Tuesday, November 18, 2008

Bretton Woods II and International finacial Regulation

Martin Wolf argues that agreeing on a new Bretton Woods is vital. Indeed, "The Great Depression of the 1930s was accompanied – and aggravated – by failures of economic co-operation, disintegration of the global economy and resurgent nationalism"; and cooperation is necessary now. Indeed Carmen Reinhart and Kenneth Rogoff argue that political interference played a major role in the curretn financial crisis and that "the need for greater regulatory independence is a compelling reason for establishing an international financial regulator."

6 comments:

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Rafe A. Schaefer said...

Martin Wolf, in his column on the creation of a new Bretton Woods, likens the problem of the fall of the first Bretton Woods, the inadequacy of the IMF and the holding of reserve currencies by foreign countries to the problems that can be loosed when a genie is rubbed from his bottle. I believe he makes two questionable statements in this article that may hinder his ultimate conclusion.

First, the comment that the IMF and Bretton Woods would help prevent catastrophes among markets, I believe, is unfounded. The current credit crisis began in the United States, a country with an extensive Federal Reserve Bank willing to provide money as a lender of last resort. Further, the current credit crisis was created by the overexpansion of credit propagated by two government subsidized entities whose sole purpose was to buy mortgages and sell mortgage backed securities. To say that the creation of an international entity designed to promote the same ideals sounds a tad foolish to me.

Second, Wolf's quote of Keynes that, " sound banker, alas, is not one who foresees danger and avoids it, but one who, when he’s ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him," certainly falls in line with the modus operandi of the financial bail-out plan. Ayn Rand and Milton Friedman are surely turning over in their graves!

Weston D. said...

How would this be any different from the first Bretton Woods. I don't think the IMF and Bretton Woods would help prevent the problems with the market because this whole current credit crisis began here. Having a Federal Reserve Bank willing to provide money still has not helped. This all started by two government subsidized entities whose sole purpose was to buy mortgages and sell mortgage backed securities.

T. Rowland said...

I liked how Wulf pointed fingers at the policitians and overly optimistic ratings agencies. Ratings agencies are no more than a gut feeling of what the market is to do, go up or down. They try to be overly optimistic as to keep business up but it does no good for their clients. Granted they do use financial ratios and other complex instuments but it still boils down to a gut instinct. As for the politicians, until lobbyists are restricted, we will not get away from these crisis. Instead of thinking in tunnel vision and how can I better the whole country and every industry, our politicians are lobbyied to support certain businesses or they will stop funding the politicians campaigns. With too much politics involved, its hard to put into office people who will make sound judgements for everyone, not just corporations (especially those who donote heavily to politicians).

Gentz said...

For our sake, let us hope that Bretton Woods II is a success. I know that living through another Great Depression is not what I have in mind as fun!

It is crazy to see China’s exchange reserves. If the world looked only to country reserves to figure out which country the world currency should be set to, America would not be that country. I think US politicians should began to start to lower our deficit before other countries realize how leveraged we are!

Nathan Read said...

Martin Wolf is stating the obvious to say that surpluses in reserve currencies held by other countries has had substantial impact in our current recession. What is not clear is how a new Bretton Woods would make anything better, or even different. Keynes was worried about the U.S. surpluses, and now it is the surpluses of China we are concerned about. Who is to say, even with a new Bretton Woods, fifty years from now we will not be worried about another country's reserves? The G20 meeting is critical and the leaders should pull together to try and fix this global crisis. But was the system inherently flawed to the extent that we must completely restructure it? That, I am not convinced of.