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  • The Financial Crisis Is Also an Opportunity To Create New Rules for Our Global Econom

    Out of the Ashes
    The Financial Crisis Is Also an Opportunity To Create New Rules for Our Global Economy

    By Gordon Brown
    Friday, October 17, 2008; Page A25

    This is a defining moment for the world economy.

    We are living through the first financial crisis of this new global age. And the decisions we make will affect us over not just the next few weeks but for years to come.

    The global problems we face require global solutions. At the end of World War II, American and European visionaries built a new international economic order and formed the International Monetary Fund, the World Bank and a world trade body. They acted because they knew that peace and prosperity were indivisible. They knew that for prosperity to be sustained, it had to be shared. Such was the impact of what they did for their day and age that Secretary of State Dean Acheson spoke of being "present at the creation."

    Today, the same sort of visionary internationalism is needed to resolve the crises and challenges of a different age. And the greatest of global challenges demands of us the boldest of global cooperation.

    The old postwar international financial institutions are out of date. They have to be rebuilt for a wholly new era in which there is global, not national, competition and open, not closed, economies. International flows of capital are so big they can overwhelm individual governments. And trust, the most precious asset of all, has been eroded.

    When President Bush met with the Group of Seven finance ministers last weekend, they agreed that we all had to deal with not only the issue of liquidity in the banking system but also the capitalization and funding of banks. It was clear that national action alone would not have been sufficient. We knew we had to send a clear and unambiguous message to the markets that governments across the world were prepared to act in a coordinated manner and do whatever was necessary to stabilize the system and address the fundamental problems.
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    Confidence about the future is vital to building confidence for today. We must deal with more than the symptoms of the current crisis. We have to tackle the root causes. So the next stage is to rebuild our fractured international financial system.

    This week, European leaders came together to propose the guiding principles that we believe should underpin this new Bretton Woods: transparency, sound banking, responsibility, integrity and global governance. We agreed that urgent decisions implementing these principles should be made to root out the irresponsible and often undisclosed lending at the heart of our problems. To do this, we need cross-border supervision of financial institutions; shared global standards for accounting and regulation; a more responsible approach to executive remuneration that rewards hard work, effort and enterprise but not irresponsible risk-taking; and the renewal of our international institutions to make them effective early-warning systems for the world economy.

    Tomorrow, French President Nicolas Sarkozy and European Commission President José Manuel Barroso will meet with President Bush to discuss the urgent reforms of the international financial system that are crucial both to preventing another crisis and to restoring confidence, which is necessary to get banks back to their essential purpose -- maintaining the flow of money to individuals and businesses. The reforms I have outlined are vital to ensuring that globalization works not just for some but for all hard-pressed families and businesses in all our communities.

    It is important, too, that in the international leaders' meeting that has been proposed we seek a world trade agreement and reject the beggar-thy-neighbor protectionism that has been a feature of past crises.

    There are no Britain-only or Europe-only or America-only solutions to today's problems. We are all in this together, and we can only resolve this crisis together. Over the past week, we have shown that with political will it is possible to agree on a global multibillion-dollar package to recapitalize our banks across many continents. In the next few weeks, we need to show the same resolve and spirit of cooperation to create the rules for our new global economy. If we do this, 2008 will be remembered not just as a year of financial crisis but as the year we started to build the world anew.

    The writer is prime minister of Britain.

    http://www.washingtonpost.com/wp-dyn...101603179.html
    I post it without comments since I do not understand economics.

    I, however, see international TV and read international print media.

    The general impression I get is that George Brown alone has shored up the crisis so much so that the EU is listening to him.

    Could someone analyse in layman's terms, what gives?


    "Some have learnt many Tricks of sly Evasion, Instead of Truth they use Equivocation, And eke it out with mental Reservation, Which is to good Men an Abomination."

    I don't have to attend every argument I'm invited to.

    HAKUNA MATATA

  • #2
    Seven Questions: Jeffrey Sachs


    In the shadow of a financial crisis that has sent the U.S. stock market tumbling nearly 25 percentage points in the last month, the world’s finance ministers and central bankers gathered in Washington recently for an urgent discussion of how the economic peril will spread—and how to stop it. Days later, leaders from London to Berlin promised hundreds of billions in bailouts to embattled banks and financial institutions.

    Throughout this crisis, there’s been much talk of how it is affecting Wall Street and Main Street. But only a few public figures, such as World Bank President Robert Zoellick, have sounded the alarm about how the credit crunch will hurt the poorest of the poor—people who may not have a street at all. So, FP’s Elizabeth Dickinson caught up with Jeffrey Sachs, a renowned economist and World Bank and International Monetary Fund (IMF) advisor who has made his name with his passionate calls for an end to poverty. She asked him if he still thinks such an ambitious goal is possible and what world leaders can do to prevent the worst suffering.

    Foreign Policy: Western finance ministers and central bankers were in Washington Oct. 11 to 12 for the IMF and World Bank annual meetings and to hash out a coordinated global strategy to deal with the financial crisis. How would you describe the mood?

    Jeffrey Sachs: I think in general there’s fear, naturally. This is a very big financial upheaval and there are profound risks. We are far from out of the woods. Certainly, there will be a significant financial crisis as far as the real economy [is concerned]. Everyone is uncertain about what’s happening.

    FP: U.S. Federal Reserve Chairman Ben Bernanke wrote in the Wall Street Journal Oct. 14 that, “the tools are in place to respond effectively and with force.” Is he right?

    JS: I think that it all depends on the terms. I don’t think we’re going to have a Great Depression, and we’re not going to have an outright crash where there are mass bank failures and bankruptcies. But we are going to have a deep recession. We will feel it, and it will be very painful. Unemployment will go up several points; the drop in growth will be significant in absolute terms. It will be prolonged, and it will be a difficult recovery because of all of the imbalances in the economy and because households have high levels of debt. The scale is a major recession of an economy that has business cycles. We’re going to have a meaningful-sized business cycle.
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    Other areas of the world are experiencing the crisis for lots of reasons—because their own banks did what U.S. banks did; because our monetary policy led to bubbles that spread; because their economies are dependent on imports. I don’t think it will lead to a worldwide downturn everywhere. China, for example, will continue to experience good growth during this period.

    FP: As the crisis spreads around the globe, can you give us a sense of how it is affecting people in developing countries?

    JS: I think the effects probably are ironically felt more in middle-income countries, because one of the attributes of the poorest countries is that they are more disconnected to the world system. Their banks are not connected and are very small relative to the economy. People don’t own stock, so they don’t lose their pensions. In middle-income countries like Brazil and India, there could be more substantial risks.

    FP: At last weekend’s meeting, Robert Zoellick noted that 100 million people have been driven into poverty so far this year. Do you think that number will go higher?

    JS: That crisis is a result of commodity prices, especially rising energy prices and higher fertilizer prices. It is not the result of this crisis, and I don’t think that the direct effects of this crisis will be significant.

    The question of course is whether the crisis distracts [countries] from all of these [antipoverty] policy agendas, which is relevant and often a life-or-death issue. That’s obviously a real concern. My general take is that in good times or bad, it’s hard to get people to focus on these issues. I’m not sure [this crisis is] going to diminish from the low levels of focus we usually have.

    I expect the whole attitude toward governance to change, especially if [U.S. Senator Barack] Obama becomes president. The days of laissez faire recklessness and greed are over, and the idea that government has responsibilities in the financial markets and to the poor and even to the world’s poor will become more important.

    FP: You wrote on your blog, “The basic message of this week is that the world must find a new model of collective leadership following the collapse of US authority.” You seem to think a multipolar world will be better suited to combating global challenges such as poverty and global warming. But isn’t it equally likely that we end up with a power vacuum—no leadership at all? .

    JS: Well, this is what we’ve had over the past several years: The United States has abandoned its old role as system stabilizer. Really already in the Clinton administration that was true, but it was bravely accelerated in the Bush era where policies were neglectful.

    I do expect China, the European Union, and other actors can play a responsible role especially on these developmental, climate, and global investment issues. But no one should expect U.S. leadership, only U.S. cooperation.

    FP: Even if the financial crisis doesn’t touch the poorest of the poor, what about emerging economies such as Nigeria, Angola, and Kenya where the banking system, for example, was just getting on its feet? How will the crisis affect these places?

    JS: Of course Nigeria fluctuates with the oil prices, and that’s also the case for Angola. Kenya is a lot more complicated because you have a more diversified economy. Its banks are not strong to begin with, and now the easy go-go days are [over]. But I don’t see that as a major loss for the development of these countries. They will have their work cut out for them in attracting serious investment, but it can remain possible in this setting. Linkages that can be forged with the United States, China, India, will continue to go forward.

    FP: As president of the Millennium Promise Alliance, which aims to help countries reach the U.N.’s Millennium Development Goals by 2015, you have spent a great deal of time advocating for increased foreign aid. With hard economic times hitting big donors such as the United States, Europe, and others, how much do your efforts need to change?

    JS: The main point I have been trying to make is that promises are for less than 1 percent of income—which is true whether we are in a good year or a bad year. Less than 1 percent is manageable. These are commitments that we can afford. It’s important for the world, and I’ll continue to argue that case.

    Second, the idea of $25 billion for Africa suddenly doesn’t sound like so much after a $700 billion bailout in the United States or $2 trillion in bank guarantees in Europe. We’ve just been making choices to ignore the poor rather than calculations based on real resources available. We made a choice to let millions of people die and not honor our commitments. The crisis doesn’t change our quantitative ability to follow through. And now, I think everyone is more of a macroeconomist than they were before. They can evaluate for themselves that it’s just not a lot of money compared to the amounts mobilized in recent weeks.


    Third is that one of the core strategies is looking at multiple donors, not only traditional donors in the United States and Europe. The Middle East can and should put in more money; China can and should put in more money. We are going to see those connections grow, to the good of everyone.

    Jeffrey Sachs is director of the Earth Institute at Columbia University and author of Common Wealth: Economics for a Crowded Planet (New York: Penguin Press, 2008).
    http://www.foreignpolicy.com/story/c...?story_id=4517


    "Some have learnt many Tricks of sly Evasion, Instead of Truth they use Equivocation, And eke it out with mental Reservation, Which is to good Men an Abomination."

    I don't have to attend every argument I'm invited to.

    HAKUNA MATATA

    Comment


    • #3
      Originally posted by Ray View Post
      I post it without comments since I do not understand economics.

      I, however, see international TV and read international print media.

      The general impression I get is that George Brown alone has shored up the crisis so much so that the EU is listening to him.

      Could someone analyse in layman's terms, what gives?
      He wants global credit controlled by a single agency, presumably with the various reserve bank governors controlling it.

      This week, European leaders came together to propose the guiding principles that we believe should underpin this new Bretton Woods: transparency, sound banking, responsibility, integrity and global governance. We agreed that urgent decisions implementing these principles should be made to root out the irresponsible and often undisclosed lending at the heart of our problems. To do this, we need cross-border supervision of financial institutions; shared global standards for accounting and regulation; a more responsible approach to executive remuneration that rewards hard work, effort and enterprise but not irresponsible risk-taking; and the renewal of our international institutions to make them effective early-warning systems for the world economy.
      In other words, individual countries don't have to follow the rules outlined by this new agency, but will have a hard time getting credit or access to markets without it. He has to sell this idea to majority of the G8
      In the realm of spirit, seek clarity; in the material world, seek utility.

      Leibniz

      Comment


      • #4
        Originally posted by Parihaka View Post
        He wants global credit controlled by a single agency, presumably with the various reserve bank governors controlling it.


        In other words, individual countries don't have to follow the rules outlined by this new agency, but will have a hard time getting credit or access to markets without it. He has to sell this idea to majority of the G8

        Thanks.

        What is your opinion on the plan or should I say an analysis, pros and cons.

        Do you think that if there is a global understanding, then the sudden collapses of economies can be avoided?

        But will the govts agree that their financial independence is mortgaged?

        Of course, I will concede that I have not understood the whole issue and may appear rambling and an illiterate.


        "Some have learnt many Tricks of sly Evasion, Instead of Truth they use Equivocation, And eke it out with mental Reservation, Which is to good Men an Abomination."

        I don't have to attend every argument I'm invited to.

        HAKUNA MATATA

        Comment


        • #5
          Originally posted by Ray View Post
          Thanks.

          What is your opinion on the plan or should I say an analysis, pros and cons.

          Do you think that if there is a global understanding, then the sudden collapses of economies can be avoided?

          But will the govts agree that their financial independence is mortgaged?

          Of course, I will concede that I have not understood the whole issue and may appear rambling and an illiterate.
          In certain respects I don't regard the global system as broken. He wants to impose greater control over the global system when it wasn't the global system that broke, but the American and British internal systems.
          It was the global meetings between reserve bank governors that stabilised the system and continues to control the damage.
          What really needs to be achieved and has been by the very nature of the crisis and the internal damage it has caused them, is less ability by the Americans and British to crash the system the way they did.
          THis is more Gordon Brown trying to take control over something that has been achieved anyway, in other words an attempt by him to reassert American/British influence over the global market.
          As neither country has made any noise whatsover about actually changing their internal market systems from what caused the damage, I personally would be very resistant to him or whoever takes over in the Whitehouse having any say in the matter.
          In the realm of spirit, seek clarity; in the material world, seek utility.

          Leibniz

          Comment

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