Bracing for an unknown future

Triple Crisis Blogger Martin Khor first published the following article in The Star Online, on the need for developing nations to make a collaborative effort to learn from the current financial crisis and prepare for the next one.

There is great uncertainty about the future of the world economy and developing countries should prepare now for the next crisis, according to prominent experts at a finance seminar in Geneva last week.

THE world economy will be going through a period of uncertainty and turbulence in the next few years and the developing countries should prepare to face this challenge and avoid being overwhelmed.

Several experts gave this warning at a workshop on options for developing countries in the global financial turbulence held in Geneva on May 25.

If the lessons of the last financial crisis are not acted on through coordinated global action, there will be a bigger crisis soon, and an even bigger one after that, warned Yilmaz Akyuz, chief economist of the South Centre.

Read the full article at The Star Online.

The next managing director of the IMF

Kevin Gallagher

The Dominique Strauss-Kahn debacle has brought significant attention to the International Monetary Fund (IMF) and who might head it as next managing director.  The discussion is a vast improvement over the past, when the Europeans could simply pick their own head of the IMF, with US approval.  That said, the debate has become “who is better than Christine Lagarde?” the French Finance minister.  A handful of names have popped up, which is welcome.  Columbia University’s Joe Stiglitz has said we should just go with Lagarde, Paul Krugman has endorsed Stanley Fischer, the former MIT economist and current head of the Israeli central bank.

What is shockingly missing from these and other commentaries is a discussion regarding what a new IMF needs to do and then who is up to that task.  We know that the IMF is knee-deep in the European debt crisis with billions in commitments (whether that was the right thing to do is hardly questioned), so why don’t Stiglitz and others discuss the fact that Lagarde has been at the center of the botched bailouts there?

The IMF has made some significant steps toward reform as of late.  One key development has been their recognition that the free flow of capital is not always beneficial in terms of financial stability.  So it comes as a bit of a shock that someone like Paul Krugman would endorse Stanley Fischer.  Fischer was behind the capital account liberalization push at the IMF in the 1990s that brought down Asian governments.

The debate has brought up the valid idea that the IMF top job shouldn’t go to someone in the West given that the West it largely responsibile for the financial crisis.  The leading emerging market candidate is Augustin Carstens from Mexico.  In the following piece I argue he would be just as bad or worse than many of the advanced country picks.  His economics and record have been right out of the Fischer et al., playbook.

Read Kevin Gallagher’s full post in The Guardian, Why Agustín Carstens should not be the next head of the IMF.

Reckless Endangerment: Making Debt Owe-nership Easy

Gerald Epstein

In search of a new angle on the financial crisis, Gretchen Morgenson and Joshua Rosner’s (M&R) new book, Reckless Endangerment, seems to pin a lot of the blame on misguided do-gooders who were trying to make the dream of “home ownership” in America a reality for all. These include Bill Clinton, who they say pushed for making home ownership easy through his “National Partnership in Home Ownership” (p. 1), the Federal Reserve Bank of Boston’s researchers who did a path-breaking study of discrimination in lending, and even community organizing groups like ACORN. M&R say that ACORN and other housing groups let themselves be taken in and bought off by James A. Johnson, the CEO of Fannie Mae.

To be sure, Johnson, his successor Franklin Raines and other Fannie Mae executives, got very, very rich (Johnson pocketed more than $100 million in pay and Raines made more than $90 million, though he had to give more than $20 million back in a settlement for accounting fraud). While Johnson and Raines were making their fortunes, they were hiding under a protective cloak of pretending to make home ownership easy in America, viciously attacking their enemies while paying off their friends on both sides of the aisle.

But in spite of the authors’ desire to highlight the role of Fannie and Freddie, (the so called Government sponsored enterprises (GSEs) that helped finance home mortgages and after failing in 2008 have been taken over to the tune of 180 Billion dollars by the tax payers) what comes through clearly from the dozens of interviews and reporting in Reckless Endangerment, the real culprits were not primarily Johnson and his pals, but rather  the political establishment. These included the financial regulators, like Alan Greenspan and his subordinates at the Federal Reserve, the credit rating agencies, like Moody’s and S&P and the big bankers at Goldman, Country Wide, Citibank and elsewhere, who were dedicated to only one thing: paving their own road to riches by promoting widespread “debt owe-nership” that would lead to the ruin of millions of middle class and poor Americans.

Read the rest of this entry »

Climate Policy for Conservatives

Stephen DeCanio published the following article on the Real Climate Economics blog, a Triple Crisis partner. In it, DeCanio explains that US actions on climate change will be ineffective unless there is global action, and that addressing climate change is in the US’ national interest.

Suppose you believe, as I do, in basic conservative principles (free enterprise and a market economy, limited government, and minimal change in established institutions that work well), but also acknowledge that anthropogenic climate change presents a sufficient danger that something needs to be done about it.  The risk is that even as little as 2° Celsius (about 3.6° Fahrenheit) of warming might push one of a number of different earth systems past a tipping point that is both catastrophic and irreversible.  In other words, the problem is one of risk management, in which prudence calls for taking action before it is too late to make a mid-course correction.  What would be a conservative response to this threat? 

It is unfortunate that the climate issue has been co-opted by liberals, because conservative policy prescriptions would not be the same as those that have been put forward by the Democrats and their allies among the environmental groups.  The Waxman-Markey cap-and-trade bill that passed the House in 2010 (then died in the Senate) was a 1400-page monstrosity; it catered to special interests, placed undue burdens on people with low incomes, and had no connection to a coherent US international negotiating strategy on climate.  Just as misguided is the EPA’s intention to regulate CO2 as a pollutant by executive fiat – a scheme that also is inefficient, non-transparent, and regressive.  Virtually all economists would agree that either approach is inferior to a well-designed carbon tax or auctioned emissions permits, with revenues returned to citizens on a per capita basis or used to cut other taxes.

Read the full post at the Real Climate Economics Blog.

The IMF needs to change, whoever becomes its next chief

Triple Crisis Blogger Jayati Ghosh published this article in The Guardian, which emphasizes the need for the new IMF chief to change the institution’s approach and orientation.

European governments have quickly rallied around the candidacy of Christine Lagarde, finance minister of France, for the top job at the IMF. For obvious reasons, this is not popular in the capital cities of major developing countries playing a more important role on the world stage.

For more than 60 years now convention, rather than any written rules, has dictated that the appointment of heads of the Bretton Woods institutions has been controlled by the traditional global powers. The US has provided the chief of the World Bank and Europe has provided the head of the IMF. These “conventions” emerged and were entrenched during a period when these two broad groupings controlled the global economy, and polity.

That is much less clear today. The medium-term future of the world economy is unlikely to be scripted only by these two players. Before the emergency exit of Dominique Strauss-Kahn had rendered the choice of the next head of the IMF an urgent matter, it was common to hear voices from developed countries suggesting that the next person to be in charge could and should be someone from the developing world. There is certainly no shortage of suitable candidates with sufficient international experience and knowledge of the workings of international finance.

Read the full article at The Guardian.