, he added, “Bad things happen when it’s dark.”

In 2002, Mr. Gramm left Congress, joining UBS as a senior investment banker and head of the company’s lobbying operation.

But he would not be abandoning Washington.

Lobbying From the Outside

Soon, he was helping persuade lawmakers to block Congressional Democrats’ efforts to combat predatory lending. He arranged meetings with executives and top Washington officials. He turned over his $1 million political action committee to a former aide to make donations to like-minded lawmakers.

Mr. Gramm, now 66, who declined to discuss his compensation at UBS, picked an opportune moment to move to Wall Street. Major financial institutions, including UBS, were growing, partly as a result of the Gramm-Leach-Bliley Act.

Increasingly, institutions were trading the derivatives instruments that Mr. Gramm had helped escape the scrutiny of regulators. UBS was collecting hundreds of millions of dollars from credit-default swaps. (Mr. Gramm said he was not involved in that activity at the bank.) In 2001, a year after passage of the commodities law, the derivatives market insured about $900 billion worth of credit; by last year, the number had swelled to $62 trillion.

But as housing prices began to fall last year, foreclosure rates began to rise, particularly in regions where there had been heavy use of subprime loans. That set off a calamitous chain of events. The weak housing markets would create strains that eventually would have financial institutions around the world on the edge of collapse.

UBS was among them. The bank has declared nearly $50 billion in credit losses and write-downs since the start of last year, prompting a bailout of up to $60 billion by the Swiss government.

As Mr. Gramm’s record in Congress has come under attack amid all the turmoil, some former colleagues have come to his defense.

“He is a true dyed-in-the-wool free-market guy. He is very much a purist, an idealist, as he has a set of principles and he has never abandoned them,” said Peter G. Fitzgerald, a Republican and former senator from Illinois. “This notion of blaming the economic collapse on Phil Gramm is absurd to me.”

But Michael D. Donovan, a former S.E.C. lawyer, faulted Mr. Gramm for his insistence on deregulating the derivatives market.

“He was the architect, advocate and the most knowledgeable person in Congress on these topics,” Mr. Donovan said. “To me, Phil Gramm is the single most important reason for the current financial crisis.”

Mr. Gramm, ever the economics professor, disputes his critics’ analysis of the causes of the upheaval. He asserts that swaps, by enabling companies to insure themselves against defaults, have diminished, not increased, the effects of the declining housing markets.

“This is part of this myth of deregulation,” he said in the interview. “By and large, credit-default swaps have distributed the risks. They didn’t create it. The only reason people have focused on them is that some politicians don’t know a credit-default swap from a turnip.”

But many experts disagree, including some of Mr. Gramm’s former allies in Congress. They say the lack of oversight left the system vulnerable.

“The virtually unregulated over-the-counter market in credit-default swaps has played a significant role in the credit crisis, including the now $167 billion taxpayer rescue of A.I.G.,” Christopher Cox, the chairman of the S.E.C. and a former congressman, said Friday.

Mr. Gramm says that, given what has happened, there are modest regulatory changes he would favor, including requiring issuers of credit-default swaps to demonstrate that they have enough capital to back up their pledges. But his belief that government should intervene only minimally in markets is unshaken.

“They are saying there was 15 years of massive deregulation and that’s what caused the problem,” Mr. Gramm said of his critics. “I just don’t see any evidence of it.”