The G20 in 2015: What’s the Plan?

Jesse Griffiths, Guest Blogger

Jesse Griffiths is Director of the European Network on Debt and Development (Eurodad).

Last weekend, G20 Finance Ministers met in Turkey, and although the resulting communiqué covers a whole host of issues, it is becoming clear that two areas dominate in terms of actual work planned this year: infrastructure financing and financial sector reform.

As Eurodad noted in our scorecard analysis of the G20’s work last year, infrastructure has featured prominently on the G20’s agenda, particularly its push to harness private financing for infrastructure. Actual concrete initiatives have been limited: a tiny Global Infrastructure Hub with an information sharing mandate was the underwhelming centrepiece of last year’s G20 Global Infrastructure Initiative.

However, the underlying efforts to set a new agenda for infrastructure financing continue to be significant, driven by the World Bank and the Organisation for Economic Co-operation and Development (OECD). Existing agendas include the promotion of the idea of an ‘infrastructure asset class’ for institutional investors such as pension funds to invest in – despite the fact that there is very little evidence of any appetite for this – and a push to promote public-private partnerships (PPP), with only limited recognition of their chequered history.

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Is Financial Fraud Too Complex to Prosecute?

William K. Black, Guest Blogger

This interview with William K. Black (University of Missouri-Kansas City) appeared originally at The Real News Network. Prof. Black describes why the U.S. Department of Justice has failed to prosecute executives at financial institutions that helped to detonate the recent crisis. It is not, Black argues, that the bankers were engaged in “rocket science” too complex to prosecute, but that the lack of prosecutions is “a matter of will and a matter of ideology.” His writings on this and other subjects can be read at New Economic Perspectives.

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Understanding China's Stock Market, Post-Alibaba

Sara Hsu

Recently, Chinese e-commerce giant Alibaba officially listed on the New York Stock Exchange in the United States, and not on the Shenzhen or Shanghai stock exchanges in mainland China, to the chagrin of many yield-seeking Chinese citizens. As Alibaba’s listing underscores, China’s domestic stock exchanges remain unappealing IPO destinations. Why? Excessive listing rules and procedures, coupled with inadequate supervision and a significant presence of fraud and insider trading, have rendered the Chinese stock markets a second-best choice for competitive and innovative companies. But there’s potential for it to become a more attractive option for companies like Alibaba.

China’s stock market is the third largest in the world by market capitalization, weighing in at $3.7 trillion in 2013. However, despite recent reform proposals for a streamlined registration-based listing system that would allow companies that meet criteria for making a public offering (instead of the current system in which the China Securities Regulatory Commission approves IPOs), China’s stock market remains one of the poorest-performing in the world. This can be seen in the MSCI Index, calculated by Morgan Stanley, and even in the Shanghai Composite Index.

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Understanding China’s Stock Market, Post-Alibaba

Sara Hsu

Recently, Chinese e-commerce giant Alibaba officially listed on the New York Stock Exchange in the United States, and not on the Shenzhen or Shanghai stock exchanges in mainland China, to the chagrin of many yield-seeking Chinese citizens. As Alibaba’s listing underscores, China’s domestic stock exchanges remain unappealing IPO destinations. Why? Excessive listing rules and procedures, coupled with inadequate supervision and a significant presence of fraud and insider trading, have rendered the Chinese stock markets a second-best choice for competitive and innovative companies. But there’s potential for it to become a more attractive option for companies like Alibaba.

China’s stock market is the third largest in the world by market capitalization, weighing in at $3.7 trillion in 2013. However, despite recent reform proposals for a streamlined registration-based listing system that would allow companies that meet criteria for making a public offering (instead of the current system in which the China Securities Regulatory Commission approves IPOs), China’s stock market remains one of the poorest-performing in the world. This can be seen in the MSCI Index, calculated by Morgan Stanley, and even in the Shanghai Composite Index.

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G20 Finance Ministers Cannot Hide Failure to Tackle Major Issues

By Jesse Griffiths, Guest Blogger

Jesse Griffiths is the director of Eurodad, European Network on Debt and Development.

The communiqué from this weekend’s G20 finance ministers’ meeting in Cairns tried to paper over increasingly evident cracks in the global economy, trumpeted an OECD initiative to reduce tax dodging which is not as good as it seems, continued to focus on privately funded infrastructure, and suggested G20 impotence in tackling big problems including too-big-to-fail banks and global governance reform.

The global economy: fragile and faltering

The G20 cannot hide the continued high levels of fragility, huge unemployment, and glaring inequality that continue to characterise the global economic situation. The finance ministers’ communiqué notes that, “the global economy still faces persistent weaknesses in demand, and supply side constraints hamper growth.” Recent reports that companies are buying their own stocks at record rates, helping stock market bubbles build rather than investing for future growth, is one reason the ministers “are mindful of the potential for a build-up of excessive risk in financial markets,” though they promise no new measures to tackle this.

Instead, their response has been to trumpet the promise they made in Sydney earlier in the year to “develop new measures that aim to lift our collective GDP by more than 2 per cent by 2018.” They get the seal of approval from the IMF and OECD’s “preliminary analysis, ” which, at three pages long, has so little detail it is impossible to assess its accuracy. Interestingly, according to the crystal ball gazing that inevitably characterises such attempts to assess global impacts of national policy changes, “product market reforms aimed at increasing productivity are the largest contributor to raising GDP,” which appears to largely mean changes in trade policies in emerging markets. The next biggest impact comes from public infrastructure investment commitments – highlighting the problems with the G20’s focus on private investments in infrastructure, discussed below.

Brief reference is made to the problem that dominated the G20 Finance Ministers’ meeting in February: developing countries’ concern about how the gradual ending of quantitative easing and possible future rises in interest rates in the developed world will affect capital inflows and outflows, which can create huge problems for them. The rich countries that dominate the G20 cannot offer more than the promise to be “mindful of the impacts on the global economy as [monetary] policy settings are recalibrated.”

Despite the fact that Argentina – currently fighting a rearguard action to prevent a US court ruling from undermining a decade of debt restructuring – has a seat on the G20, the issue of permanent mechanisms to deal with debt crises continues to be off the table. Instead it was picked up by the UN, which passed a resolution in September to negotiate a “multilateral legal framework for sovereign debt restructuring,” which could be a game changer for how sovereign debts are managed, offering the possibility of preventing and resolving debt crises: a consistent plague for many countries and a huge problem for the global economy.

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New Climate Bill Would “Shrink Government,” Reward Taxpayers

James K. Boyce

Regular Triple Crisis contributor James K. Boyce, director of the Program on Development, Peacebuilding, and the Environment at the Political Economy Research Institute (PERI) and Professor of Economics at the University of Massachusetts-Amherst, addresses a new “cap-and-dividend” climate bill before the United States congress. This interview originally appeared at The Real News Network. Prof. Boyce’s detailed views on climate policy appeared earlier, in five parts, on Triple Crisis and its sister publication Dollars & Sense. It is available in full here.

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New Climate Bill Would "Shrink Government," Reward Taxpayers

James K. Boyce

Regular Triple Crisis contributor James K. Boyce, director of the Program on Development, Peacebuilding, and the Environment at the Political Economy Research Institute (PERI) and Professor of Economics at the University of Massachusetts-Amherst, addresses a new “cap-and-dividend” climate bill before the United States congress. This interview originally appeared at The Real News Network. Prof. Boyce’s detailed views on climate policy appeared earlier, in five parts, on Triple Crisis and its sister publication Dollars & Sense. It is available in full here.

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U.S. Financial Reform Law Still Not Fully Implemented

Anton Woronczuk of The Real News Network interviews regular Triple Crisis contributor Gerald Epstein, co-director of the Political Economy Research Institute (PERI) and professor of economics at the University of Massachusetts. Epstein argues that, on the fourth anniversary of the passage of the Dodd-Frank financial reform law, which was intended to rein in certain kinds of risky financial practices, implementation is going “much more slowly than one would have hoped.” The United States will need both a more complete implementation of Dodd-Frank and more far reaching regulation, Epstein concludes, to prevent the kinds of financial risk-taking that detonated the global economic crisis.

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Financial Interconnectedness and Systemic Risk: The Fed’s FR Y-15

Nikhil Rao, Juan Montecino, and Gerald Epstein

At the onset of the global financial crisis, many financial institutions that engaged in risky practices were on the verge of bankruptcy as the housing market crashed. Top regulators soon discovered that shocks suffered by large banks spread quickly throughout the financial system and then to the whole economy. Those large firms, colloquially dubbed “too big to fail,” were also highly interconnected. Jane D’Arista, James Crotty, and a few other economists had identified these inter-connections, but most economists and policy makers had remained clueless.

As the crisis worsened, Fed Chairman Ben Bernanke, New York Fed President Timothy Geithner and others tried to come to grips with what was happening. They started referring to Citibank, Bank of America, Goldman Sachs and other banks as “systemically important,” though former regulator Bill Black more aptly referred to them as “systemically dangerous”. A systemically important/dangerous institution is one that is so large and well-connected to other firms that shocks it suffers are transmitted to many other participants in that system. When these systemically important firms were failing, taxpayers bore the brunt of the impact as the government was compelled to inject massive amounts of taxpayer funds, or face massive economic losses, damages, and inefficiencies. This, of course, gave rise to the now well-known problem of moral hazard, where actors that do not directly bear the costs of risks are incentivized to pile on more risk. Taking into account the potential effects of systemically important firms, it is easy to understand why they can be closely associated with institutions that are “too big to fail.”

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Financial Interconnectedness and Systemic Risk: The Fed's FR Y-15

Nikhil Rao, Juan Montecino, and Gerald Epstein

At the onset of the global financial crisis, many financial institutions that engaged in risky practices were on the verge of bankruptcy as the housing market crashed. Top regulators soon discovered that shocks suffered by large banks spread quickly throughout the financial system and then to the whole economy. Those large firms, colloquially dubbed “too big to fail,” were also highly interconnected. Jane D’Arista, James Crotty, and a few other economists had identified these inter-connections, but most economists and policy makers had remained clueless.

As the crisis worsened, Fed Chairman Ben Bernanke, New York Fed President Timothy Geithner and others tried to come to grips with what was happening. They started referring to Citibank, Bank of America, Goldman Sachs and other banks as “systemically important,” though former regulator Bill Black more aptly referred to them as “systemically dangerous”. A systemically important/dangerous institution is one that is so large and well-connected to other firms that shocks it suffers are transmitted to many other participants in that system. When these systemically important firms were failing, taxpayers bore the brunt of the impact as the government was compelled to inject massive amounts of taxpayer funds, or face massive economic losses, damages, and inefficiencies. This, of course, gave rise to the now well-known problem of moral hazard, where actors that do not directly bear the costs of risks are incentivized to pile on more risk. Taking into account the potential effects of systemically important firms, it is easy to understand why they can be closely associated with institutions that are “too big to fail.”

Read the rest of this entry »