Over the last thirty years there has been a significant change in the role of public banks. Neoliberal policies suggested that central banks should be independent of the Treasury, and should concentrate their efforts on inflation targeting. Further, development banks, where they existed, were discouraged as tools for industrial policy, that is, they were precluded from providing subsidized credit for specific economic sectors. On the other hand, the tendency was to use development banks as instruments of the process of privatization, providing credit for mergers and acquisitions. Finally, the international financial institutions (e.g. IMF, World Bank, etc.) were used to spearhead the process of liberalization, and credit was only available to those that adopted the neoliberal policies.
U.S. Financial Reform: The roots of the problem go deeper
Robert Wade, guest blogger
What should we make of the financial reform laid out in the Congress’ bill? The approach is based on the assumption that the financial system is basically sound but needs “more government” in the form of more regulation — as distinct from structural change (for example, to downsize very large banks or to separate deposit-taking banks from investment banks). The Democrat who shepherded the legislation through the Senate, Christopher Dodd, said that improving regulation made more sense than restraining an industry that was critical to the American economy and that faced fierce competition from foreign banks which would not be placed under similar restrictions.
The Greek Tragedy and the Political Roots of Fiscal Crisis
The economic crisis in Greece, which has roiled all of Europe, has been presented by the mainstream media as arising from the mismanagement of economic resources. In fact, the real roots of the crisis and others like it are in the malfunctioning of political institutions.
Politics, according to the famous formulation of Harold Lasswell, is about who gets what, when and how. Although all political institutions produce an answer to these questions, well-functioning ones must produce answers that are, at a minimum, not manifestly irrational (for instance, in the sense that they are worse for nearly everyone than those which some alternative would have brought about) nor manifestly unjust (for instance, in the sense that they systematically favor the already advantaged over the already disadvantaged). However, many political institutions fail to satisfy one or both of these criteria.
Stop Gambling on Hunger
The US Senate is currently debating an important financial reform bill that has the potential to rein in excessive speculation in commodities. That speculation drives up the price of food all around the world, and helped contribute to the food crisis in 2008. Some Wall Street lobbyists are working to weaken the bill, but its important for global food security that they aren’t successful. To learn more visit StopGamblingonHunger.com and watch my videos on the subject:
Seeing Development: India in the Latin American Mirror
China and India are often seen around the world as examples of successful developing strategies that should be emulated by other developing countries. They are also often lumped together with Brazil and Russia, as part of the BRICs, the group of countries that would overtake the developed world by mid-century. Brazil and Russia, however, are to great extent commodity exporters, and the Brazilian success story has been over-hyped.
The case of India is of particular interest for developing countries, since it suggests that high rates of growth are possible, in the context of a multicultural, multiethnic, democratic society. Also, India seems to provide an alternative model in terms of the pattern of structural transformation of the productive sector, with a pronounced acceleration in the growth of the service sector in an early stage of the industrialization process. The growth in services is, in part, associated with the expansion of services exports, which, in turn, are related to the offshoring process.
Big Finance and the Greek Drama
The Financial Times reports that banks in Europe have appealed to the European Central Bank to become a “buyer of last resort” of eurozone government bonds, to prevent another financial crisis. Though the European Central Bank (ECB) is yet to take a decision on the matter, the option has not been ruled out. The ECB is also planning on launching a loan facility which will offer funds to the tune of €600 billion to banks at a one per cent rate of interest to tide over the current funds crunch.
Global Financial Crisis: Hardest on the Least Developed
The recent global economic crisis has been unprecedented since the great depression of 1929-32. The low-income countries have been affected by the crisis severely, particularly because of their low capacity to take external shocks. The commodity boom of 2003-08 allowed increases in national savings, investment and the acceleration of GDP and market value added (MVA) of low-income countries. Nevertheless, it was followed by a “bust” with detrimental impact on their long-term industrialization and development. Food and fuel importing countries, in particular, suffered from both the “boom” and the “bust”; the emergence of the financial crisis took place at the time they were facing high international prices of food and petroleum. In other words, they faced three ‘F’(food, fuel, financial) crises.
As a result of the global economic crisis, the prices of non-oil primary commodities and petroleum fell, from the peak to the trough, by over 36 per cent and 68 per cent, respectively. Nevertheless, food prices did not fall as much as the prices of other commodities and have picked up faster than other commodities after they reached their trough in December 2008.
Going Beyond Immigration Policy
Democratic Party leaders recently introduced their latest proposal to reform U.S. immigration policy. The proposal, which is given little chance of passage in a polarized election year, offers carrots and sticks in an attempt to bring some semblance of order to a broken and outdated policy that has left nearly 12 million people in the United States without legal documents.
The carrots are few and shriveled: an arduous path to U.S. citizenship for those already in the country. The sticks are large: a further crackdown on border enforcement and increased policing to catch and punish those without papers. No combination of carrots and sticks will address the immigration issue unless reform efforts also take up the agricultural, trade, and labor policies that feed migration.
Defending the Indefensible: Behind the Alleged Financial Fraud at Goldman Sachs
Goldman Sachs’ arrogant public response to the Securities & Exchange Commission accusation of fraud is another example of self-righteous overconfidence on Wall Street. Not that the SEC suit will be won by the government. In fact, that’s partly what’s given Goldman its chutzpah. Odds are pretty high the investment bank will prevail in court. Whether it told investors that the hedge fund manager John Paulson shorted the portfolio of mortgage bonds in which they invested—or synthetically invested, so to speak — may be beside the point legally.
What is not defensible ethically or economically were the ratings on the collateralized debt obligation (CDO) itself — the structured investments that Goldman repeatedly sold, and the likes of which Merrill Lynch and Citigroup sold more of.