Deep Currents

As we concluded in our scenarios for the financial crisis earlier this year (available in the latest GBN Bulletin), and as the rest of the world has by now figured out, what we need in the way of a solution is a new Bretton Woods-style power arrangement that will provide a new set of global financial institutions. Ideally, these should be capable of arresting the current panic and regulating international finance, much as the IMF and World Bank have done since World War II.

Many were hoping that the G-20 summit this weekend would have that effect. But it would appear that there has not been nearly enough pain for the national representatives to come to the table willing to overturn the status quo:

More than eight weeks after the collapse of the US investment bank Lehman Brothers, it is clear that prospects for profound and global financial reform are quite limited. In order to defend Wall Street’s supremacy, the United States wants to remain the dominant force on the capital markets. The Europeans are deeply divided, once again. And even rapidly developing countries like China and India are only moderately interested in extensive restructuring efforts.

Indeed, it already seems clear that the new financial order will end up looking suspiciously like the existing one. A wave of new government interventions will be just as unlikely as the formation of additional international super-agencies in the mold of a global central bank. Furthermore, US President-elect Barack Obama will not be at the meeting, making it impossible to gauge the extent to which he might support reforms. It seems clear, however, that he will do what he can to defend the interests of the American financial industry.

Written: November 12th, 2008