Simon Johnson, professor at MIT's Sloan School of Management, senior fellow at the Peterson Institute for International Economics, and co-founder of BaselineScenario.com, argues that the G20 this week offers unique and valuable opportunities to bring about significant financial reform on a global scale, but that the proposals currently on the table will not change much of anything. Check out the latest on TNRtv: Teixeira: Americans Want Baucuscare Bersin: We Will Not Even Consider Legalizing Drugs Chait/Foer: Why the GOP Has Gone Loony
According to the WSJ this morning (top of p.A1), the U.S. is pushing hard for the G20 to adopt and implement a “Framework for Sustainable and Balanced Growth,” which would amount to the U.S.
Ben Bernanke has a great opportunity to lead the reform of our financial system. His standing in Washington and on Wall Street is at an all-time high, as a result of his bailout/rescue efforts. He is about to be reappointed with acclaim for a second term as chairman of the Federal Reserve’s Board of Governors. And he has a lot to answer for. Look, for example, at his speech of May 17, 2007, which discusses some of the problems in the subprime market and contains the memorable line: “Importantly, we see no serious broader spillover to banks or thift institutions from problems in the subprime ma
President Obama’s speech yesterday was disappointing. As a diagnosis of the problems that let us into financial crisis, it was his clearest and best effort so far. He didn’t say it was a rare accident for which no one is to blame; rather he placed the blame squarely on the structure, incentives, and actions of Wall Street. But then he said: Our regulatory reforms will fix that. This is hard to believe. And even the president seems to have his doubts, because he added a plea that--in the meantime--the financial sector should behave better. The audience was composed of our financial elite, but
Financial markets have stabilized--people believe that the U.S. and West European governments will not allow big financial institutions to fail. We have effectively nationalized any banking system losses, but we’ll let bank executives enjoy the full benefits of the upside. How much shareholders participate remains to be seen; there will be no effective reining in of insider compensation (my version; Joe Nocera’s view). Small and medium-sized banks, however, will continue to fail as problems in commercial real estate continue to mount.
As we wade through a long line of international economic meetings--G20 ministers of finance last week, G20 heads of government in Pittsburgh coming up, IMF-World Bank governors meeting in Istanbul early October (and all the associated “deputies” meetings, where the real work goes on)--it seems fair to ask: Where is regulatory reform of our financial system heading? Long documents have been produced and official websites have become more organized. Statements of principle have been made. And the melodrama of rival reform proposals has reared its head: continental Europeans for controlling pay
As the Lehman anniversary approaches, defenders of the financial sector struggle into position--partly in response to your comments (also here). They offer three main points: We need finance to make the economy work. Financial innovation delivers value, although it’s not perfect (but what is?). Don’t kill the goose that laid the golden egg. Point #1 is correct, but this does not necessarily mean we need finance as currently organized. The financial sector worked fine in the past, with regard to supporting innovation and sustaining growth. Show me the evidence that changes in our financial str