Finansiell kris KRAV AV FINANSKris En finansiell kris kan uppstå som ett resultat av att institutioner eller tillgångar övervärderas och det kan förvärras av investerarnas beteende. En snabb sträng av försäljningsavgifter kan ytterligare resultera i lägre tillgångspriser eller fler sparandeutslag. Om den lämnas okontrollerad kan krisen leda till att ekonomin går in i en lågkonjunktur eller depression. Hur 2008 års finansiella kris inträffade Finanskrisen 2008 var den värsta ekonomiska katastrofen sedan den stora depressionen 1929. Orsakssaken har spåras till ingen enda händelse eller anledning. Snarare var det resultatet av en följd av händelser, var och en med sin egen utlösningsmekanism som ledde till nära fall av banksystemet. Det har hävdats att krisens utsäde såddes så långt tillbaka som 1970-talet med gemenskapsutvecklingslagen, vilket tvingade bankerna att lösgöra sina kreditkrav för lägre inkomstminoriteter och skapa en marknad för subprime-hypotekslån. Mängden subprime hypotekslån, som garanterades av Freddie Mac och Fannie Mae, fortsatte att expandera i början av 2000-talet, om den tid Federal Reserve Board började sänka räntorna drastiskt för att avvärja en lågkonjunktur. Kombinationen av lösa kreditkrav och billiga pengar ledde till en bostadsboom, som ledde spekulationer, som ledde upp bostadspriserna. Under tiden har investeringsbankerna, som letar efter lätta vinster i kölvattnet av dotcom-bysten och 2001-konjunkturnedgången, skapat säkerställda skuldförpliktelser (CBO) ut ur inteckningar köpta på sekundärmarknaden. Eftersom subprime-hypotekslån kombinerades med primära inteckningar var det inte möjligt för investerare att förstå riskerna i samband med produkten. Omkring den tid då marknaden för CBO-värmen uppvärmdes började husbubblan som byggdes upp i flera år brista. När bostadspriserna sjönk började subprime låntagare att göra default på lån som var värda mer än sina hem och påskyndade prisnedgången. När investerarna insåg att CBO: erna blev värdelösa på grund av den giftiga skulden de representerade försökte de lossa dem, men det fanns ingen marknad för dem. Detta orsakade en kaskad av subprime långivarefel, vilket skapade en likviditetsbesmittning som fungerade fram till banksystemets övre nivåer. Två stora investeringsbanker, Lehman Brothers och Bear Stearns, kollapsade under deras exponering för subprime skulden och mer än 450 banker misslyckades de närmaste fem åren. Flera av de stora bankerna var på randen av misslyckanden om det inte hade varit en skattebetalare-finansierad räddningsaktion. Skatteförmåner från optioner som fallfall för företag Mel Karmazin, verkställande direktör i SiriusXM, fick aktieoptioner i juni 2009. De är nu värt 165 miljoner. Kredit James EstrinThe New York Times Aktiemarknaderna återhämtade sig från finanskrisen för tre år sedan har skapat en potentiell fallfall för hundratals ledare som beviljades ovanligt stora paket av aktieoptioner kort efter att marknaden kollapsade. Nu börjar de företag som gav de generösa utmärkelserna också dra nytta av skattebesparingar. Tack vare en inskränkning i skattelagen kan företagen göra anspråk på skatteavdrag i framtida år, vilket är mycket större än värdet av aktieoptionerna när de beviljades ledande befattningshavare. Denna skatteavbrott kommer att beröva den federala regeringen av tiotals miljarder dollar i intäkter under det närmaste decenniet. Och det är en av de många dunkla bestämmelserna som är begravda i skattekoden, som tillsammans gör det möjligt för de flesta amerikanska företag att betala långt mindre än den högsta företagsskattesatsen på 35 procent i vissa fall, nästan ingenting ens i mycket lönsamma år. I Washington, där ledande löner och skatter är högt belastade, har vissa kritiker i kongressen länge försökt undanröja denna skatteförmån och säger att det är en dålig politik att låta företagen göra så stora avdrag för aktieoptioner utan att behöva göra några kontanta utlägg. Dessutom säger de att politiken i huvudsak tvingar skattebetalarna att subventionera verkställande löner, vilket har stigit under de senaste decennierna. Dessa nackdelar har blivit förstorade, säger de nu när chefer och företag skördar överordnade fördelar genom att utnyttja en gång deprimerad börskurs. Ett teckningsoption ger ägaren rätt att köpa en andel av bolagets aktie till ett bestämt pris under en viss period. Företagsskattbesparingarna härrör från det faktum att chefer vanligtvis köper aktieoptioner till ett mycket högre pris än det ursprungliga värdet som företagen rapporterar till aktieägarna när de beviljas. Men företag får då ett skatteavdrag för det högre priset. Till exempel i de mörka dagarna i juni 2009 fick Mel Karmazin, verkställande direktör i Sirius XM Radio, optioner för att köpa aktiebolaget till 43 cent per aktie. Vid dagens pris på cirka 1,80 per aktie har värdet av dessa optioner ökat till 165 miljoner från de 35 miljoner som bolaget redovisat som kompensationsutgift på sina finansiella böcker när de utfärdades. Om han övar och säljer till det priset, skulle Karmazin självklart vara skyldig att betala skatt på 165 miljoner som vanlig inkomst. Bolaget skulle emellertid ha rätt att dra av hela 165 miljoner kronor som ersättning för sin avkastning, som om den hade betalat det beloppet i kontanter. Det skulle kunna sänka sin federala skattekostnad med uppskattningsvis 57 miljoner, med högsta företagsskattesats. SiriusXM svarade inte på upprepade förfrågningar om kommentar. Dussintals andra stora företag slog ut ovanligt stora bidrag av aktieoptioner i slutet av 2008 och 2009 inklusive Ford, General Electric, Goldman Sachs, Google och Starbucks och kan snart komma i fråga för motsvarande skattesatser. Verkställande ersättningsexperter säger att utesluta en annan marknadskollaps, utbetalningarna till ledande befattningshavare och skatteförmåner för företagen kommer att gå bra in i miljarder dollar de närmaste åren. Faktum är att de miljarder aktier som är värda av optioner som utfärdas efter krisen, har hittills endast cirka 11 miljoner utnyttjats, enligt uppgifter som InsiderScore har sammanställt, ett konsultföretag som sammanställer förvaltningsansökningar om insiderhandel. Dessa alternativ gav cheferna en högt utnyttjad satsning på att aktiekurserna skulle återhämta sig från 2008 års nedgångar 2008 och 2009 och belönar dem nu för stigande tidvatten snarare än prestanda, säger Robert J. Jackson Jr., en juridisk docent i Columbia som arbetade som en rådgivare till kontoret som övervakade kompensation av chefer på företag som mottar federala bailout pengar. Skattekoden gör inget för att säkerställa att dessa belöningar endast går till chefer som har skapat hållbart långsiktigt värde. För vissa företag kan tilldelade optioner tyckas som ett frestande köp eftersom det inte finns något kontantutlägg och skatteförmånerna kan överstiga den ursprungliga kostnaden. Enligt standard redovisningsregler beräknar företagen det verkliga marknadsvärdet på optionerna på det datum de beviljas och redovisar det värdet som en kostnad som redovisas i registret. Men Internal Revenue Service tillåter företag att ansöka om skatteavdrag för eventuella värdeökning när dessa alternativ utövas, vanligtvis år senare till ett mycket högre pris. Skattebesparingarna är listade i regleringar som överskjutande skatteförmåner från lagerbaserad ersättning. För de flesta företag är den främsta fördelen med att använda alternativ att alternativen gör det möjligt för dem att tilldela stora bonusar utan att rent faktisk tömma sina pengar, säger Alan J. Straus, en New York skattejurist och revisor. Men skattebehandlingen är en bra bonus, sa han. Det är den enda ersättningsformen där ett företag kan få avdrag utan att behöva komma kontant. Vissa företagsvaktgrupper, och några medlemmar av kongressen, kallar företagsavdragsavdraget ett dyrt smuthål. Många skattejurister och revisorer motsätter sig att skatteavdraget är motiverat eftersom alternativen utgör en reell kostnad för företaget. Och eftersom de chefer som utövar sina optioner beskattas till höga individuella räntor, säger företagen att en förändring skulle leda till en orättvis form av dubbelbeskattning. Senator Carl Levin har försökt att undanröja skatteuppehållet. Credit Chip SomodevillaGetty Images Men även de som stöder den befintliga skattepolitiken säger att det var opportunistiskt för chefer att utnyttja stora ökning av aktieoptioner som ska vara prestationsbaserade belöningar när en marknadsövergripande kollaps innebar att de flesta företagens börskurser verkade avsedda att gå upp. Värdetillväxten av optioner som beviljats under finanskrisen skulle inte bara kosta statskassan. Aktieägare och företagsledningsexperter säger att de kommer på bekostnad av andra investerare, vars aktieägare är utspädd. Tja före marknadsnedgången sänkte hundratals amerikanska företag sina skatteräkningar med miljarder dollar per år genom att de använde aktieoptioner. För ett årtionde blev företag som Cisco och Microsoft kritiserade allmänt eftersom deras aktieoptioner skapade så stora avdrag att de i några år inte betalade några federala skatter alls. När aktieägarna och tillsynsmyndigheterna klagade över överdriven utnyttjande av optioner slutade Microsoft tillfälligt att utfärda dem under 2003. Tack för att du prenumererar. Ett fel har uppstått. Vänligen försök igen senare. Du har redan prenumererat på det här e-postmeddelandet. Från 2005 till 2008 rapporterade Apple att de optioner som utövas av sina anställda sänkte sin federala inkomstskatteavgift med mer än 1,6 miljarder kronor. Teckningsoptioner sänkte Goldman Sachss federala inkomstskatträkningen med 1,8 miljarder under den perioden och Hewlett-Packards med nästan 850 miljoner, enligt ansökningar från företagen. Företagen säger att skattebehandlingen är berättigad eftersom de dras av kostnaden för att betala en anställd, precis som de skulle om de betalade en lön i kontanter. Senator Carl Levin, en Michigan-demokrat, har försökt i nästan ett decennium att eliminera skatteuppdelningen, vilket påverkar de vanligast beviljade optionerna. Han har infört en proposition som skulle begränsa ett företags skatteavdrag för alternativ till samma belopp som deklarerats på sina finansiella böcker. Hans förslag skulle också räkna upp alternativ till högst 1 miljon som företag kan dra av för en ledning betala varje år (utanför prestationsbaserade bonusar). Bipartisan Gemensamma kommitté för beskattning har uppskattat att om senatorns förslag antogs skulle det lägga till 25 miljarder kronor till statskassan under det närmaste årtiondet. Optionsoptioner blev en populär belöning för toppledare på 1990-talet efter att kongressen hade infört 1 miljon cap. De tappade lite av deras överklagande efter att bokföringsändringar 2005 hade tvingat företagen att börja räkna valet av optionerna som en kostnad. Skandaler över backdating av alternativ gjorde också vissa företag varna. Begränsat lager och andra former av eget kapital ersätter ibland alternativ. När aktiemarknaden sjönk under hösten 2008 fanns det dock en ökning av antalet optioner som beviljats av företagen. Enligt regleringsansökningar som utarbetats av Equilar, ett verkställande ersättningskonsultföretag, ökade antalet optioner utgivna av företag i Standard Amp Poors 500 till 2,4 miljarder 2009 från 2,1 miljarder 2007, även om de hade minskat sedan 2003. Goldman Sachs beviljade 36 miljoner optioner i december 2008, 10 gånger mer än året innan. General Electric, som gav 18 miljoner optioner 2007 och 25 miljoner optioner 2008, beviljades 159 miljoner 2009 och 105 miljoner 2010. En del företag säger att deras optioner utmärkelser under 2008 och 2009 bestämdes innan det var klart att börsen skulle återhämta sig . Andra säger att eftersom aktiekurserna hade gått ner, var de tvungna att utfärda fler alternativ för att nå målkompensationen för sina ledande befattningshavare. General Electric erkände att det utfärdade mycket fler alternativ efter att marknaden kollapsat, eftersom de erbjöd ett billigare sätt att betala ledning än begränsat lager och andra former av ersättning. ÅLDER. talesman Andrew Williams, sade att skattemässiga överväganden inte spelade en roll i det beslutet. Det är säkert att vissa chefer vars alternativvärden har skjutit upp kan peka på anmärkningsvärda prestationer. Howard Schultz, verkställande direktör i Starbucks, fick optioner värderade till 12 miljoner i november 2008 som idag värderar mer än 100 miljoner. Under årens lopp har Starbucks avskedat tusentals anställda, stängt hundratals butiker och retooled sin affärsplan. Strategin vända bolagets glid i resultat. Aktier av Starbucks, som handlades på 30-talet under mycket av 2008 och föll under 8 efter det närmaste fallet, stängde torsdagen kl. 46.45. Men andra företag vars ledande befattningshavare redan har betalat in några optioner som utfärdats under krisen har inte presterat särskilt bra jämfört med sina kamrater. Oljeboringsföretaget Halliburton är ett. Och några finansiella tjänster företag som har sett värdet av de alternativ som de utfärdade efter att marknaden kollaps stiger väsentligt inklusive Goldman Sachs och Capital One Financial kunde återstå krisen, till viss del, på grund av miljarderna i federala räddnings pengar de fick. Anledningen till att C. E.O. s och corporate boards gav alla dessa alternativ under krisen är att de förväntade sig att marknaden skulle återhämta sig och eftersom ekonomin är cyklisk, visste alla att det skulle återhämta sig, säger Sydney Finkelstein, en professor i ledningen vid Dartmouths Tuck School of Business. Och hela spelet spelas med andra människor pengar marknaderna pengar och skattebetalarnas pengar. En version av den här artikeln visas i utskrift den 30 december 2011 på sidan A1 i New York-upplagan med rubriken: Skatteförmåner från alternativ som vindfall för företag. Order Reprints Dagens papper SubscribeGlobal Financial Crisis Författare och sidinformation Den globala finanskrisen, som brygger för ett tag, började verkligen visa effekterna i mitten av 2007 och in i 2008. Runt om i världen har börserna fallit, stora finansinstitut har kollapsat eller köps ut, och regeringarna i även de rikaste länderna måste komma med räddningspaket för att tillgodose sina finansiella system. Å ena sidan är många människor oroliga för att de som är ansvariga för de ekonomiska problemen är de som är bailed, medan å andra sidan en global finansiell inbromsning kommer att påverka livsställen för nästan alla i en alltmer sammanhängande värld. Problemet kunde ha undvikits, om ideologer som stöder nuvarande ekonomimodeller werent så stämma, inflytelserika och obetydliga av andra synpunkter och bekymmer. Denna artikel ger en översikt över krisen med länkar för ytterligare, mer detaljerad, täckning i slutet. Den här webbsidan har följande underavsnitt: En kris som är så allvarlig, världens finansiella system påverkas Efter en period av ekonomisk boom, brutit en finansiell bubbleglobal i scopehas nu ut. En sammanbrott i den amerikanska subpremi-hypoteksmarknaden och omvändningen av bostadsboomen i andra industrialiserade ekonomier har haft en krusningseffekt runt om i världen. Dessutom har andra svagheter i det globala finansiella systemet uppstått. Vissa finansiella produkter och instrument har blivit så komplexa och vridda, att när saker börjar riva upp, lita på att hela systemet började misslyckas. John Bird, John Fortune, Subprime Crisis. 14 februari 2008 Medan det finns många tekniska förklaringar om hur subprime-hypokrisen uppstod, beskriver de brittiska komikerna John Bird och John Fortune huvudet av investeringsbanken i denna satiriska intervjun och förklarar det i en sätt som ibland bara komiker kan. Tillsammans med impressionisten Rory Bremner förklaras också derivat (värdepapper härrörande från andra värdepapper): Betting av praktiskt taget allting bidrog till att skapa enorma summor pengar av nästan ingenting. Men som tidigare amerikanska president talförfattare, Mark Lange. anteckningar, eftersom derivat är helt oreglerat och handel utan offentlig utbyte, kan deras upphovsmän avsiktligt dölja sina sårbarheter. Jonathan Jarvis förklarar orsakerna till kreditkrisen i en kort, engagerande video: Om du inte kan se videon eller, för ytterligare detaljer, går de två följande avsnitten vidare. Värdepapperisering och subprime-krisen Subprime-krisen kom till stor del på grund av finansiella instrument som värdepapperisering, där bankerna skulle samla sina olika lån till försäljningsbara tillgångar och därigenom avlasta riskabla lån till andra. (För banker kan miljoner tjäna pengar i pengar, men de är knutna i årtionden, så de blev till värdepapper. Säkerhetsköparen får regelbundna betalningar från alla de bostadslån som bankmannen lägger på risken. kanske den största ekonomiska innovationen i 20-talet.) Som BBCs tidigare ekonomisk redaktör och föredragare noterade Evan Davies i en dokumentär kallad The City Uncovered med Evan Davis: Banks och How to Break Them (14 januari 2008) att bedöma dessa produkter (riskera en intressekonflikt) och alltid få bra betyg, uppmuntra människor att ta upp dem. Från Wall Street följde andra snabbt. Med höga vinster, alla ville ha det, även om det gick utöver deras kompetensområde. Till exempel lånade banker ännu mer pengar för att låna ut så att de kunde skapa mer värdepapperisering. Vissa banker behövde inte förlita sig på sparare så mycket då så länge de kunde låna från andra banker och sälja dessa lån på som värdepapper skulle dåliga lån vara problemet med den som köpt värdepapperen. Vissa investeringsbanker som Lehman Brothers gick in i inteckningar, köpte dem för att värdepapperisera dem och sedan sälja dem. Vissa banker lånade ännu mer för att ha en ursäkt för att värdepapperisera dessa lån. Running out av vem att låna till, banker vände sig till de fattiga subprime, de mer riskfyllda lånen. Stigande huspriser ledde långivare att tro att det inte var för riskabelt dåligt lån innebar att repossessing högvärderade fastigheter. Subprime och självcertifierade lån (ibland dubblerade lögnare lån) blev populära, särskilt i USA. Vissa banker började köpa värdepapper från andra. Kollateraliserade skuldförpliktelser, eller CDO, (ännu mer komplexa värdepapperiseringar) sprider risken men var väldigt komplicerade och gömde ofta de dåliga lånen. Medan det var bra, ville ingen ha dåliga nyheter. Sidanotat När du frågade om någon höjde bekymmer, berättade Peter Harn, en av innovatörerna av CDOs, en ännu mer komplex version av värdepapperisering, BBC som sådana människor skulle förlora sitt jobb, vem som helst som försöker sakta ner skulle ha sett en nedgång i deras marknadsandel jämfört med andra, till exempel. Höggatan banker fick en form av investment banking, köp, försäljning och handelsrisk. Investeringsbanker, inte nöjda med köp-, försäljnings - och handelsrisker, kom in i bostadslån, inteckningar mm utan rätt kontroller och förvaltning. Många banker tog på sig stora risker och ökade deras exponering för problem. Kanske var det ironiskt, som Evan Davies observerade, att ett finansiellt instrument för att minska risken och hjälpa till att låna moresecuritieswould återfyra så mycket. När folk så småningom började se problem, föll självförtroendet snabbt. Utlåningen avtog, i vissa fall upphörde en stund och även nu finns det en förtroendekris. Vissa investeringsbanker satt på de risklösa lån som andra investerare inte ville ha. Tillgångarna sjönk i värde så långivare ville ta tillbaka sina pengar. Men vissa investeringsbanker hade lite i insättningar ingen säker detaljhandel, så några kollapsade snabbt och dramatiskt. Problemet var så stort, banker, även med stora kapital reserver, sprang ut, så de var tvungna att vända sig till regeringar för borgen ut. Ny kapital injicerades i banker för att i själva verket låta dem förlora mer pengar utan att gå på byte. Det var fortfarande inte tillräckligt och förtroendet återställdes inte. (Vissa tror att det kan ta år för förtroende att återvända.) Krympande banker suger pengar ut ur ekonomin när de försöker bygga sin kapital och är nervösa för att låna ut. Samtidigt är företag och privatpersoner som är beroende av kredit det svårare att få. En spiral av problem resulterar. Som Evan Davies beskrev det hade bankerna på något sätt tagit det som verkade vara en magisk kula av värdepapperisering och avfyrade den på sig själva. Skapa mer risk genom att försöka hantera risker Securitization var ett försök att hantera risker. Det har gjorts ett antal försök att mildra risken, eller försäkra sig mot problem. Medan dessa är legitima saker att göra, hjälpte instrumenten som medgav att detta händer, också att orsaka de aktuella problemen. Vad som hänt var att banker, hedgefonder och andra hade blivit övertygade eftersom de alla trodde att de hade räknat ut hur man tar risk och tjänar pengar mer effektivt. När de till en början gjorde mer pengar med fler risker förstärkte de sin egen uppfattning att de hade tänkt sig ut. De trodde att de hade spridit alla sina risker effektivt och ändå gick det fel när allt gick fel. I en uppföljningsdokumentär intervjuade Davis Naseem Taleb, när ett alternativ handlade själv, som hävdade att många hedgefondschefer och bankirer lurar sig själva i att tro att de är säkra och på hög mark. Det var ett resultat av ett system som var starkt grundat i dåliga teorier, dålig statistik, missförstånd av sannolikhet och i slutändan girighet, sade han. Vad tillät detta att hända Som Davis förklarade, letade man sig att hantera eller försäkra sig mot risken faktiskt ledde Tillväxten av instrument som accelererade problem: Derivat, finansiella terminer, kredit default swaps och relaterade instrument kom ut ur oron från 1970-talet. Oljestocken, den dubbelsiffriga inflationen i USA och en minskning på 50 på den amerikanska börsen gjorde att företagen ser svårare ut för att hantera risker och försäkra sig mer effektivt. Finansindustrin blomstrade när fler började titta på hur man försäkrar sig mot nackdelarna när man investerar i något. För att få reda på hur man prissätter denna försäkring kom ekonomer med alternativ, ett derivat som ger dig rätt att köpa något i framtiden till ett pris som nås överens om. Matematiska och ekonomiska genier trodde att de hade kommit fram till en formel om hur man skulle prissätta ett alternativ, Black-Scholes-modellen. Det var en hit när alternativen kunde prissättas, det blev lättare att handla. En helt ny riskmarknad föddes. I kombination med tillväxten av telekom och datorer exploderade derivatmarknaden, vilket möjliggör köp och försäljning av risker på den öppna marknaden på sätt som aldrig sett tidigare. När människor blev framgångsrika snabbt använde de derivat för att inte minska risken, men att ta större risk att tjäna mer pengar. Galen började sparka in. Företag började gå in i områden som inte nödvändigtvis var en del av deras underliggande verksamhet. I själva verket gjorde folk mer spel på att spekulera. Eller spelande. Hedgefonder, kredit default swaps, kan vara legitima instrument när man försöker försäkra sig mot huruvida någon kommer att gå som standard eller inte, men problemet uppstod när marknaden blev mer spekulativ i naturen. Vissa institutioner betalade risk för marginal så att du inte var tvungen att lägga ner de faktiska fullvärdena i förväg, så att människor kunde göra stora vinster (och stora förluster) med liten kapital. När Nick Leeson (av den berömda Barings Bank-kollapsen) förklaras i samma dokumentär resulterade varje förlust i mer satsningar och mer riskhoppning i hopp om att återhämta de tidigare förlusterna, precis som spelande. Derivat orsakade bankens förstörelse. Hedgefonder har fått mycket kritik för vadslagning på saker som går illa. I den senaste krisen kritiserades de för att korta på bankerna och dämpade sina priser. Vissa länder förbjöd tillfälligt kortslutning på banker. I vissa avseenden kan hedgefonder ha indikerat en underliggande svaghet hos banker, vilka uppmuntrar till att låna utöver folkens medel. Å andra sidan desto mer fortsatte det desto mer kunde de vinna. Marknaden för kreditmarknadsbytesmarknader (ett derivat på försäkring när en affärsvillkor) var till exempel enorm och översteg hela världsekonomins produktion på 50 biljoner sommaren 2008. Det var också dåligt reglerat. Världens största försäkrings - och finansföretagsföretag, AIG, hade ensam kreditswappar på cirka 400 miljarder vid den tiden. Mycket exponering med liten reglering. Dessutom var många av AIGs kredit default swaps på hypotekslån, som naturligtvis gick nedförsbacke, och det gjorde AIG. Handeln med dessa swappar skapade en hel web av sammankopplade beroendeheter, en kedja som är lika stark som den svagaste länken. Eventuella problem, som risk eller faktiskt signifikant förlust kan spridas snabbt. Därför den eventuella räddningen (nu cirka 150 miljarder) av AIG av den amerikanska regeringen för att förhindra att de misslyckas. Derivat orsakade inte denna finansiella smältning men de accelererade det när subprime-hypotekslån kollapsade på grund av de sammankopplade investeringarna. Derivater revolutionerade finansmarknaderna och kommer sannolikt att vara här för att stanna eftersom det finns en sådan efterfrågan på försäkring och mildrande risker. Utmaningen nu, sammanfattad Davis, är att regera i de ödmjukare överskott av derivat för att undvika de otroligt dyra katastroferna och förhindra fler AIG-händelser. Detta kommer att bli mycket svårt att göra. Trots fördelarna med ett marknadssystem, som alla har erkänt i många år, är det långt ifrån perfekt. Bland annat säger experter som ekonomer och psykologer att marknaderna drabbas av några mänskliga svagheter, såsom bekräftelseskänsla (alltid letar efter fakta som stöder din åsikt snarare än bara fakta) och överlägsenhet bias (tron att man är bättre än de andra, eller bättre än genomsnittet och kan fatta bra beslut hela tiden). Att försöka regera i dessa aspekter av mänsklig natur verkar som en lång order och under tiden stiger kostnaderna. Krisens skala: trillioner i skattebetalarnas utbetalningar Problemets omfattning har varit så allvarlig att några av världens största finansinstitut har kollapsat. Andra har köpts ut av konkurrensen till låga priser och i andra fall har regeringarna i de rikaste nationerna i världen gripit till omfattande räddnings-och räddningspaket för de återstående stora bankerna och finansinstituten. De totala belopp som regeringarna har spenderat på bailouts har höjt sig. Från en världskreditförlust på 2,8 biljoner i oktober 2009 kommer amerikanska skattebetalare ensam att spendera cirka 9,7 biljoner i bailoutpaket och planer. enligt Bloomberg. 14,5 biljoner, eller 33, av världsföretagens värde har blivit utplånade av denna kris. Storbritannien och andra europeiska länder har också spenderat cirka 2 biljoner på räddnings och bailout-paket. Mer förväntas. Effekten av detta, FN: s konferens om handel och utveckling säger i sin rapport om handel och utveckling 2008, som sammanfattas av det tredje världsnätet. att den globala ekonomin är avskräckande på randen av recessionen. Nedgången efter fyra års relativt snabb tillväxt beror på ett antal faktorer: den globala nedgången från finanskrisen i USA, sprängningen av bostadsbubblorna i USA och andra stora ekonomier, stigande råvarupriser, alltmer restriktiva penningpolitiken i ett antal länder och volatiliteten på börsen. Nedgången från fallet på den amerikanska bolånemarknaden och återhämtningen av bostadsboomen i olika viktiga länder har visat sig vara djupare och beständig än väntat 2007 och början av 2008. Eftersom allt fler bevis samlas och som lagret Effekterna dyker upp, vi ser att allt fler länder runt om i världen påverkas av dessa ganska djupa och ihållande negativa följder av att bostadsbooms omkastas i olika länder. En kris som är så allvarlig, de ansvariga är bailed out Några av bail-outs har också åtföljts av hyfsakriser på grund av att sociala kostnader är sociala och privatiseringen av vinsten. Bailoutsna verkar hjälpa de finansiella institutionerna som kom i trubbel (många av dem pressade för den typ av laxpolitiken som medgav att detta skulle ske i första hand). Vissa regeringar har flyttat för att göra det svårare att manipulera marknaderna genom att korta under finanskrisen och skylla på dem för att försämra en redan dålig situation. (Det bör noteras att under den försvagande asiatiska finanskrisen i slutet av 1990-talet klagade de asiatiska nationerna som drabbats av en säljlöshet utan framgång att valutaspekulanter som opererar genom hedgefonder eller genom valutaföretag av kommersiella banker och andra finansiella institutioner angriper sina valutor genom kortförsäljning och därmed sänka priserna på de lokala valutorna långt under deras verkliga ekonomiska nivåer. Men när de klagade till de västerländska regeringarna och Internationella valutafonden (IMF), avfärdade de de asiatiska regeringarnas påståenden, skyller på den deras egna ekonomiska missförhållanden istället.) Övriga regeringar har flyttat för att försäkra och försäkra investerare och sparare att deras pengar är säkra. I ett antal europeiska länder har exempelvis regeringarna försökt öka eller helt garantera sparande av sparande. I andra fall har banker nationaliserats (socialiserande vinster såväl som kostnader, potentiellt.) Under tiden har mindre företag och fattigare människor sällan sådana alternativ för borgen ut och rädda när de befinner sig i kris. Det verkar finnas lite sympati och till och med växande vrede för arbetstagare inom finanssektorn, eftersom de ses som att ha spelat med andra människors pengar och därmed lever, samtidigt som de får tjocka bonusar och betalar höjningar för det tidigare. Även om de råa lönenivåerna är stora, är de stora löneökningarna och bonuserna små jämfört med problemets omfattning, det uppmuntrande som sådana metoder har givit tidigare, liksom den typ av kultur som skapas, är det som har vrede många människor. Sidnotelse om dem som tar riskabla lån på subprime-marknaden När det gäller subprime-hypotekslån hävdar man också att de som tog de riskabla lånen på skulden, borde inte ha lånat så mycket pengar när de visste att de inte skulle ha innebär att återbetala. Medan det finns sanning i detta, och vår kultur av att förvänta sig enkla pengar, förbrukar bortom våra medel, etc är något som behöver brådskande uppmärksamhet, i fallet med subprime-hypotekslån verkar det lätt att glömma svårigheten hos personer som lever i relativ fattigdom. Finansiella rådgivare som oansvarigt pressade dessa lån (utan intresse eller vård av låntagaren i åtanke) var generellt aggressiva eftersom de hade mycket att vinna av dessa lån. För människor som lever i fattigdom, även i rika länder kan livet vara desperat och eländigt. Bekymmer kommer att sträcka sig från brottslighet i grannskapet, till bra skola, för att komma i veckan på väldigt lite, och se till att ett jobb varar. Förhoppningen om att kunna fly den för ett tag användes faktiskt. När man är i fattigdom kommer det långsiktiga tänkandet inte alltid att komma in i riken med omedelbar oro. Vidare är det troligt att de som sänker sig ner i samhällsstraten inte kommer att vara lika ekonomiskt kunniga som de längre upp. Därför finns det vanligtvis mer förtroende i en bank eller finansiell rådgivare. Det är ofta bortglömt i dag att banker och finansinstitut har förändrats i naturen, det är mindre oro för de människor de tjänar, men mer om hur de kan sälja produkter från vilka de kan göra vinst. I viss utsträckning riskabla låntagare har ett visst ansvar, men i allmänhet har de tappat bort långivare bailed out, medan de som tar ut riskabla lån antingen har förlorat sina hem eller står inför ett verkligt hot om att förlora sitt hem inom en snar framtid. Nobelpristagare för ekonomi, Paul Krugman, kommenterar Bernard Madoffs 50 miljarder bedrägeri, konstaterar att mycket av finansbranschen har varit ganska likadant skadad: Finansbranschen har hävdat en ständigt växande andel av nationernas inkomster under den senaste generationen , vilket gör de människor som driver branschen oerhört rika. De stora rikedomar som uppnåtts av dem som lyckades med andra folks pengar har haft en korrumperande effekt på vårt samhälle som helhet. Men de finansiella superstjärnorna måste säkert ha tjänat sina miljoner, rätt Nej, inte nödvändigtvis. Lönesystemet på Wall Street belönar välgörande vinstutjämning, även om det senare visar sig vara en illusion. På den oförskämdaste nivån har Wall Street sämre vinster skadat och fortsätter att korrumpera politik, på ett snyggt tvärvetenskapligt sätt. Paul Krugman, The Madoff Economy. New York Times, Opinion, December 19, 2008 Hur var detta möjligt IMF: s tidigare chefsekonom (och nyligen utnämnd till ekonomisk rådgivare för indiens premiärminister), Raghuram Rajan skrev ett dokument tillbaka 2005, som fruktar finansiell utveckling i sin nuvarande form kan vara riskabel. En av de främsta anledningarna var incentivepay-mekanismerna för investeringschefer som inte bara belönade riskabelt beteende, men kanske uppmuntrar det. (Eftersom han också fruktade att den här finansieringsformen kapitalism skulle kunna få allvarliga negativa effekter, liksom de positiva effekterna som ses tillbaka då blev han naturligtvis ignorerad och lite löjlig vid den tiden. Det var på höjden av den ekonomiska boomen. ) I artikeln som nämnts ovan uppenbarar Krugman att det är en medfödd tendens hos ens eliten att avguda män som tjänar mycket pengar och antar att de vet vad de gör. En kris som är så allvarlig, resten lider också På grund av den kritiska rollen som bankerna spelar i det nuvarande marknadssystemet, när de större bankerna visar tecken på kris, är det inte bara de rika som lider men potentiellt alla. Med ett globaliserat system kan en kreditkrisa rippla genom hela (verkliga) ekonomin, vilket snabbt gör en global finanskris till en global ekonomisk kris. Ett helt banksystem som saknar förtroende för utlåning när det står inför stora förluster kommer att försöka öka reserverna och minska tillgången till kredit eller göra det svårare och dyrare att erhålla. I den bredare ekonomin kommer denna kreditkris och högre lånekostnader att påverka många sektorer, vilket leder till arbetsneddragningar. Människor kan hitta sina inteckningar svårare att betala, eller omvärdering kan bli dyrt. För de senaste hemköparna kommer värdet av sina bostäder sannolikt att falla i värde och lämna dem i negativt eget kapital. När människor sänker konsumtionen för att försöka vädra den ekonomiska stormen, kommer fler företag att kämpa för att överleva vilket leder till ytterligare förluster av arbetstillfällen. Som ovanstående har spelat ut har situationen varit dålig nog att Internationella arbetsorganisationen (ILO) har beskrivit denna kris som en global jobbkris. Och så, många nationer, vare sig rika och industrialiserade, eller fattiga och utvecklande, glider in i recessionen om de inte redan är där. Finanskrisen och de rika länderna Många skyller på Wall Street's girighet för att orsaka problemet i första hand, eftersom det är i USA att de mest inflytelserika bankerna, institutionerna och ideologerna som pressade på den politik som orsakade problemen hittades. Krisen blev så allvarlig att Bush-administrationen efter bristerna och inköp av större institutioner erbjöd 700 miljarder räddningsplan för det amerikanska finanssystemet. Detta bailoutpaket var kontroversiellt eftersom det var impopulärt med allmänheten, sett som en räddningsaktion för synderna medan den vanliga personen skulle lämnas för att betala för deras dårskap. Första USA: s representanthus avvisade paketet som ett resultat av att chockvågor över hela världen skickades. Det tog ett försök att vidarebefordra planen, men med tillägg till propositionen för att få de extra kongressmedlemmarna och kvinnorna att acceptera planen. Men som tidigare Nobelprisvinnare för ekonomi, tidigare chefsekonom av Världsbanken och universitetsprofessor vid Columbia University, Joseph Stiglitz. argumenterade, planen är fortfarande en mycket dålig proposition: jag tycker att det fortfarande är en mycket dålig faktura. Det är en besvikelse, men inte en överraskning, att förvaltningen kom fram med en proposition som återigen är baserad på trickle-down ekonomi. Du kastar tillräckligt med pengar på Wall Street, och en del av det kommer att sippra till resten av ekonomin. Dess som en patient som lider av att ge en massiv blodtransfusion medan theres inre blödning det gör inte något om den grundläggande källan till hemorrhaging, utestängningsproblemet. Men det har blivit sagt, det är bättre än att inte göra någonting, och förhoppningsvis efter valet kan vi reparera de många misstagen i den. Skriva i förmyndaren. Stiglitz tillade också att amerikanerna har förlorat sin tro inte bara i Bush-förvaltningen, men i sin ekonomiska filosofi: en ny företags welfarism som bakom friluftsideologi har en annan version av trickle-down-ekonomin, där hundratals miljarder till Wall Street som orsakade Problemet skulle på något sätt sippra för att hjälpa vanliga amerikaner. Trickle-down har inte fungerat bra i Amerika under de senaste åtta åren. Själva antagandet att räddningsplanen måste hjälpa är misstänkt. Trots att IMF och USA: s statsskattebonus för Wall Street för 10 år sedan i Korea, Thailand, Indonesien, Brasilien, Ryssland och Argentina inte fungerade för dessa länder, gjorde Wall Street det möjligt att få tillbaka sina pengar. Skattebetalarna i dessa andra fattiga länder plockade upp fliken för finansmarknadsfel. Den här gången är det amerikanska skattebetalare som blir uppmanade att hämta fliken. Och det är skillnaden. För all retorik om demokrati och gott styre fick medborgarna i dessa länder verkligen inte chans att rösta på bail-outs. I miljöekonomi finns det ett grundläggande begrepp som kallas principen att förorenaren betalar. Det handlar om rättvisa, men också av effektivitet. Wall Street har förorenat vår ekonomi med giftiga inteckningar. Det borde nu betala för rengöring. I Europa, som började med Storbritannien, bestämde sig ett antal nationer för att nationalisera, eller partnationalisera, vissa som misslyckades med att försöka återställa förtroendet. USA motstod detta tillvägagångssätt först, eftersom det går emot den styva fria marknadsöversikten som USA har tagit för några decennier nu. Så småningom meddelade USA: s capitulerade och Bush-administrationen att den amerikanska regeringen skulle köpa aktier i oroliga banker. Detta illustrerar hur allvarligt detta problem är för en sådan ivrig följare av fri marknads ideologi att göra detta (även om fri marknadsteorier inte ursprungligen var avsedda att användas för finansiering, vilket skulle kunna ingå i en djupare orsak till problemet). Kanske fruktade en ideologisk backlash, Bush var snabbt att säga att köpande insatser i banker inte är avsedda att ta över den fria marknaden, men för att bevara den. Professor Ha-Joon Chang från Cambridge University föreslår att historiskt sett har Amerika varit mer pragmatiskt om fria marknader än vad deras senaste ideologiska retorik föreslår. en kostnad av många i utvecklingsländer att rika länder ofta är ganska protektionistiska, men kräver hela tiden fria marknader från andra. Medan amerikanska flytten till sist välkomnades av många berör andra echo Stiglitzs ovan. Till exempel, tidigare biträdande sekreterare vid finansdepartementet i Reagan-förvaltningen och en tidigare associerad redaktör för Wall Street Journal. Paul Craig Roberts argumenterar också att bailout borde ha varit att hjälpa människor med misslyckade inteckningar, inte banker. Problemet, enligt regeringen, är de vanliga hypotekslånen, så pengarna borde riktas mot refinansiering av inteckningarna och betala av de uteslutna. Och det skulle återställa värdet på de hypotekslån som säkerställer finansinstituten och krisen skulle vara över. Så det finns ingen koppling mellan regeringarnas förklaring av krisen och dess lösning på krisen. (Intressant, och kanske tidens tecken, medan Europa och USA anser mer socialistiska politikområden, som en form av nationalisering, verkar Kina överväga mer kapitalistiska idéer, såsom en del av jordreformen, stimulera och utveckla sin kinesiska förhoppning kan vara ett sätt att försöka hjälpa till att isolera landet från några av effekterna av den globala finanskrisen.) Trots den stora 700 miljarder amerikanska planen har bankerna fortfarande varit ovilliga att låna ut. Detta ledde till att US Fed meddelade ytterligare 800 miljarder stimulanspaket i slutet av november. Ungefär 600 miljarder markeras för att köpa upp värdepapper med säkerhet, medan 200 miljarder kommer att vara avsedda att fria konsumentkreditmarknaden. Detta speglar också hur krisen har spridit sig från finansmarknaderna till realekonomin och konsumentutgifterna. I februari 2009, enligt Bloomberg. Den totala amerikanska bailouten är 9,7 biljoner. Tillräckligt att betala mer än 90 procent av amerikanska bostadslån (även om det här bailout knappt hjälper husägare). Och i många månader har oro blivit växande om var USAs räddnings pengar faktiskt går. Det verkar som om det har varit lite spänning mellan USA: s statsskatt och kongress. Interviewing Special Inspector General Barofsky, Inter Press Service noter, Treasury har kallat revisionsutgifter av räddnings pengar oanvända. Barofsky sa. Treasury har vägrade att granska de pengar som lånas till bankerna för att se hur de spenderar den. Så Barofskys kontor fortsatte och förföljde informationen. Kontoret granskade 360 banker som mottog statsobligationsfonder och fann att nästan alla använde pengarna på annat sätt än att låna ut vilket var avsikten med programmet. Bankerna använde några av fonderna att låna, men också för att köpa andra banker, att betala av skulder och att helt enkelt hålla i reserv om de skulle behöva pengarna i framtiden. TARP Troubled Asset Relief Program har blivit ett program där skattebetalarna inte får veta vad de flesta TARP-mottagarna gör med sina pengar, har fortfarande inte fått veta hur mycket deras betydande investeringar är värda och kommer inte att få veta alla detaljer om hur deras pengar investeras, sa Barofsky. A crisis signaling the decline of USs superpower status Even before this global financial crisis took hold, some commentators were writing that the US was in decline, evidenced by its challenges in Iraq and Afghanistan, and its declining image in Europe, Asia and elsewhere. The BBC also asked if the USs superpower status was shaken by this financial crisis: The financial crisis is likely to diminish the status of the United States as the worlds only superpower. On the practical level, the US is already stretched militarily, in Afghanistan and Iraq, and is now stretched financially. On the philosophical level, it will be harder for it to argue in favor of its free market ideas, if its own markets have collapsed. Some see this as a pivotal moment. The political philosopher John Gray, who recently retired as a professor at the London School of Economics, wrote in the London paper The Observer: Here is a historic geopolitical shift, in which the balance of power in the world is being altered irrevocably. The era of American global leadership, reaching back to the Second World War, is over The American free-market creed has self-destructed while countries that retained overall control of markets have been vindicated. How symbolic that Chinese astronauts take a spacewalk while the US Treasury Secretary is on his knees. Yet, others argue that it may be too early to write of the US: The director of a leading British think-tank Chatham House, Dr Robin Niblett argues that we should wait a bit before coming to a judgment and that structurally the United States is still strong. America is still immensely attractive to skilled immigrants and is still capable of producing a Microsoft or a Google, he went on. Even its debt can be overcome. It has enormous resilience economically at a local and entrepreneurial level. And one must ask, decline relative to who China is in a desperate race for growth to feed its population and avert unrest in 15 to 20 years. Russia is not exactly a paper tiger but it is stretching its own limits with a new strategy built on a flimsy base. India has huge internal contradictions. Europe has usually proved unable to jump out of the doldrums as dynamically as the US. But the US must regain its financial footing and the extent to which it does so will also determine its military capacity. If it has less money, it will have fewer forces. Europe and the financial crisis In Europe, a number of major financial institutions failed. Others needed rescuing. In Iceland, where the economy was very dependent on the finance sector, economic problems have hit them hard. The banking system virtually collapsed and the government had to borrow from the IMF and other neighbors to try and rescue the economy. In the end, public dissatisfaction at the way the government was handling the crisis meant the Iceland government fell . For example, some nations have stepped in to nationalize or in some way attempt to provide assurance for people. This may include guaranteeing 100 of peoples savings or helping broker deals between large banks to ensure there isnt a failure. The EU is also considering spending increases and tax cuts said to be worth 200bn over two years. The plan is supposed to help restore consumer and business confidence, shore up employment, getting the banks lending again, and promoting green technologies. Russiaa economy is contracting sharply with many more feared to slide into poverty. One of Russias key exports, oil, was a reason for a recent boom, but falling prices have had a big impact and investors are withdrawing from the country. Structural Adjustment for Industrialized Nations For decades, structural adjustment policies in the developing nations (often strongly encouraged by the wealthy nations) has created poverty or made things worse. Now, with such a severe financial crisis industrialized nations from Greece, to UK and others are contemplating strong austerity measures and cutbacks on public services much like the structural adjustment the developing world had to endure for as much as 2 decades. For example, UKs new government has come in mostly on a platform of blaming the previous government for causing the crisis, ignoring the neoliberal ideological influences on government policy from the private sector or from their own party before the Labour Party had come into power (though New Labour also encouraged the same thinking). As such, the new Conservative government has insisted that because of high spending of the past government, they have no alternative but to cut back on all manner of social spending (all while various bankers get ready to be rewarded with more bonuses). Yet, as Professor Ha Joon Chang noted at the end of 2010, the fall in tax revenues has made the deficit hard to sustain. not government spending per se: Companies and individuals have been unable to earn as much as before the recession so the fall in that revenue for governments leaves their previously high spending look like immense bureaucratic waste holes. Bringing about sustainable and appropriate growth is more important than cuts to areas that didnt cause the problem he seems to imply, while not enough is being done to prevent future crises of the same type. Excessive cuts, he warns, can even push a country further into recession if it is not addressing the core causes of the crisis in the first place. Stories of strikes and protests are increasingly commonplace, and if the experience of developing nations are anything to go by in previous decades. similar protests are likely in the future in industrialized nations. One such example is in Ireland that has recently seen a bailout package from the EU, IMF and others require an austerity budget, much like the harmful structural adjustment policies the developing world went through. Other Eurozone countries such as Portugal, Italy, Greece and Spain are also facing potential problems, while Iceland has gone through many in the past. Former Nobel prize winner for economics, Paul Krugman compared Iceland and Irelands handling of the situation and found that Irelands situation is potentially worse than Icelands because the Irish government stepped in to guarantee the banks debt, turning private losses into public obligations. Irelands economic growth turned to disaster when speculative frenzy, driven by banks and the real estate sector, and possibly corrupt politicians, ended with banks bursting. Irelands credit-worthiness in the international markets was under fire so it took on austerity measures. So, in effect, actions by banks and others have left the nation in recession, with the public bailing them out, while taking on the effects to their economy a double-whammy so to speak. As Krugman ends, punishing the Irish population for the mistakes of the banks and others is a terrible mistake. By contrast, Krugman also notes that Icelands banks had to pay for their mistakes, leading to a decline in Icelands external debt. (Other measures including temporary capital controls also helped. Icelands own currency, the Krona, instead of Euro may have helped it too as it was able to devalue its currency, making its exports more competitive and thus helping it somewhat.) Ireland is now in a tough spot as protesters have a legitimate cause to be concerned while others are worried that if actions such as considering increasing corporate tax are entertained, major multinationals that have been part of Irelands recent boom, may make good on their threat to move to other places that are more favorable to them although the 100bn bailout conditions currently do not require that. Focusing on debt instead of the economy In the US, the Democracy Now show reveals how billionaire investors have helped reshape the national debate on the economy, the debt and social spending. Some have contributes hundreds of millions of dollars to push Congress to cut Social Security, Medicare and Medicaid while providing tax breaks for corporations and the wealthy. Campaigns such as Fix the Debt are portrayed as a citizen-led effort, while critics find them to be fronts for business groups. And of course, special interests and ideology are at play as John Nicols, part of a group who exposed some of these findings, noted: What they are really arguing for is a systematized austerity, one where you have very, very wealthy people deciding what sort of fixes we will have for our economy. And at the end of the day, invariably, the fix will be to lower their tax rates while at the same time taking deep cuts out of the earned benefit programs that Americans desperately need. Democracy Nows full video is here: In his own article in the Nation magazine John Nichols added. The Fix the Debt project, financed by corporations and billionaires, seeks to buy that influence after its proposals were rejected by the voters. Thats not democracy thats plutocracy. That comes from his article, The Austerity Agenda: An Electoral Loser. In that article he also describes how some of the phony campaigns work in a 2-minute video: Presumably other countries may also have such cynical political campaigns, too. Austerity as ideological opportunity As prominent economist Ha Joon Chang has written many times, the UKs problems go far deeper than the cuts agenda. It simply cant produce enough to revive its ailing economy. Furthermore, as has been said by many for many years, the approach by some governments, such as the UKs current coalition government (with the Conservatives as the main party) is ideological: British debate on economic policy is getting nowhere. The coalition government keeps repeating that it has to cut spending in order to cut deficits, no matter what. The opposition has been at pains to explain that trying to cut deficits by cutting spending in a stagnant economy is a largely self-defeating exercise, as it reduces growth and thus tax revenue. In reality, though, the coalition government isnt as stupid or stubborn as it appears. It is sticking to its plan A because spending cuts are not about deficits but about rolling back the welfare state. So no amount of evidence is going to change its position on cuts . Ha Joon Chang, Britain: a nation in decay. The Guardian, March 8, 2013 (Emphasis Added) And history seems to show that austerity has never worked and has always led to recession. Or maybe put another way, it has typically worked for the elite looking to maintain a system from which they benefit. Austerity without economic growth backwards development For UK in particular, as Chang continues, despite a huge devaluation in the sterling currency, it has still been unable to generate a trade surplus. UKs over-reliance on financial services may also be a cause for long-term concern. And as manufacturing shows mixed signals, luxury goods show a general healthy sign and exports of raw resources are doing better than finished manufacturing products, these all hint to growing inequality and potential growing poverty and stagnation. Or as Chang puts it, putting all this in context, since the crisis the British economy has been moving backwards in terms of its sophistication as a producer. In the middle of 2012, the United Nations also warned that the problems in European were bad not just for Europe, but for the world economy too. The policy of austerity was criticized by the UN as heading in the wrong direction. The fiscal austerity programs implemented in several European countries are ineffective to help the economy emerge from crisis, it said, according to Inter Press Service . Lost decade A few are now suggesting that some European countries may be facing a lost decade or a lost youth generation. A Nobel laureate in economics, Joseph Stiglitz, writes, It will take 10 years or more to recover the losses incurred in this austerity process. Europes talents and resources its physical, human, and natural capital are the same today as they were before the crisis began. The problem is that the prescriptions imposed are leading to massive under-utilisation of these resources. Whatever Europes problem, a response that entails waste on this scale cannot be the solution. While many talk of a lost decade, it is worth remembering that similar austerity programs imposed on most of the developing world in the form of Structural Adjustment Programs amounted to a loss of 2 decades. Those policies largely driven by IMF policies influenced by the US and European countries now seem ironic as Chang also notes: Given recent reform changes in the IMF, it is ironic to see the European governments inflicting an old-IMF-style program on their own populations. It is one thing to tell the citizens of some faraway country to go to hell but it is another to do the same to your own citizens, who are supposedly your ultimate sovereigns. Indeed, the European governments are out-IMF-ing the IMF in its austerity drive so much that now the fund itself frequently issues the warning that Europe is going too far, too fast. Ha Joon Chang, The root of Europes riots. The Guardian, September 28, 2012 So as well as a loss of economic productivity and livelihoods that come through it, peoples rights and democracy are also undermined by this process of austerity: Instead of austerity being explicitly cast as a rewriting of the social contract, changing peoples entitlements and changing the way the society establishes its legitimacy, the dismembering of the welfare state is presented as a technocratic exercise of balancing the books. Democracy is neutered in the process and the protests against the cuts are dismissed. The description of the externally imposed Greek and Italian governments as technocratic is the ultimate proof of the attempt to make the radical rewriting of the social contract more acceptable by pretending that it isnt really a political change. The danger is not only that these austerity measures are killing the European economies but also that they threaten the very legitimacy of European democracies not just directly by threatening the livelihoods of so many people and pushing the economy into a downward spiral, but also indirectly by undermining the legitimacy of the political system through this backdoor rewriting of the social contract. Ha Joon Chang, The root of Europes riots. The Guardian, September 28, 2012 So why cant countries just declare themselves bankrupt like companies can As Chang explains in another article, there arent the same processes available for countries as there are for companies: It is not because people condoned defaulting per se that they came to introduce the corporate bankruptcy law. It was because they recognized that in the long run, creditors and the broader economy, too are likely to benefit more from reducing the debt burdens of companies in trouble, so that they can get a fresh start, than by letting them disintegrate in a disorderly way. It is high time that we applied the same principles to countries and introduced a sovereign bankruptcy law. The financial crisis and the developing world For the developing world, the rise in food prices as well as the knock-on effects from the financial instability and uncertainty in industrialized nations are having a compounding effect. High fuel costs, soaring commodity prices together with fears of global recession are worrying many developing country analysts. Summarizing a United Nations Conference on Trade and Development report, the Third World Network notes the impacts the crisis could have around the world, especially on developing countries that are dependent on commodities for import or export: Uncertainty and instability in international financial, currency and commodity markets, coupled with doubts about the direction of monetary policy in some major developed countries, are contributing to a gloomy outlook for the world economy and could present considerable risks for the developing world, the UN Conference on Trade and Development (UNCTAD) said Thursday. Commodity-dependent economies are exposed to considerable external shocks stemming from price booms and busts in international commodity markets. Market liberalization and privatization in the commodity sector have not resulted in greater stability of international commodity prices. There is widespread dissatisfaction with the outcomes of unregulated financial and commodity markets, which fail to transmit reliable price signals for commodity producers. In recent years, the global economic policy environment seems to have become more favorable to fresh thinking about the need for multilateral actions against the negative impacts of large commodity price fluctuations on development and macroeconomic stability in the world economy. Asia and the financial crisis Countries in Asia are increasingly worried about what is happening in the West. A number of nations urged the US to provide meaningful assurances and bailout packages for the US economy, as that would have a knock-on effect of reassuring foreign investors and helping ease concerns in other parts of the world. Many believed Asia was sufficiently decoupled from the Western financial systems. Asia has not had a subprime mortgage crisis like many nations in the West have, for example. Many Asian nations have witnessed rapid growth and wealth creation in recent years. This lead to enormous investment in Western countries. In addition, there was increased foreign investment in Asia, mostly from the West. However, this crisis has shown that in an increasingly inter-connected world means there are always knock-on effects and as a result, Asia has had more exposure to problems stemming from the West. Many Asian countries have seen their stock markets suffer and currency values going on a downward trend. Asian products and services are also global, and a slowdown in wealthy countries means increased chances of a slowdown in Asia and the risk of job losses and associated problems such as social unrest. India and China are the among the worlds fastest growing nations and after Japan, are the largest economies in Asia. From 2007 to 2008 Indias economy grew by a whopping 9. Much of it is fueled by its domestic market. However, even that has not been enough to shield it from the effect of the global financial crisis, and it is expected that in data will show that by March 2009 that Indias growth will have slowed quickly to 7.1. Although this is a very impressive growth figure even in good times, the speed at which it has droppedthe sharp slowdownis what is concerning. China, similarly has also experienced a sharp slowdown and its growth is expected to slow down to 8 (still a good growth figure in normal conditions). However, China also has a growing crisis of unrest over job losses. Both have poured billions into recovery packages. With China concerned about its economy, it has been trying to encourage its companies to invest more overseas. hoping it will reduce the upward pressure on its currency, the Yuan. China has also raised concerns about the world relying on mostly one foreign currency reserve, and called for the dollar to be replaced by a world reserve currency run by the IMF. Of course, the US has defended the dollar as a global currency reserve. which is to be expected given it is one of its main sources of global economic dominance. Whether a change like this would actually happen remains to be seen, but it is likely the US and its allies will be very resistant to the idea. Japan, which has suffered its own crisis in the 1990s also faces trouble now. While their banks seem more secure compared to their Western counterparts, it is very dependent on exports. Japan is so exposed that in January alone, Japans industrial production fell by 10. the biggest monthly drop since their records began. Japans output for the first 3 months of 2009 plunged at its quickest pace since records began in 1955, mostly due to falling exports. A rise in industrial output in April was expected, but was positively more than initially estimated. However, with high unemployment and general lack of confidence, optimism for recovery has been dampened. Towards the end of October 2008, a major meeting between the EU and a number of Asian nations resulted in a joint statement pledging a coordinated response to the global financial crisis. However, as Inter Press Service (IPS) reported, this coordinated response is dependent on the entry of Asias emerging economies into global policy-setting institutions . This is very significant because Asian and other developing countries have often been treated as second-class citizens when it comes to international trade, finance and investment talks. This time, however, Asian countries are potentially trying to flex their muscle, maybe because they see an opportunity in this crisis, which at the moment mostly affects the rich West. Asian leaders had called for effective and comprehensive reform of the international monetary and financial systems. For example, as IPS also noted in the same report, one of the Chinese state-controlled media outlets demanded that We want the U. S. to give up its veto power at the International Monetary Fund and European countries to give up some more of their voting rights in order to make room for emerging and developing countries. They also added, And we want America to lower its protectionist barriers allowing an easier access to its markets for Chinese and other developing countries goods. Whether this will happen is hard to know. Similar calls by other developing countries and civil society around the world, for years, have come to no avail. This time however, the financial crisis could mean the US is less influential than before. A side-story of the emerging Chinese superpower versus the declining US superpower will be interesting to watch. It would of course be too early to see China somehow using this opportunity to decimate the US, economically, as it has its own internal issues. While the Western mainstream media has often hyped up a threat posed by a growing China, the World Banks chief economist (Lin Yifu, a well respected Chinese academic) notes Relatively speaking, China is a country with scarce capital funds and it is hardly the time for us to export these funds and pour them into a country profuse with capital like the U. S. China has, however, used this opportunity to attempt to attract neighboring nations into its orbit by attempting to foster better economic ties. According to an IPS analysis, this has been a goal for a while, but the recent financial crisis has provided more opportunities for China to step up to this. An improved investment deal between China and Taiwan maybe one example of this improving engagement in the region. The economic crisis may also be encouraging greater ties in this manner, as it would be important for Taiwan in particular (as it has been in recession since the end of 2008). Asian nations are mulling over the creation of an alternative Asia foreign exchange fund, but market shocks are making some Asian countries nervous and it is not clear if all will be able to commit. What seems to be emerging is that Asian nations may have an opportunity to demand more fairness in the international arena, which would be good for other developing regions, too. Africa and the financial crisis Perhaps ironically, Africas generally weak integration with the rest of the global economy may mean that many African countries will not be affected from the crisis, at least not initially. as suggested by Reuters in September 2008. The wealthier ones who do have some exposure to the rest of the world, however, may face some problems. In recent years, there has been more interest in Africa from Asian countries such as China. As the financial crisis is hitting the Western nations the hardest, Africa may yet enjoy increased trade for a while. These earlier hopes for Africa, above, may be short lived, unfortunately. In May 2009, the International Monetary Fund (IMF) warned that Africas economic growth will plummet because of the world economic downturn, predicting growth in sub-Saharan Africa will slow to 1.5 in 2009, below the rate of population growth (revising downward a March 2009 prediction of 3.25 growth due to the the slump in commodity prices and the credit squeeze). South Africa, Africas largest economy, has entered into recession for the first time since 1992, due to a sharp decline in the key manufacturing and mining sectors. The IMF has promised more aid to the region, importantly with looser conditions, which in the past have been very detrimental to Africa. Many will likely remain skeptical of IMF loans given this past, as Stiglitz and others have already voiced concerns about (see further below). In the long run, it can be expected that foreign investment in Africa will reduce as the credit squeeze takes hold. Furthermore, foreign aid. which is important for a number of African countries, is likely to diminish. ( Effectiveness of aid is a separate issue which the previous link details.) African countries could face increasing pressure for debt repayment, however. As the crisis gets deeper and the international institutions and western banks that have lent money to Africa need to shore up their reserves more, one way could be to demand debt repayment. This could cause further cuts in social services such as health and education, which have already been reduced due to crises and policies from previous eras . Much of the debts owed by African nations are odious, or unjust debts, as detailed further below, which would make any more aggressive demands of repayment all the more worrisome. Some African countries have already started to cut their health and HIV budgets due to the economic crisis. Their health budgets and resources have been constrained for many years already, so this crisis makes a bad situation worse. As IPS reports, Already, large percentages of households in Sub-Saharan Africa are poor, and the large number of people on treatment means ever-increasing treatment program costs. Yet, Sub-Saharan Africa only accounts for one percent of global health expenditure and two percent of the global health workforce. Currently, only one third of HIV-positive Africans in need of antiretroviral (ARV) treatment can access it. Dr Bactrin Killingo, chairperson of the Nairobi-based Collaborative Fund for HIV Treatment Preparedness says, If current cost constraints faced by HIV treatment programmes are not addressed, while the demand for expensive second-line treatment increases, we will soon find ourselves in a situation similar to the 1990s, where millions of lives were lost unnecessarily because people could not afford the treatment they needed to stay alive. And it is not just poor nations health funds at risk. IPS adds that even international donor organizations have started to feel the financial crunch: The Global Fund to Fight AIDS, Tuberculosis and Malaria recently announced it is at least 4 billion short of the money it will need to continue funding essential HIV, TB and malaria services in 2010. The coalition believes there is a 10.7 billion funding gap for regional implementation of the Global Plan to Stop TB alone. Latin America and the financial crisis Much of Latin America depends on trade with the United States (which absorbs half of Latin Americas exports, alone, for example). As such Latin America will also feel the effect of the US financial crisis and slower growth in Latin America is expected . Due to its proximity to the US and its close relationship via the NAFTA and other agreements, Mexico is expected to have one of the lowest growth rates for the region next year at 1.9, compared to a downgraded forecast of 3 for the rest of the region. A number of countries in the region have come together in the form of the Latin American Pacific Arc and are hoping to improve trade and investment with Asia. Diversifying in this way might be good for the region and help provide some stability against future crises. For the moment, the integration is going ahead. despite concerns about the financial crisis. However, the problems of a regional blocs, Mercosur (the Southern Common Market), shows that not all is well. While Mercosur is its relevance being questioned, an IPS overview of its recent challenges also highlights that a number of South American countries are raising trade barriers against their neighbors as the crisis starts to bite more. Rather than regional integration and a unified position to present to the rest of the world, concerns of fragmentation are increasing. This also affects Brazil, as the regional economic superpower more bickering within its sphere means distraction from the global scene. A crisis in context While much mainstream media attention is on the details of the financial crisis, and some of its causes, it also needs to be put into context (though not diminishing its severity). Plummeting stock markets have wiped out 33 of the value of companies, 14.5 trillion. Taxpayers will be bailing out their banks and financial institutions with large amounts of money. US taxpayers alone will spend some 9.7 trillion in bailout packages and plans. according to Bloomberg. The UK and other European countries have also spent some 2 trillion on rescues and bailout packages. More is expected. Much more. Such numbers, made quickly available, are enough to wipe many individuals mortgages, or clear out third world debt many times over. Even the high military spending figures are dwarfed by the bailout plans to date. A crisis of poverty for much of humanity In poorer countries, poverty is not always the fault of the individual alone, but a combination of personal, regional, national, andimportantlyinternational influences. There is little in the way of bail out for these people, many of whom are not to blame for their own predicament, unlike with the financial crisis. There are some grand strategies to try and address global poverty, such as the UN Millennium Development Goals, but these are not only lofty ideals and under threat from the effects of the financial crisis (which would reduce funds available for the goals), but they only aim to halve poverty and other problems. While this of course is better than nothing it signifies that many leading nations have not had the political will to go further and aim for more ambitious targets, but are willing to find far more to save their own banks, for example. A global food crisis affecting the poorest the most While the medias attention is on the global financial crisis (which predominantly affects the wealthy and middle classes), the effects of the global food crisis (which predominantly affects the poorer and working classes) seems to have fallen off the radar. The two are in fact inter-related issues, both have their causes rooted in the fundamental problems associated with a neoliberal, one-size-fits-all, economic agenda imposed on virtually the entire world. Human rights conditions made worse by the crisis Human rights has long been a concern. Recent years have seen increasing acknowledgment that human rights and economic issues such as development go hand in hand. Amnesty International Report 2009. May 27, 2009. The Amnesty International Report 2009 highlights the impact of the economic crisis on human rights across the world, calling for a new deal on human rights to go hand-in-hand with any proposed financial solutions. Long before the global financial crisis took hold, human rights concerns were high the world over, as annual reports from Amnesty International and other human rights organizations repeatedly warned about. The global financial crisis has led to an economic crisis which in turn has led to a human rights crisis, says Amnesty in their 2009 report . They find that as millions more slide into poverty as a result of the current crisis, social unrest increases resulting in more protests. These protests are sometimes met with a lot of suppression. Other times, people are exploited further. When the G20 held a summit in UK in April 2009, much was made by local media about the apparent use of excessive force by police against protesters. and even led to the death of a passer by mistaken as a protester (a small minority of whom were also violent). (George Monbiot also raises concerns about how campaigners and protesters are being rebranding as domestic extremists .) But as a news article accompanying the report from Amnesty summarizes, many nations have seen protests against economic decline and social conditions which have been met by violence, arrests and detentions without charge: Across Africa, people demonstrated against desperate social and economic situations and sharp rises in living costs. Some demonstrations turned violent the authorities often repressed protests with excessive force. Social tensions and economic disparities led to thousands of protests throughout China. In the Americas, social protest at economic conditions increased in Peru in Chile there were demonstrations throughout 2008 on Indigenous Peoples rights and rising living costs. In the Middle East and North Africa, the economic and social insecurity was highlighted by strikes and protests in several countries, including Egypt. In Tunisia, strikes and protests were put down with force, causing two deaths, many injuries and more than 2,000 prosecutions of alleged organizers, some culminating in long prison sentences. Poor nations will get less financing for development The poorer countries do get foreign aid from richer nations, but it cannot be expected that current levels of aid (low as they actually are) can be maintained as donor nations themselves go through financial crisis. As such the Millennium Development Goals to address many concerns such as halving poverty and hunger around the world, will be affected. Almost an aside, the issue of tax havens is important for many poor countries. Tax havens result in capital moving out of poor countries into havens. An important source of revenue, domestic tax revenues account for just 13 of low income countries earnings, whereas it is 36 for the rich countries. as Inter Press Service notes. A UN-sponsored conference slated for November 2008 to address this issue is unlikely to get much attention or be successful due to the recession fears and the financial crisis. But this capital flight is estimated to cost poor countries from 350 billion to 500 billion in lost revenue, outweighing foreign aid by almost a factor of 5. This lost tax revenue is significant for poor countries. It could reduce, or eliminate the need for foreign aid (which many in rich countries do not like giving, anyway), could help poor countries pay off (legitimate) debts, and also help themselves become more independent from the influence of wealthy creditor nations. Politically, it may be this latter point that prevents many rich countries doing more to help the poor, when monetarily it would be so easy to do so. But public pressure has had an effect. Governments of the US, UK and others are slowly increasing pressure on tax havens, though with mixed results, and some tax havens are on the defensive, some trying to justify themselves. Some havens, such as Jersey have been pressured into signing agreements that will increase their transparency. Whether it will work, or if it is just a token gesture is hard to say at this time, however. Channel 4 news item on tax justice in Jersey, March 2009 (via IFIWatch. tv ) For more on this aspect, see this sites section on tax evasion and tax havens . Odious third world debt has remained for decades Banks and military get money easily Crippling third world debt has been hampering development of the developing countries for decades. These debts are small in comparison to the bailout the US alone was prepared to give its banks, but enormous for the poor countries that bear those burdens, having affected many millions of lives for many, many years. Many of these debts were incurred not just by irresponsible government borrowers (such as corrupt third world dictators, many of whom had come to power with Western backing and support ), but irresponsible lending (also a moral hazard) from Western banks and institutions they heavily influenced, such as the IMF and World Bank. Drop the Debt 2009. (July 2009). Video compares financial crisis bailouts with third world debt. Despite enormous protest and public pressure for odious debt relief or write-off, hardly any has occurred, and when it does grand promises of debt relief for poor countries often turn out to be exaggerated. One recently described historic breakthrough debt relief was announced as a 40 billion debt write-off but turned out to be closer to 17 billion in real terms. To achieve even this amount required much campaigning and pressuring of the mainstream media to cover these issues. By contrast, the 700 billion US bail out as well as bailouts by other rich country governments were very quick to put in place. The money then seemed easy to find. Talk of increasing health or education budgets in rich countries typically meets resistance. Massive military spending. or now, financial sector bail out, however, can be done extremely quickly. And, a common view in many countries seems to be how financial sector leaders get away with it. For example, a hungry person stealing bread is likely to get thrown into jail. A financial sector leader, or an ideologue pushing for policies that are going to lead to corruption or weaknesses like this, face almost no such consequence for their action other than resigning from their jobs and perhaps public humiliation for a while. A crisis that need not have happened This problem could have been averted (in theory) as people had been pointing to these issues for decades. Yet, of course, during periods of boom no-one (let alone the financial institutions and their supporting ideologues and politicians largely believed to be responsible for the bulk of the problems) would want to hear of caution and even thoughts of the kind of regulation that many are now advocating. To suggest anything would be anti-capitalism or socialism or some other label that could effectively shut up even the most prominent of economists raising concerns. Of course, the irony that those same institutions would now themselves agree that those anti-capitalist regulations are required is of course barely noted. Such options now being considered are not anti-capitalist. However, they could be described as more regulatory or managed rather than completely free or laissez faire capitalism, which critics of regulation have often preferred. But a regulatory capitalist economy is very different to a state-based command economy, the style of which the Soviet Union was known for. The points is that there are various forms of capitalism, not just the black-and-white capitalism and communism. And at the same time, the most extreme forms of capitalism can also lead to the bigger bubbles and the bigger busts. Quoting Stiglitz again, he captures the sentiments of a number of people: We had become accustomed to the hypocrisy. The banks reject any suggestion they should face regulation, rebuff any move towards anti-trust measures yet when trouble strikes, all of a sudden they demand state intervention: they must be bailed out they are too big, too important to be allowed to fail. Americas financial system failed in its two crucial responsibilities: managing risk and allocating capital. The industry as a whole has not been doing what it should be doing and it must now face change in its regulatory structures. Regrettably, many of the worst elements of the US financial system were exported to the rest of the world. Some of these regulatory measures have been easy to get around for various reasons. Some reasons for weak regulation that entrepreneur Mark Shuttleworth describes include that regulators Are poorly paid or are not the best talent Often lack true independence (or are corrupted by industries lobbying for favors) May lack teeth or courage in face of hostile industries and a politically hostile climate to regulation. Given its crucial role, it is extremely important to invest in it too, Shuttleworth stresses. However, this crisis wasted almost a generation of talent: It was all done in the name of innovation, and any regulatory initiative was fought away with claims that it would suppress that innovation. They were innovating, all right, but not in ways that made the economy stronger. Some of Americas best and brightest were devoting their talents to getting around standards and regulations designed to ensure the efficiency of the economy and the safety of the banking system. Unfortunately, they were far too successful, and we are all homeowners, workers, investors, taxpayers paying the price. Paul Krugman also notes the wasted talent, at the expense of other areas in much need: How much has our nations future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest young people into investment banking, at the expense of science, public service and just about everything else Paul Krugman, The Madoff Economy. New York Times, Opinion, December 19, 2008 British economist John Maynard Keynes, is considered one of the most influential economists of the 20th century and one of the fathers of modern macroeconomics. He advocated an interventionist form of government policy believing markets left to their own measure (i. e. completely freed ) could be destructive leading to cycles of recessions, depressions and booms. To mitigate against the worst effects of these cycles, he supported the idea that governments could use various fiscal and monetary measures. His ideas helped rebuild after World War II, until the 1970s when his ideas were abandoned for freer market systems. Keynes biographer, professor Robert Skidelsky, argues that free markets have undermined democracy and led to this crisis in the first place: What creates a crisis of the kind that now engulfs us is not economics but politics. The triumph of the global free market, which has dominated the world over the last three decades has been a political triumph. It has reflected the dominance of those who believe that governments (for which read the views and interests of ordinary people) should be kept away from the levers of power, and that the tiny minority who control and benefit most from the economic process are the only people competent to direct it. This band of greedy oligarchs have used their economic power to persuade themselves and most others that we will all be better off if they are in no way restrainedand if they cannot persuade, they have used that same economic power to override any opposition. The economic arguments in favor of free markets are no more than a fig leaf for this self-serving doctrine of self-aggrandizement. Furthermore, he argues that the democratic process has been abused and manipulated to allow a concentration of power that is actually against the idea of free markets and real capitalism: The uncomfortable truth is that democracy and free markets are incompatible. The whole point of democratic government is that it uses the legitimacy of the democratic mandate to diffuse power throughout society rather than allow it to accumulateas any player of Monopoly understandsin just a few hands. It deliberately uses the political power of the majority to offset what would otherwise be the overwhelming economic power of the dominant market players. If governments accept, as they have done, that the free market cannot be challenged, they abandon, in effect, their whole raison detre. Democracy is then merely a sham. No amount of cosmetic tinkering at the margins will conceal the fact that power has passed to that handful of people who control the global economy. Despite Keynesian economics getting a bad press from free market advocates for many years, many are now turning to his policies and ideas to help weather the economic crisis. We are all Keynesians now. Even the right in the United States has joined the Keynesian camp with unbridled enthusiasm and on a scale that at one time would have been truly unimaginable. after having been left in the wilderness, almost shunned, for more than three decades what is happening now is a triumph of reason and evidence over ideology and interests. Economic theory has long explained why unfettered markets were not self-correcting, why regulation was needed, why there was an important role for government to play in the economy. But many, especially people working in the financial markets, pushed a type of market fundamentalism. The misguided policies that resulted pushed by, among others, some members of President-elect Barack Obamas economic team had earlier inflicted enormous costs on developing countries. The moment of enlightenment came only when those policies also began inflicting costs on the US and other advanced industrial countries. The neo-liberal push for deregulation served some interests well. Financial markets did well through capital market liberalization. Enabling America to sell its risky financial products and engage in speculation all over the world may have served its firms well, even if they imposed large costs on others. Today, the risk is that the new Keynesian doctrines will be used and abused to serve some of the same interests. Joseph Stiglitz, Getting bang for your buck. The Guardian, December 5, 2008 Some of the worlds top financiers and officials are reluctantly accepting that the version of capitalism that has long favored them may not be good for everyone. At the end of 2008, Alan Greenspan was summoned to the U. S. Congress to testify about the financial crisis. His tenure at the Federal Reserve had been long and lauded, and Congress wanted to know what had gone wrong. Henry Waxman questioned him: I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak. In other words, you found that your view of the world, your ideology, was not right, it was not working. Exakt. That is precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well. Greenspans flaw warped his view about how the world was organized, about the sociology of the market. And Greenspan is not alone. Larry Summers, the presidents senior economic advisor, has had to come to terms with a similar errorhis view that the market was inherently self-stabilizing has been dealt a fatal blow. Hank Paulson, Bushs treasury secretary, has shrugged his shoulders with similar resignation. Even Jim Cramer from CNBCs Mad Money admitted defeat: The only guy who really called this right was Karl Marx. One after the other, the celebrants of the free market are finding themselves, to use the language of the market, corrected. Raj Patel, Flaw . The Value of Nothing, (Picador, 2010), pp.4, 6-7 Stiglitz observed this remarkable resignation at the annual Davos forum, usually a meeting place of rich world leaders and the corporate elite, who usually together reassert ways to go full steam ahead with a form of corporate globalization that has benefited those at the top. This time, however, Stiglitz noted that There was a striking loss of faith in markets. In a widely attended brainstorming session at which participants were asked what single failure accounted for the crisis, there was a resounding answer: the belief that markets were self-correcting. The so-called efficient markets model, which holds that prices fully and efficiently reflect all available information, also came in for a trashing. So did inflation targeting: the excessive focus on inflation had diverted attention from the more fundamental question of financial stability. Central bankers belief that controlling inflation was necessary and almost sufficient for growth and prosperity had never been based on sound economic theory. no one from either the Bush or Obama administrations attempted to defend American-style free-wheeling capitalism. Most American financial leaders seemed too embarrassed to make an appearance. Perhaps their absence made it easier for those who did attend to vent their anger. Labor leaders working for the business community were particularly angry at the financial communitys lack of remorse. A call for the repayment of past bonuses was received with applause. Joseph Stiglitz, Fear and loathing in Davos. The Guardian, February 6, 2009 Some at the top, however, have tried to play the role of victim: Indeed, some American financiers were especially harshly criticized for seeming to take the position that they, too, were victims and it seemed particularly galling that they were continuing to hold a gun to the heads of governments, demanding massive bailouts and threatening economic collapse otherwise. Money was flowing to those who had caused the problem, rather than to the victims. Worse still, much of the money flowing into the banks to recapitalize them so that they could resume lending has been flowing out in the form of bonus payments and dividends. Joseph Stiglitz, Fear and loathing in Davos. The Guardian, February 6, 2009 And as much as this crisis affects wealthier nations, the poorest will suffer most in the long run: This crisis raises fundamental questions about globalization, which was supposed to help diffuse risk. Instead, it has enabled Americas failures to spread around the world, like a contagious disease. Still, the worry at Davos was that there would be a retreat from even our flawed globalization, and that poor countries would suffer the most. But the playing field has always been uneven. If developing countries cant compete with Americas subsidies and guarantees, how could any developing country defend to its citizens the idea of opening itself even more to Americas highly subsidized banks At least for the moment, financial market liberalization seems to be dead. Joseph Stiglitz, Fear and loathing in Davos. The Guardian, February 6, 2009 Dealing with recession Most economic regions are now facing recession, or are in it. This includes the US, the Eurozone, and many others. At such times governments attempt to stimulate the economy. Standard macroeconomic policy includes policies to Increase borrowing, Reduce interest rates, Reduce taxes, and Spend on public works such as infrastructure. Borrowing at a time of recession seems risky, but the idea is that this should be complimented with paying back during times of growth. Likewise, reducing interest rates sounds like there would be less incentive for people to save money, when banks need to build up their capital reserves. However, as the real economy starts to feel the pinch, reduced interest rates is an attempt to encourage people to take part in the economy. Tax reduction is something that most people favor, and yet during times of economic downturn it would seem that a reduction in tax would result in reduced government revenues just when they need it and then spending on health, education, etc, would be at risk. However, because higher taxes during downturns means more hardship for more people, increased borrowing is supposed to offset the reduction in taxes, hopefully affording people a better chance to weather the economic storm. Finally it is at this time that public infrastructure work, which can potentially employ many, many people, is palatable. Often, under free market ideals, government involvement in such activities is supposed to be minimal. Even the other forms of interference is usually frowned upon. However, most states realize that markets are not always able to function on their own (the current financial crisis, starting in the US, being the prime example) pragmatic and sensible adoption of market systems means governments can guide development and progress as required. Nonetheless, many governments have started to contemplate these kinds of measures. For example, South Korea reduced its interest rates. as has Japan. China. England. various European countries, and many others. Many have looked to borrow billions or in some way come up with stimulus packages to try and kick-start ailing economies. While these might be reasonably standard things to do, it requires that during economic good times, a reversal of some of these policies are required interest rates may need to increase (one reason for the housing booms in the US, UK and elsewhere was that interest rates were too low during good times), borrowing should be reduced and debts should start to be repaid, infrastructure investments may not need to be as direct from government and private enterprise may be able to contribute, and most politically sensitive of all, taxes should increase again to offset the reduction in borrowing. Some are also against government-based stimulus packages, arguing instead that tax cuts alone should do the job individuals make better choices on consumption than governments. Nobel prize winner for economics, Paul Krugman addresses this noting the difference between private consumption and government stimulus: But private spending is not what were talking about when we talk about stimulus spending: were not talking about the government buying consumption goods for the public at large. Instead, were talking about spending more on public goods: goods that the private market wont supply, or at any rate wont supply in sufficient quantities. things like roads, communication networks, sewage systems, and so on. And every Econ 101 textbook explains that the provision of public goods is a necessary function of government. Paul Krugman, Bad anti-stimulus arguments. New York Times, December 22, 2008 Each of these measures should no doubt come under scrutiny from opposition parties and the media, to ensure they are appropriate, but some, such as tax hikes during good times can be so politically sensitive, that governments may be afraid to make such choices, thus making economic policies during bad times even riskier as a result. Even then, the severity of these economic problems means that these strategies are not guaranteed to work, or it may take even longer to take effect. For example, as quarterly figures for various companies start to come out, more and more companies are announcing losses, closures, layoffs or other problems people are becoming very nervous about the economy and spending less. The automobile industry in the US, for example, is feeling immense pressure with some of the largest companies in the world facing huge problems and are asking the government for some kind of bailout or assistance. Yet, the US public generally seems against this, having already bailed out the banks with enormous sums of money. If the automobile industry is bailed out, then other industries will all cry for more money when would it stop In addition, as Joseph Stiglitz warns, some nations are turning to the IMF which is prescribing the opposite policies: Many are already turning to the International Monetary Fund (IMF) for help. The worry is that, at least in some cases, the IMF will go back to its old failed recipes: fiscal and monetary contraction, which would only increase global inequities. While developed countries engage in stabilizing countercyclical policies, developing countries would be forced into destabilizing policies, driving away capital when they need it most. In Iceland, where the economy was very dependent on the finance sector, economic problems have hit them hard. The banking system virtually collapsed and the government had to borrow from the IMF and other neighbors to try and rescue the economy. However, Iceland has raised its interest rates to some 18, partly on advice from the IMF. It would appear to be an example where high interest rates may be inappropriate. The economic problems have led to political challenges including protests and clashes. But as Krugman notes, capital controls may have also helped Iceland as well as having its own currency and making the banks pay for the problems rather than making the public pay. which is what has since happened in Ireland which now faces a massive bailout and very severe austerity measures. It may be that this time round a more fundamental set of measures need to be considered, possibly global in scope. The very core of the global financial system is something many are now turning their attention to. Developing world saving the West Towards the end of September 2010, the World Bank admitted that developing countries have come to the rescue of the global economy. picking up the slack of the advanced economies which were hurt the worst by the financial crisis. World Bank President Robert Zoellick noted that The developing world is becoming the driver of the global economy. Led by emerging markets, developing countries now account for half of global growth and are leading the recovery in world trade. He also acknowledged that as economic power has shifted, a multi-polar world economy is emerging. Current growth trends in the developing world means the collective size of developing-country economies would surpass that of developed-country economies in 2015, the Bank estimates. The Bank believes the following factors help to explain this: Faster technological learning Larger middle-classes More South-South commercial integration High commodity prices, and Healthier balance sheets that will allow borrowing for infrastructure investment These factors further strengthen the long-time chorus of voices demanding Bank and IMF governance reform to share more power with developing countries who have long been side-lined by these influential international institutions, and is discussed further below. Rethinking the international financial system Many people are now calling for fundamental reforms of the financial systems, internationally. This includes international banking and finance, to reform of international financial institutions such as the World Bank and IMF. Part of the reform suggestions also include giving more voice and power to poor countries, who typically have little say in how the global economy is shaped. Traditionally powerful countries have resisted these callsthat have been voiced for decades, not just during this crisis. This crisis however has seen even powerful countries contemplate changes that would be more favorable to emerging nations. Whether these changes can happen is hard to predict. Reforming international banking and finance Leaders of the Bank of England have also called for fundamental international banking reform. Bank of England deputy governor Sir John Gieve said the fundamental rethink meant increasing capital and liquidity requirements at institutions with strong restraints on the build up of risk. Some of the ideas considered are quite significant, such as increasing the reserves banks must have. (Fractional reserve banking often allows banks to have small reserves against which loans can then be made out for larger amounts as usually most people do not withdraw their cash deposits at the same time. This works well in good times, but can then lead to a crisis through encouraging more loans which get riskier as competition increases a moral hazard in reverse.) The Bank of Englands governor, Mervyn King, even went as far as saying a little more boredom would not be a bad thing for the industry. This too is significant as it suggests restraint for an industry that otherwise is a strong proponent of financial market liberalization and supportive of very rapid growth. The recognition here appears to be that maybe slower but more stable long term growth is better and sustainable in the long run rather than short bursts of high growth followed by disruptive bursts, some of which can be very violent as the current crisis is showing. Joseph Stiglitz argues that failures in financial markets have come about because of poorly designed incentive structures, inadequate competition, and inadequate transparency. Part of this is because larger institutions have been resistant to changes that would actually create more healthy competition, something Adam Smith had long noted in his Wealth of Nations. often regarded as the Bible of capitalism. Better regulation is required to reign in the financial markets and bring back trust in the system. In a short but very powerful article he concludes, Part of the problem has been our regulatory structures. If government appoints as regulators those who do not believe in regulation, one is not likely to get strong enforcement. We have to design robust regulatory systems, where gaps in enforcement are transparent. Relatively simple regulatory systems may be easier to implement and more robust, and more resistant to regulatory capture. Well-designed regulations may protect us in the short run and encourage real innovation in the long. Much of our financial markets creativity was directed to circumventing regulations and taxes. Accounting was so creative that no one, not even the banks, knew their financial position. Meanwhile, the financial system has resisted many of the innovations that would have increased the efficiency of our economy. By reducing the scope for these socially unproductive innovations, we can divert creative activity in more productive directions. The agenda for regulatory reform is large. It will not be completed overnight. But we will not begin to restore confidence in our financial markets until and unless we begin serious reform. Joseph Stiglitz, A crisis of confidence. The Guardian, October 22, 2008 Professor of economics at Cambridge, Ha-Joon Chang adds some additional thoughts when commenting on Jeffery Sachs suggestions such as the Tobin Tax and changing emissions trading towards a more straight forward carbon tax. Chang said a lot more could be entertained, including the following: The introduction of a country bankruptcy code that will enable orderly sovereign debt restructuring. Not just expanding the capital adequacy requirement, but also making it counter-cyclical, rather than pro-cyclical as it currently is (i. e. making credit a bit harder to get during good times). Stricter regulations of tax havens and private equity funds, which have greatly contributed to increasing opacity in the financial market. Credit rating agencies play a critical role in todays financial system and given the damages they have inflicted by blessing all those toxic assets, these agencies need to be much more heavily regulated or even replaced by an international public body. Chang also voices concern about IMF reforms, questioning whether trade liberalization for poor countries is always good. (He has been one of the more vocal critics of that idea and argues that rich countries developed using more protectionist policies and moved to free trade once they were industrialized. but that they now say poor countries should liberalize straight away, either because of historical amnesia or because they want to kick away the ladder they climbed to achieve industrialization. The Institute for Economic Democracy has also suggested this for many years too, and is worth looking at for more depth on the political aspects of economic dominance over the centuries.) Reforming International Trade and the WTO A number of developed countries have seen their automobile sectors struggling and asking for bailouts. While banking bailouts could be understood as it affects the entire economy, bailouts for the auto-industry is more controversial while they support many jobs, they do not support the whole economy in the way a bank does. Bailing out car-makers could result in other industries asking for similar bailouts. So what have most governments done Professor Ha-Joon Chang raises the concern that developed countries have spun the proposed assistance as a green issue, not because of a sudden care for the environment and climate change, but to by-pass WTO rules on subsidies, thus revealing a fundamental problem with the World Trade Organization system: The major car-producing countries outside Asia are trying to present their bail-outs to the car industry as green initiatives to avoid having their subsidies declared illegal in the WTO. Back in the summer of 2007, the US government proposed a new subsidies rule in the WTO, in which government lending to uncreditworthy companies and government investments in unequityworthy companies are all to be classified as illegal subsidies. This proposal was objected to by the developing countries, which use many of these measures, but was supported by the Europeans, with some minor qualifications. Having spectacularly bailed out their banks recently by investing astronomical sums in unequityworthy companies, the Americans and Europeans would be completely undermining their position if they also lent huge sums of money to uncreditworthy carmakers. Therefore, they need to be able to say that the huge subsidies that they are giving to their car industries are legal subsidies aimed at greening. What is going on in the automobile industry in Europe and the US exposes the inherent contradictions and inequities in the current international trading system, represented by the WTO. The system bans policy tools that developing countries use more, such as tariffs, direct subsidies and regulations on foreign investment, while being very generous with the tools that the rich countries need, such as the subsidies for agriculture, RampD and reduction of regional disparity. Now that they need to use direct subsidies in large quantity, the rich countries are just going ahead only they are painting everything green. By so blatantly going against the WTO rules, the rich countries have implicitly admitted that the present world trading system is not working. Rather than trying to cover this up by painting everything green, they should start a serious rethink on how to truly reform the system so that not just the rich countries but also the developing countries can use policies that are more suitable to their conditions. In May 2010, a UN conference concluded that markets cant self-regulate. States are often stepping in. Furthermore, it seems that no fundamental reforms have yet taken place: The market has proven unable to self-regulate, stated Jean Feyder, ambassador of Luxembourg and president of UNCTADs trade and development board. In the North, the state has played a major role in overcoming the financial crisis. In the South, it should be a key player in the financing of productive capacities, starting with industrialisation and the protection of infant industries, he added. For Supachai Panitchpakdi, secretary general of UNCTAD, whatever momentum there was for the reform of global economic governance is gone. There have been no fundamental changes to the institutional architecture of economic governance. Some of the most significant moves take place at the regional level, such as more South-South integration. Reforming the Bretton Woods Institutions (IMF and World Bank) The Bretton Woods system of international finance devised by 44 nations after the Second World War, mostly represented by the IMF, World Bank, was designed to help reconstruct and stabilize a post-war global economy. In the 70s, the purpose of these international financial institutions (IFIs) shifted towards a neoliberal economic agenda, championed by Washington, (also known as the Washington Consensus). It was at this time that policies such as structural adjustment started to be pushed to much of the developing world, following a one size fits all prescription of how economies should be structured, which had disastrous consequences for much of the worlds population. As journalist John Vandaele writes, From then on the Bretton Woods Institutions (BWIs) were very asymmetrical organisations. The rich countries didnt need the BWIs any more, but with more than 60 percent of the vote they called the shots in both institutions. Developing countries really depended upon the BWIs, but didnt have a lot to say there. And so the BWIs developed into an instrument of western power. The same policy prescriptions led to predictable problems such as Developing countries opening markets before they were really ready to do so (something often forced through by gun-boat diplomacy during colonial times) Rich countries became judge and party, as Vandaele puts it: When they forced developing countries to open their markets, it was no coincidence that western multinationals tended to be among the first beneficiaries. Worsening poverty from things like structural adjustment policies that sapped the ability of poor country governments to make decisions about how their economies would be run. Although such institutions have rarely been held accountable for such policies and their effects, for many years, people have been calling for their reform, or even for their abolition. Lack of transparency in these institutions has not helped. There have been signs of discontent, however. As mentioned on the structural adjustment page on this site, the IMF and World Bank have even admitted their policies have not always worked. For example, back in 2003, they warned that developing countries face an increasing risk of financial crisis with increasing globalization because effects in one part of the world can more easily ripple through an inter-connected world. Financial integration should be approached cautiously, they warned. In addition, they admitted that it was hard to provide a clear road-map on how this should be achieved, and instead it should be done on a case by case basis. While former chief economist for the World Bank, Joseph Stiglitz is now a well-known critic of the IMFWashington Consensus ideological fanaticism, as also mentioned on that previous page, others at the IMF have also started to question things, noting that developing countries have not benefited from following these ideologies so rigorously. Fast forward a few years to this financial crisis and there are more calls for reform of the global financial system, perhaps with a difference: the crisis now seems to be so deep and affecting rich countries as well that even some rich countries that benefited from the inequality structured into the global order are now calling for reform. In addition, although developing countries had called for reform many times before, they now have a slightly stronger voice that in the past. People within the IMFWorld Bank are now themselves publicly entertaining the thought of reform. The World Banks own president, Robert Zoellick has said the idea of the G7 is not working and that a steering group of more nations would be better. With the limited role the IFIs have played in this crisis. until recently, it seems their significance may be dwindling. Fewer countries have turned to them as last resort, and when they have, they have been able to push for far less stringent conditions than in the past. Some countries have looked to other countries like China, Russia and Arab countries, first. There are still some concerns that some countries turning to the IMF will find themselves being prescribed the old formulas that are now quite criticized. Joseph Stiglitz also adds that these financial institutions have been slow to respond in the past and now: We may be at a new Bretton Woods moment. The old institutions have recognized the need for reform, but they have been moving at glacial speed. They did nothing to prevent the current crisis and there is concern about their effectiveness in responding to it now that it has hit. It took the world 15 years and a world war to come together to address the weaknesses in the global financial system that contributed to the Great Depression. It is to be hoped that it will not take us that long this time: given the level of global interdependence, the costs would simply be too high. As also hinted to earlier, some nations are turning to the IMF. However, it seems that despite talk of reform, for now, some of the IMFs policy prescriptions during this crisis are much of the same discredited prescriptions in past decades. austerity measures and spending cut backs, just when people rely on it the most. French President and head of the EU presidency, Nicolas Sarkozy has called for major changes to the IMF and World Bank. Yet, as John Vandaele added This is as much a rescue operation for two organisations that have lost muscle as a call for a new financial architecture. Sarkozys ideas include tighter supervision of the international banking system and a crackdown on international tax havens to address harmful tax competition between states. These and other proposals are not new however, as many have called for thisand morein the past 2 or 3 decades. As Vandaele also adds, if Sarkozy is serious about a Bretton Woods II, hed better keep in mind that developing countries want more voice. Governance issues such as better representation, more transparency and accountability are some of the things these institutions have long tried to promote, but often faced charges of hypocrisy as these institutions lack many of these fundamentals. Seemingly an impossible thing to realistically envision before this crisis, leading developing countries have finally managed to break some of the control at the IMF and get more seats and votes. While some say that parts of Europe have resisted giving up some share which would be appropriate, the changes also mean the US no longer has veto power that it had for decades. For a while now, talk of G20 meeting rather than just the G8 has signified this possible power shift. The G20 was actually set up in 1999 in the wake of the financial crisis that hit Asia. However, the G8 retained its influence, until now it seems. The G20 represents the G8, the EU as a bloc and 12 emerging economies: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States of America. As well as the EU being represented as a bloc, IMF and World Bank representatives are usually present at G20 meetings. Although it is an informal structure, it comprises 90 of the worlds economic output and some 80 of the worlds population, although the poorest 20 (over 160 nations) are not represented by this group. The United States invited the G20 for a financial crisis meeting in mid-November. As many noted, the meeting was of the G20 and not the G8, indicated how emerging nations might be gaining more prominence. While many emerging nations and even some European countries wanted the meetings to discuss fundamental reforms to the global financial system, the US and others wanted to focus on ways to address the current crisis with specific short term measures. These divergent aims threatened to make the talks less effective. At the same time, a more global UN conference on Financing for Development towards the end of November has received far less media attention. This is to include all 192 member states and is broader in scope, continuing on from the 2002 Monterrey conference. Some emerging nations such as China are now finding domestic pressures may outweigh their contributions to global resolutions. China for example is being asked by Britains Gordon Brown to provide billions from its dollar reserves to help out while China is worried about the increasing slowdown in the domestic economy and the need to stimulate its own internal markets. It has therefore poured billions into domestic stimulus packages, implying that it is not likely to provide so much money to institutions such as the IMF. Some are also wondering whether the resolve of nations such as China to support an alternative to a US dollar dominated world will really hold up China for example, has benefited from the US development model driven by consumption. It has meant more exports for China. However, now as consumer confidence in the US has been seriously rocked, China is feeling the effects. But if it can see a future where that model is revived, it would benefit. Would it want that to change Reform and Resistance Will any of these changes occur in an effective way In recent months these institutions have warmed to changes in these areas. For example, in April 2008, it was decided that rich countries at the IMF would give in 3 percent of the votes 2 percent went to emerging countries and 1 percent to other developing countries. However, this is still not that much and this crisis shows that more is needed in a more deeper and meaningful way. This will be hard to predict. If history is any indicator, power and greed politics always ruin good ideas. Those who benefit from a system are less likely to be receptive to change, or want to steer change in a direction that will be good for them, but that may not mean good for everyone. And tensions, even amongst the more powerful nations are already showing. For example, the US has not invited Spain to a financial crisis summit for mid-November. As the worlds eight largest economy and home to 2 of the worlds top 16 banks, a meeting of the G20 (G7 plus some developing nations) sees Spain (the worlds 8th largest economy) missing out of either classification. Spain, however, sees this as US retaliation for the country withdrawing its troops from Iraq. It has full EU support for being present at this meeting as well as support from a number of Latin American countries. Like France, it wants to see in-depth reform of the global financial system and focuses on IMF reform as well as giving more representation to emerging nations. The eventual outcome of the G20 meeting seemed mixed. They agreed to use government spending to fight a spreading recession, to tighten lax oversight of markets, to resist protectionism, and to revive stalled negotiations for a new global trade pact. They also agreed to meet at the end of March 2009 to follow up. Developing countries also got more assurances about increased say at international financial institutions through promises of reform at the IMF and World Bank. But others argued that the meeting outcome seemed more vague than concrete and only these principles seemed to have been agreed without anything more concrete. The call to resist protectionism has been a prime concern from the Bush Administration, sometimes (incorrectly) equating calls for regulation with protectionsim. The calls for regulation have typically been to make companies more transparent and ensure the financial mess created can be avoided in the future. Nonetheless, other regions around the world agree that generally free trade is desirable over protectionist policies. History has shown that once economies mature they benefit from less protectionist measures (but also shows that nations on early stages of development may also benefit from it). The APEC trading bloc, for example, represents almost half of all world trade. Most member states are generally industrialized, so as a group, APEC nations have agreed to resist protectionist measures . Towards the end of April 2009, however, the World Bank finds a number of leading nations are practicing protectionism, despite pledges not to do so just a few weeks earlier at a highly publicized G20 summit where they agreed to further cuts to trade barriers. This has included the US, various EU nations, Japan, South Korea, Russia, India, Argentina and Brazil. This has been done quietly, not as a public matter of policy like Krugman suggests. So despite words on how responses need to be coordinated, leading nations are attempting to look after their own interests (which can also be understandable). Reform of the IMF and World Bank, however, will be crucial for much of the world. Whether that actually happens and to what extent those with power are willing to truly share power is something that we will find out in the course of the next year. The promise of rearchitecting the global financial system more fundamentally seemed to wither away slightly. As the Bretton Woods Project noted, the G20 had little time to effect much and could not do it alone, any way: G20 governments, swept off their feet by the financial crisis, were never going to be able to reach a consensus on deeper reforms within the few weeks taken to prepare the summit. Critics argue that the G20 can never tackle this agenda alone. As Miguel DEscoto, president of the UN General Assembly said: Only full participation within a truly representative framework will restore the confidence of citizens in our governments and financial institutions. He continued, Solutions must involve all countries in a democratic process. Hardly mentioned in the mainstream media by comparison, the more democratic alternative was the Doha conference on financing for development meeting at the end of November in Doha, Qatar, held by the United Nations General Assembly. Perhaps partly because of lack of mainstream media attention, the Doha conference also resulted in weak pledges and disappointment . Rich countries resist meaningful reform Also disappointingly was the outcome of the G20 April 2009 summit in London and the The United Nations Conference on the World Financial and Economic Crisis and its Impact on Development, which concluded June 26. At the former, it was hoped leading developing countries might have voice to make the rich nations agree to meaningful measures to address the current crisis, while at the latter (the first global conference to address the global financial crisis and to look beyond), it was hoped that more meaningful and longer term measures could be entertained. Instead, (and as feared above) rich nations resisted substantive reforms demanded by developing countries . As the Bretton Woods Project summarized, the April 2009 G20 meeting in London, captured positive media attention despite failing to set out a vision for transformative economic change, and pumping more money into the IMF and World Bank without a clear plan for reforming them. The IMF received most of the boost, with a possible 500 billion in new resources and 250 billion in issuances of Special Drawing Rights (SDRs). An SDR allocation effectively means printing new money, 100 billion of which will go to emerging market and developing countries the majority will go to rich countries. Of the putative 1.1trillion, 50 billion, or less than 5 per cent, is likely to be for the 49 poorest countries in the world . The G20 communiqu says nothing new on IFI governance reform, and big increases in IMF resources have not been matched with clear commitments to end the controversial austerity policies that have so far accompanied IMF bailout packages. Changes to voting shares to give developing economies greater voice and representation are promised in general but the annex appears to backtrack on IMF reform . Critics remain concerned that lessons from the Asian financial crisis a decade ago have not been learned . where IMF conditions were blamed for worsening recessions. On banking regulation surprisingly little concrete was agreed . the London Summit was slammed for systematically excluding civil society voices. In contrast to most international gatherings there was no process for civil society organizations to accredit and attend. Of the few civil society representatives who were allowed in as media representatives, some had accreditation withdrawn at the last minute. One of these denied entrance, Benedict Southwark of UK campaigning group the World Development Movement said that this: starts to reek of the deliberate exclusion of critical voices . G20 trillion dollar magic trick. Bretton Woods Project, April 3, 2009 (Emphasis Added) The Project also provided a summary of the UN conference on the world financial and economic crisis and its impact on development. This conference was the first opportunity for all the countries of the world to discuss the crisis on an equal footing, but that equal footing gave way to power posturing: The first major conference on the financial and economic crisis to involve all countries ended with rich countries blocking substantive reforms demanded by developing countries . The UN conference did however push key issues up the international agenda, such as the need for a better system of international reserves, and for genuine policy space for developing countries. During acrimonious preparations, developing countries, who wanted substantive reforms to the global economic and financial system, battled rich northern countries who wanted to curtail the role of the conference and the UN . In the end, the final outcome document was stripped by western countries of most concrete proposals for change, but it includes language on many of the critical issues raised by developing countries, and the genesis of a follow up process that could expand the UNs role in this area. The conference produced the most honest assessment of the nature of the worst financial and economic crisis since the Great Depression yet produced by an intergovernmental forum. many developing countries spoke forcefully against IFI conditionality from the floor of the general assembly. the issue of the creation of an international reserve currency to replace the dollar is referred to, albeit in very tentative language. The theme of raising important issues but promising little new action is continued throughout the document. Governance reform is an urgent need Financial sector reform merits only a couple of paragraphs. Observant participants noticed that many of the worlds leading tax havens had sent strong delegations to the conference, so unsurprisingly there was little new on combating tax evasion and capital flight . There is little new on emergency finance or aid. Despite the warnings of many that another global debt crisis is imminent, the language is weak. The opposition of western countries to using the UN to coordinate or lead on international economic issues was expressed forcefully by the US . Our strong view is that the UN does not have the expertise or the mandate to serve as a forum for meaningful dialogue or to provide direction on issues such as reserve systems, the international financial institutions and the international financial architecture. it is clear that the richest countries of the world will continue to fight to prevent the UN from taking the lead. The US view above is interesting: it claims the UN does not have the expertise. Given this global financial crisis emanated from the US, pushed by ideologues largely from the US, it feels hollow for the US to suggest it knows better. The US also added that the UN does not have the mandate to serve as a forum for meaningful dialogue or provide direction. This clear interest and vocal involvement of so many developing countries shows otherwise, and suggests that the US (voicing the concerns of all rich nations, most likely) is saying it wants the current global system to remain unequal and undemocratic. Hazel Henderson and Jan Oberg also suggest some commonsense things that need addressing across the spectrum but have for years lacked mainstream media attention, or been ignored (especially during times of boom as it impacts the winners the most). Jan Oberg of the Swedish organization, Transnational Foundation for Peace and Future Research, notes how the global financial crisis is one of 5 major crises coming together : Economic (system breakdown) Environmental (global warming and other problems) Cultural (intolerance, clash of religions, Western cultural dominance) Political (democratic deficits everywhere, lack of hope and political interest in media and among young) Security (drug-like, ever increasing military expenditures to satisfy the Military-Industrial-Media-Academic Complex, MIMAC yielding ever less human security). Furthermore, he laments at the mainstream media reporting, in particular on these areas Never talking of militarization and war, a common cause of these major crises Rarely challenging the general communiques from world summits that follow the theme of the all-is-possible, conflict-free world where the rich wont have to make any concessions The intellectual poverty that encourages thinking along the lines of to solve the crisis, lets have more of what caused it. Forget the environment Henderson, like many others, suggest some technically simple (though politically difficult) changes, including the following: Introducing some kind of currency exchange tax. A very minimal one like the famous Tobin Tax, suggested a very long time ago, would go a long way to avoid the incredibly damaging aspects of currency speculation and financial volatility we see today. Reduce military spending (rarely is war and militarism seen as connected to economic power, and yet history shows these are inter-connected). Revisiting the money system based on debt, by, for example raising capital reserve requirements for banks and reducing leverage used by financial players. Addressing financial markets and self-regulationself-rating by, for example, regulating and making far more transparent the workings of hedge funds and other financial schemes. As also Joseph Stigliz, further above, Henderson notes that even leading governments and businesses are entertaining similar thoughts: Even the World Economic Forum in Davos in January found a consensus of both government and business leaders for such global-level agreements and standards. The UN Principles of Responsible Investment are calling for similar reforms. At last, this global financial crisis brings the opportunities discussed for decades to reform todays global casino and restore finance to its vital but limited role in facilitating real production and innovation in the worlds real economies. Although such powerful entities are finally entertaining these things, there is good reason to remain skeptical. More generally, as Vandaele also finds, The most powerful international institutions tend to have the worst democratic credentials: the power distribution among countries is more unequal, and the transparency, and hence democratic control, is worse. Yet, although history often shows that those with agendas of power tend to win out, history also shows us that power shifts. A financial crisis of this proportion may signify the beginnings of such a shift. And so, it is perhaps only at a time of crisis that more fundamental rethinking of the entire economic system can be entertained. Rethinking economics During periods of boom, people do not want to hear of criticisms of the forms of economics they benefit from, especially when it brings immense wealth and power, regardless of whether it is good for everyone or not. It may be that during periods of crisis such as now, the time comes to rethink economics in some way. Even mainstream media, usually quite supportive of the dominant neoliberal economic ideology entertains thoughts that economic policies and ideas need rethinking. Stephen Marglin, Rethinking Economics. May 21, 2007, Big Picture TV Harvard professor of economics, Stephen Marglin, for example, notes how throughout recent decades, the political spectrum and thinking on economics has narrowed, limiting the ideas and policy options available. Some have been writing for many years that while the current economic ideology is flawed, it only needs minor tweaking to correct it and make it work for everyone a more compassionate capitalism, but capitalism nonetheless. Others argue that capitalism is so flawed it needs complete doing away with. Others may yet argue that the bailouts by large government will distort the markets even more (encouraging bad practices by the big institutions) and rather than more regulation, an even freer form of capitalism is needed. As a small example, Raj Patel notes how the price of an item (fundamental to neoliberal capitalism) often doesnt capture or reflect true value. Patel argues that the markets in their current shape have created a convoluted idea of value value meals are cheap but unhealthy whereas fruit and veg are often more expensive rainforests are hardly valued whereas felling trees adds to the economy. Flawed assumptions about the underlying economic systems contributed to this problem and had been building up for a long time, the current financial crisis being one of its eventualities. But there is a recognition among the public and some politicians that todays economic crisis is a failure of free market thinking, and not a warrant for more. In response to popular outcry, politicians around the world seem ready to discuss how to regulate and restrain the market. The question is, can they, and, if they can, in whose interests will this regulation work Raj Patel, Flaw . The Value of Nothing, (Picador, 2010), p.15 What is hoped is that fruitful debate will increase in the mainstream. This will also attract ideologues of different shades, leading to both wider discussion but also more entrenched views. Those with power and money are less likely to agree to a radical change in economics where their power and influence are going to diminish, and will be able to lobby governments, produce compelling ads and do whatever it takes to maintain options that ensure they benefit. The highly regarded Hazel Henderson has written about how difficult it has been for years to get mainstream economists to think about a broader economic system that considers the environment and ethics. She goes into how many mainstream universities and economists have actively avoided these alternative thinking from as far back as the 1920s, but suggests that now may be a time for change. Drawing on the work of Karl Polanyis The Great Transformation. Raj Patel notes that What Polanyi offers is a way of understanding not only why the economy and society are part of the same set of processes, but also why we erroneously believe that market and society are separate. The culture of profit-driven markets, what Polanyi calls the myth of the self-regulating market, turns out to need society far more than it pretends tobut the myth that economy and society are two distinct realms needs to be widely propagated if the self-regulating market is to spread farther. In times of crisis, the myth becomes far easier to see through. After all, the failure of the banks could have spiraled into total economic meltdown were the public sector not there to catch it. Capitalism can no more bail itself out than it can stand on its own shoulders. The market has always depended on society, which is why the language of too big to fail simply means so big that it can depend on society to pick it up when it topples. The logic of laissez-faire always needs a social base, and this is why Polanyi does not separate the way we live into government and the free market for him, its simply market society. Raj Patel, Flaw . The Value of Nothing, (Picador, 2010), p.15 As another example, Canadian economist Jeff Rubin notes that access to oil is a crucial element of the current form of globalization because manufacturing has been moved to very distant places from where the goods are used (so transporting those goods require oil, and hence cheap oil is important to make that affordable). As oil prices increases, it threatens globalization itself. Amongst the various implications is that alternative energy sources and localization (e. g. reviving local industries that have long been in decline as a policy of globalization, regional trade, etc.) may therefore be a necessary strategy as globalization may unravel due to the inability to afford transportation of manufactured goods from far away. But those who benefit (money and power) from the current form of globalization are hardly going to agree to fundamental changes that this implies, just like that. It is perhaps ironic to quote, at length, a warning from Adam Smith, given he is held up as the leading figure of the economic ideology they promote: Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their good both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people. Merchants and master manufacturers are the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration. As during their whole lives they are engaged in plans and projects, they have frequently more acuteness of understanding than the greater part of country gentlemen. As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgment, even when given with the greatest candour (which it has not been upon every occasion) is much more to be depended upon with regard to the former of those two objects than with regard to the latter. Their superiority over the country gentleman is not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his. It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public, from a very simple but honest conviction that their interest, and not his, was the interest of the public. The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers . To widen the market may frequently be agreeable enough to the interest of the public but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it. Adam Smith, The Wealth of Nations, Book I, (Everymans Library, Sixth Printing, 1991), pp. 87-88, 231-232 (Emphasis added. Additional paragraph breaks added for readability) With the mainstream media often representing such entrenched interests, true democratic participation will be very critical. More information A lot will be written about this crisis as more will certainly unfold. Here are some starting points to read more: From the mainstream media: The above are just small examples, and they will link to yet more resources for further information.
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