A glass half full in London
Here is what's noteworthy for me in the G20 communiqué:
- An additional commitment of $500 billion to increase the IMF's lending capacity, although only half of this is an immediate commitment, while the other half is promised as part of a future "expanded and more flexible New Arrangements to Borrow"
- A new SDR allocation of $250 billion
- An endorsement of the Financial Safety Forum's (FSF) principles on pay and compensation, which aim to align compensation more closely with risk
- The expansion and renaming of the FSF as a new Financial Stability Board (FSB), with a broader mandate
- An agreement that "the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based selection process"
The last of these may mean that the era of the World Bank and the IMF being run by Americans and Europeans, respectively, is over. And good riddance too.
On the whole the summit must be counted as a victory for the Europeans, who got what they wanted: a focus on new regulations and avoidance of any hint of real coordination (or targets) on fiscal stimulus.
Read more at Dani Rodrik's Weblog
Advertisement
Thank you, Mr. Rodrik, for the timely update.
It's comforting to see that the American financial community has at last received its required slap on the wrist; now we can move on to other matters.
We Americans have been debating the "nationalization" of faulty US banks issue. The discussion, having lasted a month or so, now becomes moot. Now the FSB becomes the standard-bearer for monitoring risk/compensation responsibility. It's too bad, though, that such resolute action is a day late and a dollar short, now that the derivatives have hit the fan.
Nevertheless, 70 or 80 years from now perhaps our grandchildren will be protected because we turned to "internationalization" of high-rolling financial institutions instead of mere "nationalization." Although the international congress of that future time may circumvent the Board's oversight by repealing our present-day prudential constructs, a la Glass-Steagall.
Meanwhile, which of the FSB members will be the first to take aim at the present roundup of usual suspects, saying "The SDR stops here."
Carey Rowland, author of Glass half-Full
April 2, 2009 6:31 PM | Reply | Permalink
Talk is cheep. I'm from Missouri. I won't be satisfied until I actually see some viable proof in the form of tough regulations with some real teeth. Ones with some hard consequences.
C
April 2, 2009 7:25 PM | Reply | Permalink
Lovely, our allies in Europe are going to continue to try to get a free ride on our stimulus. Their banks are as guilty as ours, why are we paying the whole tab?
April 2, 2009 10:29 PM | Reply | Permalink
They have a social/economic safety net for their citizens. We don't, at least not much.
C
April 2, 2009 11:16 PM | Reply | Permalink
touche.
April 3, 2009 8:02 AM | Reply | Permalink
But didn't we need to come away from London with the glass more than half full?
April 3, 2009 9:03 AM | Reply | Permalink
I think US had a great PR victory and Europe had a substance victory. It's like one of these pompous non-binding resolutions that our Congress is so fond of.
Everybody was writing about the resistance Obama was going to see in London. Sarko was ready to throw a tantrum. So this communique is a great media/PR point, because it shows Obama as white knight riding to that round table in London and magically bringing people (and world leaders) together.
Amazing how a statement without any serious substance can make so many people look so good.
Merkel already told her citizens that there is no obligation to pony up for those countries that don't agree with Obama's stimulus vision.
April 3, 2009 10:51 AM | Reply | Permalink