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Analysis: The real work of the G20 begins at home

World leaders are likely to find fault with America's sluggish financial reform.

PITTSBURGH —  Leaders of the Group of 20 began gathering here to put the final touches on a pact to give long-term stability to the world economy, but they seem to be studiously avoiding the key to accomplishing that goal: regulation.

Motorcades of limousines, probably more of them than the city has ever seen at one time, ply the streets and protesters rappel down the bridges and hang above the Ohio River to raise awareness on climate change. The police line downtown streets in riot gear. And it leaves residents bemused by all the attention their city is getting.

But that is just the street theater of the event,  the real work of the G20 — or at least the groundwork — will be done in a communique that probably has already been written.

Now, public agreement must be reached on how to stabilize the world economies to avoid another worldwide near-death financial experience like the one that happened a year ago.

The key to any kind of lasting correction is for the U.S. to get its regulatory house in order, an effort that has barely begun.

Much as with the recent talks in New York on curbing climate change, some G20 countries are likely to chide the U.S. for not making more progress on financial reform. Attention will be paid to how the U.S. plans to set effective rules of its own to keep markets steady beyond the current upturn and slake the appetite of investors for risk instead of solid profit. There is also the issue of controlling executive compensation and creating a consumer financial protection agency — both contentious issues in the U.S.

As other countries have reproached the U.S. for minimal proposals to address climate change issues, they are likely to expect some traction on the regulatory front, including reining in risk-taking by big financial institutions and controlling compensation for their top performers. One of the items for the discussion at the G20 is also going to be how to get banks to fatten their capital cushions and limit leverage of that capital.

Whatever the intentions, there are at least two factors in the U.S. that will stall progress.

First, momentum has been lost in the United States on stringent regulation of the financial markets and banks. Then, enough time has passed since the Obama economic rescue plan and bank bailout for lobbyists to do their work, which is the pressure for a lighter touch and minimal change.

Robert Weissman, president of Public Citizen in Washington, said the administration doesn’t have much new to show off to world leaders in Pittsburgh. “The number of pieces of legislation passed? Zero,” said Weissman, referring to new crisis prevention rules.

Though the administration has pressed for an overhaul of financial regulations — or lack thereof — it is unlikely fundamental change will come quickly.