Banking sector has expanded at a rapid pace, there are different sets of rules around the world inviting regulatory arbitrage (e.g. concentrated hedge funds locations), there is a need to discuss New Bretton Woods deal. This is a brief summary of a seminar that took place ….
…. in 1992 in Rand Institute.
Participants (including professors Aliber, McKinnon, Meltzer, and top Rand institution staff) already in 1992 noted that IMF has no real powers, that G7 process is inefficient, that GATT process ends its useful life, and called for action, especially in the unregulated banking sector. Here we are, fifteen years later facing “financial holocaust” of the Western finance. How come we did nothing, Rand paper documents that bright economists, influential ones did see the problem, and the saw it early enough.
At the time Rand journal seminar concluded that no new institution was needed and that it was enough to provide political enforcement mechanisms at the country level. But today we face financial nuclear explosion, WTO failure, countries’ failure (EU member Hungary, and rich country Iceland). So what are people recommending today, ahead of 15 November meeting between Nicolas “Che Guevara” Sarkozy (I gave him the nickname for ridiculous attempts to reverse globalization) and G.W. Bush, the worst US president on record. See Barry Eichengreen article , which recommends modest steps:
- remove regulatory argitrage
- create countercyclical regilatory measures
- increase capital requremenst
These are all good suggestions. I somehow feel that the word “modest step” does not fit today’s landscape. We badly need a bold step. Earlier, when Obama was still debating Hilary Clinton I wrote on this blog that he will become the next president, which now seems almost certain, and that it may deliver a political earthquake, a global one. So we should not hope for any new deal coming out of the meeting of the 20th century leaders. We need global change of political leadership, we need young generation, in their 30s and 40s to take over. Only when old pricks are replaced by new, young global elite, capable of sharing common vision we will have a chance to get a new deal. As Jim Rogers, cofounder of Quantum fund with George Soros said last year, in 1807 smart people moved to London, in 1907 smart people moved to New York, in 2007 smart people move to Asia. The new deal initiated by president Obama should be finalized in Beijing.