Business Features
Reform global financial system, former leaders urge (News Feature)
By Rachel Levy Nov 13, 2008, 13:47 GMT
Rotterdam Former world leaders meeting in the Dutch city of Rotterdam this week have urged the leaders of the G20 who will meet in Washington next week, to reform the world's existing financial system.
A statement released on Thursday by the General Assembly of the Club of Madrid said in-depth reform of the global financial architecture' is needed.
The Club of Madrid is an international organization made up of 72 former heads of state and government from more than 51 countries. Among other things, the organization aims to strengthen global democracy, fight poverty and enhance intercultural relations.
The organization was on Thursday holding its so-called Global Forum, having held its Global Assembly earlier in the week.
It is clear that the institutions entrusted with the regulation of the global economy have proven fragile and incapable of forecasting the crisis,' the Club of Madrid's statement said.
The institutions have been unable to adopt the necessary measures to prevent financial speculation from contaminating all forms of financing, thus creating a significant disequilibrium between financial markets and the real economy,' it added.
The former heads of state emphasize that more equitable terms of trade must be promoted.'
Also, leaders must avoid a return to protectionism that would intensify the difficulties of emerging and the marginalization of least developed economies.'
Mary Robinson, former Irish prime minister and former UN High Commissioner for Human Rights, has been on of the major forces behind the Club of Madrid.
In an interview with Deutsche Presse-Agentur dpa in Rotterdam, Robinson said the current momentum of the crisis should be used to reform the financial sector dramatically.
'I have just returned from a meeting of Dubai where some 700 people convened, many of whom financial experts, to discuss the situation,' she said, referring to the recent World Economic Forum.
'They expect the current crisis to have a far more serious impact and continue for a longer period of time than I had previously thought. There is no doubt that the poor in the world will be affected much more by this crisis than anyone else.'
Robinson noted that the developing world was already struggling with the effects of rising food prices and climate change before the credit crisis took place.
Asked whether she supports the viewpoint of Dutch legislator Geert Wilders of the rightist Freedom Party that import barriers of the European Union be removed to enhance free trade for developing countries, Robinson said she was in favour of such ideas but added development aid should continue simultaneously.'
Club of Madrid president Ricardo Lagos, Chile's former head of state, on Thursday said an effective regulatory framework for global markets' was needed, which 'can only be achieved through a strengthened role of both states and the multilateral financial institutions.'
'The flexibility of markets and their capacity to innovate is to be preserved while safeguarding people and societies from the perverse effects of the irrational exuberance that cyclically affects them,' he said.
The Global Forum, attended by former world leaders from all continents, including former US president Bill Clinton and New Zealand's former prime minister Jenny Shipley, continues through Friday evening.
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Older Talkback
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RE:'The institutions have been unable to adopt the necessary measures to prevent financial speculation from contaminating all forms of financing, thus creating a significant disequilibrium between financial markets and the real economy,' it added.'
When people are given a fiat currency to work with, the only thing they can do is speculate. Fiat currency does not serve as a store of value. It is no different from a basket of tomatoes. You either eat them or lose them. With a currency of this type, one that constantly inflates, it is necessary to loan the money out to someone, or to buy something with it. Even better is to borrow money and 'buy' something large, usually a house, with the borrowed funds. The whole of the economy then becomes nothing but speculation.
A representative, or 'backed' currency certainly has its drawbacks, but it does serve as a store of value and periodically punish speculation that is too exuberant. It has built in negative feedback loop, seen by too many as a bad thing. Fiat currency, on the other hand, has a built in POSITIVE feedback loop and as any engineer can tell you, this is a very dangerous thing.
We are now witness to just how destructive a positive feedback loop can be. Our economy has cycled out of control and we are about to witness a period of hyperinflation.
Good night good luck.
Adam,
Your argument is too rational. The current issue has to do with con artists and ramped fraud. It is a legal issue and not a financial issue.
If people were informed in advance about the 'odds' of their gambling in institutions like WaMu then most 'investors' (who call themselves stockholders) would tell WaMu to go to hell.
The fact is, fraud is the main problem, not monetary policy.
Merely printing dollars and with NO backing does not bode well for America with the rest of the world, especially with a credibility problem of the US govt's foreign and economic policies.
The US federal govt should go with begging bowl to CHINA. It should get on its knees and beg for a real bailout.
Lance,
I find that I must agree with you, at least part way. Laying off bets only works if the bookies are honest with each other. In this case, the bookies were completely self-delusional on both sides.
I will give you a 'for instance'. I watched Franklin Raines, on C-Span I think, testifying before the US Congress about Fannie Mae. He seemed, to me at least, to be completely convinced that there was no way to lose money investing real estate. He was not the only one who seemed to be equally delusional.
Having said all that, the whole blame for this crisis cannot be laid at the feet of current leadership, public or private. For that we have to go back to the school of economic thought that believes faux money is a good thing. It isn't. Certainly, fraudulent behavior can take place with a hard currency in circulation just as it can with a fiat currency, but only a fiat currency can create a situation in which everyone is wiped out in one fell swoop.
Now, you will no doubt argue that we had a hard currency back in 1929. But if you check the facts, we did not really have a hard currency. We had much more paper currency in circulation than we could back with gold reserves.
This became a problem once again during Richard Nixon's Administration. De facto, we were already off the gold standard. Nixon made it de jure. We were seeing inflation rates of about 4% per annum during the Nixon Administration and poor old Jimmy Carter found himself saddled with inflation rates that easily approached 20% per annum.
You do realize that we could not qualify to become a member of the Eurozone at this point in time, do you not? This thing really is going to spin completely out of control.
en.wikipedia.org/wiki/Gresham's_law
You are talking about 'money' and I am talking about 'equity'.
Equity in something like WaMu, Enron, Global Crossing, etc. the list is endless.
Pure and simple fraud. It is very easy to valuate those types of companies (as long as there is no fraud) and many people committed fraud, from the officers to the 'customers' (mortgagees in the case of WaMu).
There is plenty of fraud going on and plenty of people to put in jail.
In regards to money: It is only as good as the people that back it. In the case of the US where financial fraud is ramped, money is meaningless. They print trillions of dollars of green backs this year and trillions next year, printing at will.
RE:''In regards to money: It is only as good as the people that back it. In the case of the US where financial fraud is ramped, money is meaningless. They print trillions of dollars of green backs this year and trillions next year, printing at will.''
Exactly, but it became meaningless a long time ago. We cannot jail FDR or Nixon. Both of them are dead. The fraud started well before the current crisis and it began with our currency.
If the money itself is a fraud, why would you not expect fraud to eventually become rampant. People borrow large sums of money to 'buy' things with ever cheapening currency. That in in itself is fraudulent, but what other choice do they have? I will readily admit that hard currency is not a perfect solution. Even the hardest of currencies can be softened by determined politicians, but they last longer and work better for everyone.
The real problem is that left-leaning economists have taught people for years that a fiat currency is superior to a hard currency and precious materials, such as gold, are merely 'commodities'. Well, currencies themselves are really nothing more than commodities. And, as you have pointed out, they are only as good as the people behind them.
Now, are you going to tell the American people that they are no better than their currency? How much say did they have in what sort of currency we would have and how it would be managed? No one alive today has had any choice other than to participate in this growing nightmare.
Fraud? You betcha! There has been a lot of fraud, in the equity markets and everywhere else, but if you understood about the status of our currency, why would you be surprised? Herein lies the rub. Most people do not know beans from buckshot about the various kinds of currencies. In the United States, we created a situation wherein our debt IS our money. The system was bound to fail. Anything with a built positive feedback loop WILL fail.
All the current string of frauds did was to uncover the fraud we have been living with since 1929.
'but if you understood about the status of our currency, why would you be surprised? '
I am not surprised. I predicted this a decade ago.
There are plenty of living people around that have committed fraud to put in jail. There is no time like the present to start convicting them.
Just because Nixon, et. al. started something is no excuse for other criminals to follow the same behavior. That is not how legal culpability works.
Short of an armed insurrection, the current crop of culprits is going to walk free. The truly hilarious thing is that the vast majority do not see themselves as having done anything at all wrong. They are doing as they were taught.
I have never forgotten what happened back during the Enron debacle. A GOP congresscritter, his name now escapes my memory, asked Sherron Watkins what she thought contributed the most to Enron's demise. She told him that the largest problem that the entire nation faced was our accounting code. She pointed out that our accounting code had morphed into the tax code and that no one, not even the IRS could actually understand the tax code.
I have never seen a finer tap dance put on by any politician in all my life. She caught him completely by surprise with that reply, but she was telling the absolute truth. If you cannot accurately count your money, then you have no way of knowing what kind of shape your balance sheet is in and neither will anyone looking at your balance sheet.
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lanceNov 13th, 2008 - 14:16:42
The financial system does NOT need to be 'reformed'.
The LEGAL system needs to be reformed in order to identify white-collar fraud and to put business execs in jail.
A call for financial system reform is simply a ruse to let friends off the hook and pay them off with government funds, funds that some people think are 'unlimited' (grows on trees).
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