Shakeup ahead in world financial structure

[DemonGeminiX]

Reshaping of world financial system outlined
China, Brazil, India would take a greater role, G-20 leaders say

By Glenn Kessler and Anthony Faiola
washingtonpost.com
updated 11:41 p.m. ET, Sat., Nov. 15, 2008

World leaders holding an emergency meeting to combat the economic crisis agreed Saturday to a far-reaching action plan that, over the next 4 1/2 months, would begin to reshape international financial institutions and reform worldwide regulatory and accounting rules.

The leaders' 11-page statement spoke of broad principles, leaving the details to be worked out by lower-level aides before another summit meeting in April, after Barack Obama assumes the presidency. But the gathering in Washington of the nearly two dozen nations — from every region of the world — reflected the new balance of power emerging in the aftermath of a financial crisis that has devastated even well-run economies, a wrenching process that British Prime Minister Gordon Brown has dubbed "the birth pangs of this new global order."

Under the plans outlined by the leaders, countries such as China, Brazil and India would gain greater roles and responsibilities as part of a restructuring of the international financial system, while European leaders won a commitment to new regulations and controls on banks, rating agencies and exotic financial securities. The leaders also agreed that a dramatic failure of market oversight in "some advanced countries" was among the root causes of the financial crisis, an implicit rebuke of the United States.

"I'm a free market person," President Bush told reporters after the summit ended, "until you're told that if you don't take decisive measures then it's conceivable that our country could go into a depression greater than the Great Depression."

The Europeans got "virtually everything" they sought at the summit, French President Nicholas Sarkozy crowed afterward at a news conference. He said it had been difficult to persuade Bush to hold the summit, but the results were worth it. "America is still the No. 1 power in the world," he noted. "Is it the only one? No, it isn't."

The leaders, representing the Group of 20 economic powers, Spain, the Netherlands, the United Nations and other international organizations, met over dinner at the White House on Friday. They then continued their discussions Saturday arrayed in a square in the central hall of the 19th-century National Building Museum, beneath soaring 159-foot high ceilings.

"We are determined to enhance our cooperation and work together to restore global growth and achieve needed reforms in the world's financial systems," the leaders declared in their communique.

The leaders agreed to set up a new regulatory body, "a college of supervisors," to examine the books of major financial institutions that operate across national borders, so regulators could begin to have a more complete picture of banks' operations. They demanded greater scrutiny of hedge funds and the completion of a clearinghouse system to help standardize and limit risk on some of the opaque and exotic financial derivatives that helped bring down Wall Street's investment banks.

Leaders also agreed to submit their countries' financial systems to regular, vigorous reviews by the International Monetary Fund — assessments that some countries, including the United States, had long resisted. And they urged new constraints on the pay schemes at financial firms that "reward excessive short-term returns or risk-taking."

Sarkozy was especially pleased by the mention of executive compensation, though the communique noted that action could be voluntary or regulatory in nature. "Have you ever seen in the Anglo-Saxon world even discussion to have rating agencies downgrade the banks where executive compensation has [encouraged] them to take too much risk? I have never seen it," he said.

Senior Bush administration officials played down Sarkozy's comments, arguing that the agreement yesterday did not signify a "pro-regulatory" shift by the administration but rather an acknowledgement that the regulatory system needed to be updated. They spoke on condition of anonymity under ground rules set by the White House.

Obama stayed away from the summit, though the White House extensively briefed one of his senior advisers on the deliberations and two of the president-elect's representatives met with 17 leaders or their top aides on the sidelines. Many sections in the communique may please Obama, but at least one pledge to which Bush agreed — a 12-month hiatus on protectionist measures — could be viewed as limiting his options.

Many leaders frown on Obama's calls to bail out the auto industry as a form of protectionism. The section of the communique on the issue of protectionism prompted fierce debate, with discussions dragging on until 11 p.m. Friday, in a pitched battle between France and the United States, diplomats said.

Sarkozy, diplomats present at the summit said, was the slowest to commit to a moratorium on protectionist measures and a reaffirmation of free trade, flustering some of the developing world leaders whose nations have been badly hit by a drop-off in exports as the global economy slows. Sources said other leaders, including Canadian Prime Minister Stephen Harper, spoke out against Sarkozy's calls for broad global regulation, arguing that even in progressive Canada, the idea would be seen as violating national sovereignty.

"Here you had everyone at the table trying to come together, and Sarkozy was out there trying to write the world according to Sarkozy," said a senior diplomat present at the summit. "It was not helpful."

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Continued at site (3 pages in total)...

http://www.msnbc.msn.com/id/27742573

[deepsepia]

Originally Posted by DemonGeminiX

"I'm a free market person," President Bush told reporters after the summit ended, "until you're told that if you don't take decisive measures then it's conceivable that our country could go into a depression greater than the Great Depression."

Just stop and marvel at the incoherence of that sentiment. . . a fitting end to an inane and calamitous Administration.

What could that statement logically mean?

"I support free markets and laissez-faire economics . . .except . . .er . . .um . . .except when I don't?"

You believe in the "free market" -- unless you're told (by whom?) that something other than the "free market" can prevent Depression 2.0? If this something else -- which Bush describes only as "decisive measures"-- is so powerful, why shouldn't we have more of it?

[marquis]

Originally Posted by deepsepia

Just stop and marvel at the incoherence of that sentiment. . . a fitting end to an inane and calamitous Administration.

What could that statement logically mean?

"I support free markets and laissez-faire economics . . .except . . .er . . .um . . .except when I don't?"

You believe in the "free market" -- unless you're told (by whom?) that something other than the "free market" can prevent Depression 2.0? If this something else -- which Bush describes only as "decisive measures"-- is so powerful, why shouldn't we have more of it?

No, it's that sometimes the free market needs a little bit of direction.In a free market lack of confidence inhibits spending;if nobody is spending then who is going to buy your goods and services?That's how you turn a recession into a depression.

[TheLancinator]

Originally Posted by marquis

No, it's that sometimes the free market needs a little bit of direction.In a free market lack of confidence inhibits spending;if nobody is spending then who is going to buy your goods and services?That's how you turn a recession into a depression.

Exactly

But there is someone here with such a blind hatred for President Bush that there can't be a thread without trying to take some kind of shot against him

[Harpoon]

*Takes what's left of Lances retirement account and buys some 40 ounce beers and hookers..*

[TheLancinator]

I had that much left in my account?

[deepsepia]

Originally Posted by marquis

No, it's that sometimes the free market needs a little bit of direction.In a free market lack of confidence inhibits spending;if nobody is spending then who is going to buy your goods and services?That's how you turn a recession into a depression.

The "direction" that the free market needed was two and a half years ago, when banks and mortgage companies were writing crap mortgages on overpriced houses hand over fist, all with the "implicit guaranty" of the Federal Government.

What does "direction" mean now?

More Federal spending? OK, everyone agrees on that (pretty much). And we've done that. We've had a "stimulus package", we've taken over Freddie, Fannie, pumped $100 billion+ into AIG, bailed out the banks, and more . . . and the problems just turn up somewhere else.

Trouble is, we're kinda broke-- massive deficits already, and we've got monster sized Treasury auctions . . . the question isn't the confidence of Americans in America at this point-- its "will the rest of the world continue to finance our deficits by buying our Treasury obligations?"

The "lack of confidence" comes from a vastly over-borrowed consumer; once his principal asset started falling in value-- why should he be confident? If you were underwater on your mortgage, what would make you want to buy a new car? What would make your lender want to lend to you to buy that new car?

I have no answer to that, and neither does George Bush. Sometimes, you're just in a jam.

Here's a chart of the US savings' rate . . . basically Americans save $0, and in fact the savings rate turned negative-- even if someone feels optimistic-- what's he going to buy with?

[Tinysmasher]

Originally Posted by deepsepia

Just stop and marvel at the incoherence of that sentiment. . . a fitting end to an inane and calamitous Administration.

What could that statement logically mean?

"I support free markets and laissez-faire economics . . .except . . .er . . .um . . .except when I don't?"

You believe in the "free market" -- unless you're told (by whom?) that something other than the "free market" can prevent Depression 2.0? If this something else -- which Bush describes only as "decisive measures"-- is so powerful, why shouldn't we have more of it?

Careful you don't pull a muscle stretching to bash bush.

[Meursault]

Sarkozy is such an assclown. All show and no substance...

[deepsepia]

Originally Posted by Meursault

Sarkozy is such an assclown. All show and no substance...

. . . but its a pretty good show, no?

There's an historical precedent for Sarkozy's demand about Spanish participation at the G20 . . . France did the same thing, more or less, for the Spanish at the Congress of Vienna! (Spain had been invited to the Congress, but along with other smaller powers was shut out of important deliberations-- France invited them in)

At the substance level, I think everybody's left scratching their heads-- its not obvious what has gone wrong, let alone what we need to do about it. For Europe, the question is really tough.

Start with: Is the Euro an alternative Reserve currency to the USD?

[Meursault]

but seriously, a president with platform soles?

[Harpoon]

I'd like to paint his wifes cervix..

[deepsepia]

Originally Posted by Meursault

but seriously, a president with platform soles?

Someone once told me Charles de Gaulle had a favorite secret of government:

'You must treat the small man without mercy"

[Meursault]

DeGaulle was a wise man and he sure didn't have any use for platform shoes. Short people have no reason to live, really.